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IRS Documents May Production

IRS Documents May Production

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Judith Kindell and John Francis Reilly
The last two years have witnessed flurry legislative activity regarding the lobbying
activities tax-exempt organizations. Concerns have been raised regarding the extent their
lobbying and whether additional limitations should imposed. Last year, response some these concerns, the Lobbying Disclosure Act 1995 was enacted, become effective January 1996. U.S.C. 1601 seq. addition requiring organizations that engage lobbying register and report their activities, the Act provides that IRC 501(c)(4) organizations that
engage lobbying are not eligible receive Federal funds award, grant, loan.1 Debate
concerning further, non-tax legislation continues.
Nevertheless, Miriam Galston has noted Lobbying and the Public Interest:
Rethinking the Internal Revenue Code Treatment Legislative Activities, Tex. Rev.
1269 (1993), the primary vehicle for regulating organizations legislative activities the Internal
Revenue Code. her article, Professor Galston observes that the Code creates four separate and
very different regulatory regimes regarding lobbying. Id. 1275-81.
The first regime, which applies IRC 501(c)(3) public charities, permits these
organizations lobby long they not devote substantial part their activities
attempting influence legislation. This system has two subsets, which employ different tests substantiality. The older, enacted 1934, applies facts and circumstances criteria
determine substantial part. The newer was introduced 1976, the enactment
IRC 501(h) and IRC 4911. IRC 501(h) provides that certain public charities may make
election and have their lobbying activities governed expenditure tests lieu being subject the IRC 501(c)(3) substantial part test. the expenditure limits are exceeded, tax under
IRC 4911 will imposed or, the limits are exceeded 150 percent over defined period,
exempt status will lost. The tests are discussed Parts and
The second regime applies IRC 501(c)(3) private foundations. Under this regime, any
expenditures incurred for lobbying activities are treated taxable expenditures under
IRC 4945(d)(1) and subject the tax imposed IRC 4945(a). Part discusses this topic.
The third regime involves other federally tax-exempt organizations. Outside
IRC 501(c)(3), there specific provision IRC 501(c) that restricts lobbying activities.
Consequently, the only limit imposed the lobbying activities non-IRC 501(c)(3)
organizations that the lobbying activities must germane the accomplishment the
organization exempt purpose. result, the organization sole activity support its
exempt purpose may lobbying without jeopardizing its tax exemption. This topic discussed Part
See Robert Boisture, What Charities Need Know Comply with the Lobbying Disclosure Act
1995, EOTR (Jan. 1996) and Miriam Galston, Simpson Lobbying Provision: More Bark than Bite,
EOTR (Jan. 1996) for descriptions the provisions and effects the Lobbying Disclosure Act.
Lobbying Issues
The fourth regime concerns the lobbying expenditures businesses. These rules are set
forth IRC 162. Until recently, this was not subject that particular concerned exempt
organizations. Now, however, because the lobbying disallowance provisions the Omnibus
Budget Reconciliation Act 1993 (OBRA 1993), exempt organizations also must consider the
provisions that disallow deductions for lobbying businesses. Part discusses this topic.
Lobbying Activities IRC 501(c)(3) Nonelecting Public Charities
Legislative and Regulatory History
The Pre-Statutory Era
Prior 1934, there was specific statutory restriction the lobbying activities
charities. Early regulations, however, provided that organizations formed disseminate
controversial partisan propaganda were not educational within the meaning the statute.
Treas. Reg. 45, art 517 (1919 ed.); T.D. 2831, Treas. Dec. Int. Rev. 285 (1919). The import the regulation became the subject litigation concerning the deductibility contribution bequest organization. The deduction was disallowed some cases. See Herbert
Fales, B.T.A. 828 (1927) (contributions various temperance organizations); Joseph Price, B.T.A. 1186 (1928) (contribution the Civic Fund the City Club New York); Slee
Commissioner, F.2d 184 (1930), aff B.T.A. 710 (1929) (contribution the American
Birth Control League); Henriette Noyes, B.T.A. 121 (1934) (contribution women
voters league); Vanderbilt Commissioner, F.2d 360 (1st Cir. 1937) (bequest the National
Women Party). other cases, the deduction was allowed. See Weyl Commissioner,
F.2d 811 (2nd Cir. 1931), rev B.T.A. 1092 (1930) (contribution the League for Industrial
Democracy); Cochran Commissioner, F.2d 176 (4th Cir. 1935), rev B.T.A. 1115
(1934) (contribution the World League Against Alcoholism). one case, contribution organization was allowed, while another, cognate organization, was disallowed.
