Presentation from Tat

1. Lobbying Rules for
Not-for-Profits
22nd Annual Not-For-Profit Organizations Symposium
Greater Washington Society of Certified Public Accountants
Washington, D.C.  December 13, 2010
Deborah G. Kosnett John Pomeranz
The Southern Building • 805 15th Street NW, 9th Floor 1726 M Street, NW, Suite 600 • Washington, DC • 20036
Washington, DC • 20005 202-328-3500 • jpomeranz@harmoncurran.com
202-419-5111 • dkosnett@tatetryon.com
Agenda
• 501(c)(3) Lobbying
• Lobbying by Other Tax-Exempt
Organizations
• Federal Lobbying Disclosure Act
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2. 501(c)(3) Lobbying: Two Tests
• “No Substantial Part” Test
• 501(h) Expenditure Test
No Substantial Part Test
• Lobbying must be “no substantial part” of
overall activities
• Measures…
– expenditures,
– volunteer and other cost-free activities,
– more…?
• Potential loss of exemption
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3. 501(h) Expenditure Test
• Clear dollar-based limits
– only expenditures count
– volunteers and other cost-free things don’t
• Clear definitions of lobbying
• Requires one-time election (Form 5768)
• Penalty for violations is generally an
excise tax
501(h) Lobbying Limits
Budget (for most
organizations)
1. Calculate organization’s “exempt purpose expenditures”
2. Overall lobbying limit is:
20% of first $500,000 Up to
15% of next $500,000 absolute
10% of next $500,000 cap of $1M
5% of remainder
3. Grassroots lobbying limit is 25% of overall limit
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4. 501(c)(3) with $1.8M Budget
Overall Lobbying Limit
$100,000
+ $75,000
+ $50,000
+ $15,000
TOTAL = $240,000
All Lobbying
(Direct & GR)
$240,000
Grassroots
$60,000
What is Lobbying?
Direct Lobbying Grassroots Lobbying
Communication Communication
Expressing a View Expressing a View
Specific Legislation Specific Legislation
Legislator (or other official or General Public
staffer involved in legislation) (Not “members”)
Call to Action
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5. Key Point: Specific Legislation
More than just legislation that has been
introduced…
• A bill
• Proposed legislation (e.g. model bills)
• Draft amendments
• Specific legislative policy proposals
• Congressional resolutions
• Treaties requiring Senate ratification
NOT Specific Legislation
• Administrative rules
• Court opinions
• Agency decisions
• Executive orders
• Private (non-government) actions
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6. Key Point: Call to Action
• Urging people to contact their legislator
• Providing contact information for a
legislator
• Providing a postcard, petition, web link,
or other means to contact a legislator
• Identifying legislators who are:
- Voting on legislation - Opposed to legislation
- Undecided on legislation - Representing reader
Generally,
no call to action, no
grassroots lobbying
Lobbying Exceptions:
Nonpartisan Analysis, Study or Research
• “Full and fair” discussion of the issue
– Sufficient to allow independent conclusion
– OK to advocate a position
• Public distribution
– Not just to allies
• No direct call to action
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7. Lobbying Exceptions:
Request for Technical Advice
• Written request
• Government body
Other Lobbying Exceptions:
• Self Defense
– lobbying on bill that would affect AVEF’s
existence or tax-exempt status)
– NOT lobbying for earmarks
• Discussions of issues of broad social
importance
– NOT specific legislative proposals
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8. Sample Timesheet
12 13 14 15 Total
May 2010 1 2 3 4 5 6 7 8 9 10 11
Better America
Project
6 8 7 8 4 5 3 4 8 49
Direct Lobbying 4 2 3 9
GR Lobbying 3 3
Hard Truths
Project
2 1 4 5 3 2 21
Direct Lobbying
GR Lobbying
Vacation
Sick Leave 8 8
Total 8 8 8 8 8 8 9 8 8 9 8 90
In addition to allocating
staff costs, use
aggregate of staff time
data to allocate indirect
costs for lobbying
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9. Lobbying: Section 501(c)(4), (5), (6)
The Rules Are Different
 No lobbying limits, provided lobbying is related to purpose
 §162(e) limits member dues deductibility, lobbying-dollar
for lobbying-dollar (Federal, state, but not local lobbying)
 Applies to §501(c)(4), (5) and (6) organizations (except for
§501(c)(4) veterans organizations and §501(c)(5) labor
unions)
 Options:
- Pass nondeductible lobbying costs through to members, via
limits on deductibility of dues paid
- Pay a 35% “proxy” tax on lobbying expenditures, so that
members may deduct dues
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying Includes Dollars Spent On . . .
 Influencing legislation through federal and state lobbying
communications (direct and grassroots), including any costs
leading up to the communication
 Local lobbying communications are exempt
 Attempts to influence the general public, or segments of it,
regarding legislation (grassroots)
 Attempts to influence a “Covered Executive Branch Official”
(CEBO) with regard to his or her official actions or positions
 “Monitoring” is not lobbying . . . unless and until it leads to lobbying
 Congressional intent is that communication compelled by
subpoena or federal/state law is not lobbying . . . but pretty much
everything else is.
© Copyright Tate & Tryon 2010
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10. Lobbying: Section 501(c)(4), (5), (6)
Who is a CEBO?
 Here’s the IRS list . . .
- The President and Vice President;
- Any officer or employee of the White House office of the Executive Office of
the President;
- The 2 most senior officials at each of the other Executive agencies;
- Any individual serving in a Level I position of the Executive Schedule and
his/her immediate deputy; and
- Any Cabinet head and his/her immediate deputy.
