Political and lobbying activities of 501(c)(3) 501(c)(4) and 501(c)(6)

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Presentation from Robert Womble with K&L Gates

Presentation from Robert Womble with K&L Gates

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  • 1. Political and Lobbying Activities of IRC §501(c)(3), §501(c)(4), and §501(c)(6) Exempt Organizations Robert B. Womble © Copyright 2013 by K&L Gates LLP. All rights reserved.
  • 2. POLITICAL CAMPAIGN ACTIVITIES
  • 3. WHAT IS "POLITICAL CAMPAIGN" ACTIVITY?  Participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office  Campaign  Public office  Candidate  Political figures  Undeclared candidates  Declared candidates klgates.com 3
  • 4. WHAT IS "POLITICAL CAMPAIGN" ACTIVITY?  Participation or intervention in political campaigns  Position papers  Mixed use materials  Voter education activities  Public forums  Voter guides klgates.com 4
  • 5. LOBBYING ACTIVITIES
  • 6. WHAT IS "LOBBYING?"  Attempts to influence legislation  Whether or not introduced  Includes ballot initiatives  Includes confirmation hearings  Most attempts to influence executive action are not lobbying  But direct communications with “covered” executive branch officials constitute lobbying  Lobbying includes “grass roots” efforts  Urging members of the general public to contact legislators klgates.com 6
  • 7. WHAT IS "LOBBYING?"  Bona fide educational efforts do not constitute “lobbying”  Lobbying includes research, preparation, planning, and coordination, including deciding whether to make a lobbying communication  Nonpartisan analysis, study, or research may constitute “lobbying” where the research is subsequently used in an attempt to influence legislation klgates.com 7
  • 8. IRC §501(c)(3) ORGANIZATIONS
  • 9. IRC §501(C)(3) ORGANIZATIONS  These are charitable, religious, educational, and scientific organizations  Absolute prohibition on “political campaign” activities  May engage in “political” activities, so long as they are “substantially related” to the organization’s exempt purpose and are not the organization’s “primary objective”  IRC §527(f) tax on expenditures for “political” activities klgates.com 9
  • 10. IRC §501(C)(3) ORGANIZATIONS  A “substantial part” of their activities may not constitute “lobbying” activities  Expenditures  Time (both compensated and volunteer time)  In the alternative, an organization may elect to use the IRC §501(h) “expenditure” test  An IRC §4912 excise tax on lobbying expenditures on the organization and the organization managers, where exempt status is lost due to excessive lobbying klgates.com 10
  • 11. IRC §501(c)(4) ORGANIZATIONS
  • 12. IRC §501(C)(4) ORGANIZATIONS  These are civic leagues operated exclusively for the “promotion of social welfare”  Similar to IRC §501(c)(3) organizations, but no charitable contribution deduction  “Political campaign” activities do not constitute the “promotion of social welfare  Despite the “exclusively” requirement, the Treasury Regulations allow IRC §501(c)(4) to conduct “political campaign” activities so long as they do not constitute the “primary” activities of the organization klgates.com 12
  • 13. IRC §501(C)(4) ORGANIZATIONS  IRS rulings indicate that an IRC §501(c)(4) organization’s “primary” activities will be determined by taking into account “all facts and circumstances  Practitioners have interpreted the “primary” activity test as a 49% or less test  A recent IRS notice provides for an expedited IRC §501(c)(4) determination letter approval process for organizations certifying that “political campaign” activities will constitute less than 40% of total activities klgates.com 13
  • 14. IRC §501(C)(4) ORGANIZATIONS  IRC §527(f) tax on expenditures for “political” activities  No express exemption from the IRC gift tax for contributions to IRC §501(c)(4) organizations klgates.com 14
  • 15. IRC §501(c)(6) ORGANIZATIONS
  • 16. IRC §501(C)(6) ORGANIZATIONS  These are business leagues, trade associations, and chambers of commerce  May engage in some “political” activities, including “political campaign” activities, so long as they are “substantially related” to the organization’s exempt purpose and are not the organization’s “primary objective”  IRC §527(f) tax on expenditures for “political” activities klgates.com 16
  • 17. IRC §501(C)(6) ORGANIZATIONS  May engage in “lobbying” activities, so long as they are “substantially related” to the organization’s exempt purpose  No business expense deduction for the portion of dues allocable to “political” and “lobbying” activities (other than local legislation)  Must provide contemporaneous notice to members (at the time of the assessment or payment)  Notice must contain a “reasonable estimate” of the portion of dues allocable to lobbying klgates.com 17
  • 18. IRC §501(C)(6) ORGANIZATIONS  In determining the allocation, the organization must assume that lobbying expenses are paid out of dues only  If actual lobbying expenses exceed dues receipts, the excess is carried forward and allocated to dues received in the following year  IRC §6033 proxy tax on “political” and “lobbying” expenditures in the absence of a proper and timely notice  Imposed at the highest corporate rate  Imposed on lobbying expenses, up to amount of dues  Members may deduct dues in full klgates.com 18
  • 19. IRC §501(C)(6) ORGANIZATIONS  If actual lobbying expenses exceed the estimated amount, then the association must either pay the proxy tax on the excess or seek permission from the IRS to adjust the following year’s notice to members of dues non-deductibility  No notice required, and no proxy tax liability, if substantially all dues are nondeductible for reasons other than the lobbying limitation  Must demonstrate “to the satisfaction of the Secretary” klgates.com 19