LOBBYING AS A CIVIC RIGHT FOR NON-PROFIT ORGANIZATIONS

BACKGROUND

Advantages of Not-for-profit Tax-exempt Organizations

We all pay taxes, individual citizens pay taxes. Corporate citizens, pay taxes unless they are organized as a charitable nonprofit 501(c)(3).

Presumably, in an effort to encourage citizens to organize and support private charitable activities, our Founding Fathers, as a matter of policy, passed laws to permit the establishment of tax-exempt charities.

Today organizations that wish to be considered as a nonprofit, tax-exempt, "charitable, educational or scientific organization" apply to the Internal Revenue Service to become incorporated as 501(c)(3)s are fine arts museums, symphony orchestras, teaching hospitals, neighborhood health centers, social service providers, colleges and universities, social and fraternal organizations, consumer protection organizations, civic associations, community development corporations, environmental and conservation groups, and neighborhood improvement associations, among others.

Organizations approved by the IRS as nonprofit, charitable organizations have no federal income tax obligation. Tax-exempt nonprofits can also use lower bulk rates at the post office and in most states, are also exempt from state and local sales and property taxes.

Aside from the tax and bulk mail implications, the chief reason organizations choose to be incorporated as nonprofits is because of the fundraising implications - any contributions to them will be tax deductible, allowing individual donors to reduce their taxable income by the amount of their contribution. Even more important to most non-profits, most foundations and many other private, corporate, and public funders limit their grant making to 501(c)(3) organizations.

In return for the favorable tax treatment of nonprofits, Congress has set some obligations and restrictions on 501(c)(3) tax-exempt organizations. They include limitations on their participation in elections, limitations on the amount of organizational resources that can be devoted to lobbying to influence legislation, and limitations on engaging in voter registration activities.

Lobbying Changes in Massachusetts

January- March 2009. Governor Deval Patrick filed ethics and lobbying reform legislation before the House of Representatives. The legislation proposal was the result of months of research, discussion, and a public hearing put together by the Task Force on Public Integrity. The House of Representatives passed the bill with minor changes, saying reform was necessary to restore public trust in state government. Governor Patrick urged the Senate to include his proposals, strengthening the gratuities law and to permit recorded conversations in corruption investigations.

May 2009. Secretary of State William F. Galvin launched a new user-friendly Lobbyist Registration and Reporting System and Lobbyist Public Search in the Secretary of State's office making it easier to track the activities of lobbyists in Massachusetts. In order to clarify the changes for nonprofit organizations, Pam Wilmot, Executive Director of Common Cause Massachusetts released the memo, Changes in the Lobbying Law - What Nonprofits Need to Know.

Federal IRS Rules on Lobbying as Nonprofits

The Internal Revenue Service defines lobbying in considerable detail in almost 100 pages of federal regulations in almost plain English, including the definition of what is and what is not "grassroots" lobbying. The most important thing to remember in the definition is that lobbying is defined as influencing the legislative branch's process of producing legislation. Influencing or participating in the administrative branch's process of producing administrative policy does not count as lobbying to the IRS.  

What is not considered lobbying?

  • Non partisan analysis or research reports or publications
  • Public discussions or examinations of broad social and economic problems
  • Response to a written request for information from a public policy maker  
  • “Self Defense” Communications

Constitutional Right to Lobby

Amendment 1 - Freedom of Religion, Press, Expression. [Ratified 12/15/1791]

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Based on the first amendment, lobbying is a civic right protected by the US Constitution. Other federal or state laws or judiciary decisions might shape the way this amendment should be interpreted and enforced by the different authorities across the country.

Lobbying Limitations

Expenditures

Under IRS rules 501c3 organizations are allowed to spend time staff time lobbying for a specific bill, or budget item. The time spent (on an hourly basis) is limited to roughly 5% of the organizations total budget, and must be reported on the organizations annual 990.

IRS gives 501((3) organizations the choice of two standards by which their compliance will be measured.

One standard is called the insubstantial part test, and it requires that no substantial part of a charity's activities be devoted to influencing legislation. (Again we mean legislation-meaning influencing legislators who are considering passing a law.)

The other standard is known as the Section 501(h) expenditure test, which sets specific dollar limits on a charity's activities devoted to influencing legislation. This is calculated as a percentage of a charity's total exempt purpose expenditure - for example, 20% of the first $500,000 and 15% of the next $500,000 and so on. (Again, we mean legislation-meaning influencing legislators who are considering passing a law.)

The experts in the non profit world recommend that non-profits choose to elect the Section 501(h) expenditure test, because of the ease and unambiguity of the record keeping and reporting. The two publications listed below are extremely helpful in helping non-lawyer managers understand how to set up and keep a bookkeeping system to record official lobbying expenditures.

    Fundraising and Private Foundations

    There is a general IRS rule that private foundations may not spend a dime on lobbying, and if they do, they will be subject to a penalty tax on their existing donated trust funds. This would not only diminish their trust funds but also certainly discourage any additional donors.

    Private foundations have understandably always been cautious about giving to charities with a history of advocacy, never mind lobbying. A major education effort during a 1995 debate in Congress on lobbying by nonprofits and new IRS regulations has loosened things up a bit.

    The new IRS regulations make it clear that private foundations may make a general support grant to a "lobbying" nonprofit charity as long as it is not earmarked for lobbying. They may also make a specific project grant when the grantee provides the foundation with projections of both the lobbying and non lobbying budgets with regard to the specific project.  

    GET INVOLVED

    ONE Massachusetts is currently developing presentations and trainings in English and Spanish on:

    1. Effective Use of the Secretary of State's new information and tracking system for your advocacy research
    2. Exercising your nonprofit organization's advocacy rights and complying with the new lobbying reform law.

    Please contact us at carmen@realclout.org if you or your group would like us to come to your organization to give one of these presentations. We will keep updating this page as more information comes available.

    ADDITIONAL RESOURCES