 Or . . . you can just ask
 Rule also applies to LDA reporting . . . but the definition’s
different (broader)
 Be sure to specify which definition you need: IRS or LDA
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying – Disclosure and Tax
 No disclosure or proxy tax when:
- Less than $2,000 is spent (in-house lobbying costs only)
- Members can’t deduct dues anyway (least 90 percent of the annual
dues are not deductible by members as a business expense)
 Must keep records to substantiate!
- Members (persons, families, entities) pay de minimis dues ($101 or
less in 2009 - §501(c)(4) or (5) only! (Indexed for inflation)
 Proxy tax is an excise tax – no estimates needed; no “same
accounting method” requirement
© Copyright Tate & Tryon 2010
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11. Lobbying: Section 501(c)(4), (5), (6)
Disclosure Rule to Avoid Proxy Tax
 Provide members with an annual reasonable estimate of
the portion of dues not deductible due to lobbying activity
- Estimate must be provided at the time of assessment or payment
- Must be presented in a conspicuous and easily recognizable format
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Lobbying Expenses
 May calculate lobbying expenditures using any reasonable
method
 Nevertheless, IRS gives you two easy methods, one hard
method
- Gross-up method
- Ratio method
- §263A method
 Don’t forget PAC admin expenditures - also included
 Taxable political expenditures are not included
© Copyright Tate & Tryon 2010
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12. Lobbying: Section 501(c)(4), (5), (6)
Calculation Methods
 Gross-up method:
- Lobbying salaries x 175% (225% if not including admin)
- Add: T&E expense, dollars paid outside lobbyists, dues paid to
other organizations that lobby, and PAC administrative expenses
 Ratio method:
Lobbying labor hours
----------------------------- X Total cost of operations (excl o/s costs)
Total labor hours
- Add: T&E expense, dollars paid outside lobbyists, dues paid to
other organizations that lobby, and PAC administrative expenses
 263A method – usually not worth the effort
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
De minimis rules – all methods
 Time spent by an individual on lobbying activities may be treated
as zero, if less than 5%
 Nevertheless, all hours spent by a person on “direct contact
lobbying” may be counted as labor hours allocable to lobbying
activities
- “Direct contact lobbying” - meeting, telephone conversation, letter,
etc. with legislator or covered executive branch official
- Does not include time of those persons exclusively doing research,
preparation, and other background activities
© Copyright Tate & Tryon 2010
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13. Lobbying: Section 501(c)(4), (5), (6)
Remember . . .
 Non-deductibility disclosure is always a prospective estimate
 True it up each year: roll overage or under-age forward (both
are permitted, at least informally) – this is the proxy tax waiver
 Be sure to make a good-faith estimate, or else IRS could deny
the waiver
 In an association’s final year, any overage most likely will be
subject to a proxy tax
 Amount subject to proxy tax is capped at 100% of dues
 Report and pay tax on Form 990-T
 IRS rules may be used to comply with LDA reporting
© Copyright Tate & Tryon 2010
Lobbying: Section 501(c)(4), (5), (6)
Important Planning Tip!
 Even if you never, ever plan to lobby –
- Put a non-deductibility disclosure on your dues notices AND membership
applications – even 0.01% should save you from the proxy tax
- Do NOT forget internet membership applications! Both interactive and PDF
- Planning to dissolve? Aim for a lobbying expense “under-age” in your
dissolution year
 Sample disclosure:
“Dues payments, contributions or gifts to XYZ Association are not tax deductible
as charitable contributions for federal income tax purposes. However, they may
be deductible as ordinary and necessary business expenses subject to
restrictions imposed as a result of XYZ's lobbying activities as defined by the
Budget Reconciliation Act of 1993. XYZ estimates that the nondeductible
portion of your 20XX dues -- the portion that is allocable to lobbying -- is
0.05%."
© Copyright Tate & Tryon 2010
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14. Federal Lobbying Disclosure Act
(LDA)
• Does not limit the amount of lobbying the
organization may do
• Requires public disclosure of lobbying activities
• Uses a different definition of “lobbying”
– Except charities using the 501(h) election may use
that definition for some purposes
• Applies to all entities (although tax-exempt
organizations have some special rules)
States (and some
localities) have similar
disclosure laws
Lobbying: Tax vs. LDA
LDA 501(c)(3) 501(c)(4), (5), (6)
(IRC § 4911) (IRC § 162(e))
• Federal only • Includes federal, • Includes federal,
• No grassroots state, and local state, NOT local
• Includes executive • Includes grassroots • Includes grassroots
branch actions • No non-legislative • Includes executive
(CEBOs plus) actions (but exec. branch actions by
• Slightly different branch officials can CEBOs
exceptions be “lobbied”) • Slightly different
• Slightly different exceptions
exceptions
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15. LDA Registration
• One or more “Lobbyists”
– 20% of time spent lobbying in 3 month period
– More than one lobbying contact
• $10,000 spent on lobbying in 3 month period
– 501(h)-electing 501(c)(3)s may use that definition
– 501(c)s subject to 162(e) may use that definition
• Register via Form LD-1 (electronic)
LDA Reporting
• Quarterly (Form LD-2)
– Due 4/21, 7/21, 10/20, and 1/20
– Report:
• Lobbyist names
• Issue areas (both general and specific)
• Expenditures (nearest $10,000)
• Semi-Annual (Form LD-203)
– Separate filings for organization and lobbyists
– Report political contributions and other info
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