Leubuscher Commissioner, F.2d 998 (2d Cir. 1932), modifying B.T.A 1022 (1930)
(bequest two organizations teach the ideas Henry George relative the single tax
Commentators differ the overall import these decisions. Dean Sharp, Reflections the
Disallowance Income Tax Deductions for Lobbying Expenditures, B.U. Rev. 365, 387 (1959), simply notes
that these cases, well cases decided after 1934, are conflict. Others have deduced trend. William
Lehrfeld, The Taxation Ideology, Cath. Rev. 52, (1969), emphasizes the controversial nature
the organization agenda; concludes that [o]nly the meek inherited the tax exemption. Tommy Thompson,
The Availability the Federal Educational Tax Exemption for Propaganda Organizations, U.C. Davis Rev.
487, 498-501 (1985), contends that the determining factor these cases was whether the organization attempted
influence legislation. (Thompson also states, 498 29, that evidence suggests that the Service actively
discriminated against organizations that advocated extreme viewpoints, favor organizations that advocated
mainstream viewpoints. The evidence suggests that the Service did fact apply the standard strictly and
evenhandedly. Laura Chisholm, Exempt Organization Advocacy: Matching the Rules the Rationales,
Ind. L.J. 201, 216 78, after noting Mr. Lehrfeld and Professor Thompson analyses, concludes: With few
exceptions, the cases seem support the [legislative activity] contention least convincingly they support the
proposition that advocacy per controversiality was the basis for denial exemption deductibility.
Lobbying Issues all these cases, Slee paramount. Slee, the organization issue, the American
Birth Control League, gave free medical services married women, collected and distributed
information about birth control, and sought enlist the support and cooperation legislators repealing and amending statutes preventing birth control. Judge Learned Hand, writing for
unanimous court, dismissed the controversial nature the League program irrelevant:
cannot discriminate unless doubt the good faith the enterprise. Slee, 185. Instead,
focused the League legislative activity:
Political agitation such outside the statute, however innocent
the aim, though adds nothing dub propaganda,
polemical word used decry the publicity the other side.
Controversies that sort must conducted without public
subvention; the Treasury stands aside from them. Id.3
Immediately after this statement, however, Judge Hand made distinction:
Nevertheless, there are many charitable, literary and scientific
ventures that incident their success require changes the
law. charity may need special charter allowing receive
larger gifts than the general laws allow. society prevent
cruelty children, animals, needs the positive support law accomplish its ends. should not think that society
booklovers scientists was less literary scientific,
took part agitation relax the taboos upon works dubious
propriety, put scientific instruments the free lists. All such
activities are mediate the primary purpose, and would not,
should think, unclass the promoters. The agitation ancillary
the end chief, which remains the exclusive purpose the
association. Trinidad Sagrada Orden, 263 U.S. 578, Ct.
204, Ed. 458 [1924]. Id. (Emphasis added.)4
The League, however, did not come within this exception because there was evidence
that its legislative activity was confined solely relieving its hospital work from legal
This holding was reflective the common law regarding lobbying England and Massachusetts, but not any other jurisdiction. See Girard Trust Co. Commissioner, 122 F.2d 108, 113-114 (Clark, J., dissenting); Elias
Clark, The Limitation Political Political Activities: Discordant Note the Law Charities, Va.
Rev. 439, 447-448 (1960). Professor Clark, who critical the decision because assumes the validity the
restriction without attempting justify argument authority, nevertheless notes: Later courts have accepted
the principle settled. Id. 446-447.
The citation Trinidad obvious reference the Court observation that case that the exemption
statute says nothing about the source the income, but makes the destination the ultimate test exemption.
Trinidad, 581. The practical result the Court statement was that organization could qualify for tax exempt
status long the income was used for exempt purposes; its source was irrelevant. This became known the
destination income test, and was the pervading standard for congruence with charitable exemption until the
passage the unrelated business income tax and the feeder organization rules the Revenue Act 1950.
Lobbying Issues
obstacles. Id. Therefore, contributions the League were not deductible. This disallowance,
accordingly, was based not upon the controversial nature the League activities, nor upon its
attempts influence legislation per se; instead, was based upon the assumption (actually, the
lack evidence refute the assumption) that its legislative activities went beyond its charitable
What Slee proclaims analog Trinidad destination income test
destination lobbying test. will discussed the next section, this did not become the
precise formulation the statutory restriction lobbying; nevertheless, Slee served the basis what was follow.
