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501(c)(3) Organizations
And Political Activities

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Lobbying is an important form of advocacy that can help your organization further it’s mission. Most nonprofits exist to make the world a better and fairer place. Most nonprofits are designed to help a particular constituency group or community and lobbying can help further your goal of supporting your particular group. However, there are a few legal compliance issues, mandated by the federal government, that nonprofits need to be aware of as they begin to advocate for their constituents. Federal regulation sets specific limits on the amount of money a nonprofit can spend on lobbying. Promoting your organization is important and can be done legally by following a few rules. It is important to note that there may also be applicable state law. If you plan on participating in a substantial amount of lobbying activities it may be in your best interest to also consult a local non-profit law attorney.

Introduction to Lobbying

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Lobbying is defined as the attempt to influence the passage, defeat, introduction, or amendment of legislation, including bills introduced by a federal, state, or local legislative body, bond issues, referenda, constitutional amendments, and senate confirmation votes on Executive branch nominees. Lobbying includes direct attempts to convince a legislator to act in a certain way in regard to legislation or a “call to action” to members of the community or your organization in support of a specific piece of legislation or pending regulation.

It is also important to distinguish between two distinct types of lobbying:

1. Grassroots Lobbying: refers to an attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof. A grassroots lobbying communication is one which (1) refers to specific legislation; (2) reflects a view on that legislation; and (3) encourages the recipient to take certain action with respect to the legislation. This is often referred to as a “call to action.”

2. Direct Lobbying: refers to the attempt to influence any legislation through communication with a legislator, an employee of a legislative body or other government official, which: (1) refers to specific legislation; and (2) reflects a view on such legislation.

Understanding these two definitions is key to ensuring compliance with federal laws governing lobbying for 501(c)(3) organizations.

Advocacy is distinct from lobbying. Advocacy can be done without lobbying, but lobbying can never be done without advocacy. Lobbying includes attempts to influence legislation while advocacy includes a range of activities that seek to bring about systemic social change. Advocacy often seeks to address the root causes as well as the symptoms of social and economic problems. Actions could include community organizing, public policy, and lobbying litigation, or nonpartisan voter engagement.

Its worth noting right off the bat, that most federal, and some private grants prohibit lobbying with grant money. If you have questions about how you can and cannot use your grant money, please consult your attorney.

Nonprofits are also prohibited from supporting political candidates and retain their tax status. IRS code prohibits campaign contributions, public statements, directly or indirectly intervening in political campaigns. However, non-partisan advocacy IS permitted and does not qualify as political campaigning and can be done without risking an organizations tax-exempt status.

Federal Restrictions

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Federal tax laws allow every charitable nonprofit organization to engage in some lobbying. The obvious question is how much lobbying is permissible. All nonprofits may freely engage in lobbying as long as the activity amounts to only an “insubstantial” amount of their activities. The IRS has not provided a definition of “insubstantial.” The line between “insubstantial” and “substantial” is hazy. The IRS will retroactively weigh the facts and circumstances of each situation. Consequently, all nonprofits that engage in lobbying activities should consider taking the 501(h) election in order opt out of the vague “substantial activity test” and use the friendlier “expenditure test.”

Substantial Part Test: Application

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If your organization chooses not to take the 501(h) election, you will need to comply with the “substantial part test.” To determine whether you have engaged in a “substantial” amount of lobbying, the IRS will consider, amongst other things,

1. Percent of funds spent on lobbying

2. Frequency of lobbying activities

3. Importance the charity places on the lobbying activities

4. Time and effort spent on lobbying

5. Success in actually influencing legislation

There are harsh penalties for excessive lobbying and organizations that violate the “substantial part test” are at risk of losing their tax-exempt status. Furthermore, charity managers may be subject to a penalty of 5% of the lobbying expenditures. There are some examples that attorneys will look to in order to determine whether an organization that has not made the election is in compliance with federal regulation. However, the total amount of allowable lobbying expenditures will vary significantly based on the particular organization’s facts and circumstances. If you plan on lobbying without making the 501(h) election, consult your attorney.

Substantial Part Test: Example

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The following case provides a detailed example of the “Substantial Part Test” in action.

Christian Echoes National Ministry, Inc. v. United States

The mission of Christian Echoes was to “battle against Communism, socialism and political liberalism, all of which are considered arch enemies of the Christian faith.” They claimed to support “Christian conservative statesmen” without regard to party political labels. They published a monthly anti-Communism magazine, Christian Crusade, a weekly “intelligence report,” weekly Crusader, and a newspaper column, “For and Against.” Christian Echoes also distributed pamphlets, leaflets and broadcast reprints on aspects of anti-Communism activity, distributed tapes and records of selected broadcasts, and conducted an annual anti-Communist leadership school whose goal is to answer the question “What can my community do to stem the forces of liberalism and thus stop the growth of socialism and communism.”

From 1961 through 1966 its gross receipts ranged from about $677,000 to $1,000,000 per year and spent approximately 52% of this income on radio, television, publications and postage. The IRS revoked the tax-exempt status on three grounds. One of which, was the claim that Christian Echoes had engaged in substantial activity aimed at influencing legislation. The District Court reversed, holding that no substantial part of its activities had been devoted to attempts to influence legislation or intervene in political campaigns.

On appeal, the 10thCircuit found that the IRS conclusion was justified. The 10th circuit then reversed the finding of the District Court, thus reinstating the revocation of the ministries tax exempt status. The 10th Circuit cited 22 articles written by the ministry that seemed to be targeting legislation by influencing the public “to react to certain issues.” The 10th Circuit went on to find that “the political activities of an organization must be balanced in the context of the objectives and circumstances of the organization to determine whether a substantial part of its activities was to influence or attempt to influence legislation.

It is important to note that the 10thcircuit found that the “facts developed on audit were materially different from the facts disclosed in the taxpayer’s original exemption application. It did not refer specifically to Christian Echoes’ substantial involvement in activities aimed at influencing legislation.”

Conclusion: Even religious organizations can lose their tax-exempt status if they deviate from the stated purposes in their exemption application. It is important to make sure you are adhering to the content in the original application or you risk losing your tax-exempt status.