The Lobbying Restriction 1934, the limitation the lobbying activities IRC 501(c)(3) organizations, requiring
that substantial part organization activities constitute carrying propaganda
otherwise attempting influence legislation, became part the statute. Revenue Act 1934.
The legislative history sparse.
What know that the Senate Finance Committee staff drafted the provision and
that was added the Revenue Act 1934 floor amendment.6 also know that
Senator David Reed, the ranking minority member the Committee and the provision apparent
sponsor, was dissatisfied with its formulation:
There reason the world why contribution made the
National Economy League should deductible were
charitable contribution selfish one made advance the
personal interests the giver the money. That what the
committee was trying reach; but found great difficulty
phrasing the amendment. not reproach the draftsmen. think gave them impossible task; but this amendment goes much
further than the committee intended go. Cong. Rec. 5,861
(1934). not clear, however, what extent Senator Reed was speaking for the entire
Committee. the Committee were dissatisfied with the provision, they could have tabled contributions most charities are unselfishly motivated. Likewise, the Congress the
Administration felt that the critical issue was that more prevention cruelty societies and
crippled children organizations would affected its enactment than selfish organizations,
Judge Hand decision made mention the Treasury regulation. The Board Tax Appeals decision,
contrast, discussed it. Slee, B.T.A. 715.
The provision also contained restriction participation partisan politics. The provision, however, was
dropped conference, that only the lobbying restriction remained. H.R. Conf. Rep. No. 73-1385, 73d Cong., Sess. 3-4 (1934). explaining its deletion, one the House managers, Representative Samuel Hill stated, were afraid this provision was too broad. Cong. Rec. 7,831 (1934).
Lobbying Issues would not have become law. One suspects that the provision was enacted simply because there
was general sentiment that lobbying charities should restricted.7 This not doubt that
the selfish/unselfish formula was what Senator Reed wanted drafted, nor that, stated, the
Committee staff tried draft but found impossible.8 However, the reference the National
Economy League seems indicate that the Senator had embarked personal crusade that
may not have been taken too seriously his colleagues, who seized the opportunity enact
broader restriction.9
The Committee considered, and rejected, application the provision restrict contributions war veterans
associations. Id. 5,861 (remarks Senator Pat Harrison, chairman the Committee).
The National Economy League discussed note Senator Reed view the League selfishly
motivated was not universally shared. For example, editorial, the New York Times praised the League
chairman (and, implication, the League patriotism, disinterestedness, and loyalty. Useful Service, April
27, 1933, 16. The impossibility starting with the National Economy League and drafting selfish/unselfish
standard apparent.
Senator Reed had been one the leaders the considerable number Old Guard Republicans during the
Harding, Coolidge, and Hoover administrations. After the 1932 election, however, their numbers had been drastically
reduced, had Reed influence. 1933 Newsweek portrait the Senator, Reed: Hamiltonian, Mellon Attorney,
and Penn. Senator, May 1933, 18-19, presents him beleaguered figure, having virtually influence and
being subjected the abuse the acid-tongued Senator Harrison. the time was denouncing his own bill
the Senate floor, his situation had worsened. was locked nasty primary battle for renomination; the election
occurred less than two months after his floor speech; the outcome was doubt. His opponent was his ideological
opposite, the Governor Pennsylvania, Gifford Pinchot, leader the Progressive wing the Republican Party.
(In addition their ideological differences, they detested each other: Harold Ickes observed that they had always
fought like two tomcats sitting fence. Arthur Schlesinger, Jr., The Coming the New Deal, 346 (1959).)
Pinchot was not Reed only problem; was also opposed organization that would appear have been his
natural ally, the National Economy League.
The National Economy League was one the short-lived phenomena the 1930 Organized 1932,
apparently reaction the Bonus March, after two years prominence, vanished. revolt the haves,
dedicated radical reduction government expenditures, its leadership was anything but obscure, however. Its
chief spokesman was Admiral Richard Byrd (who served chairman until decided travel the Antarctic);
Nicholas Murray Butler was its honorary chairman; its original six member advisory board consisted former
President (Calvin Coolidge), defeated candidate for the Presidency (Alfred Smith), two former Secretaries
State (Elihu Root and Newton Baker), General the Armies John Pershing, and Admiral Williams Sowden
Sims. Byrd Quits Head Economy Group, N.Y. Times, April 26, 1933, Mr. Lehrfeld, supra, 63,
states that had been accorded charitable status, and the right receive tax-deductible contributions, ruling
letter dated November 1933. Soon thereafter, submitted its own economic program the President and
Congress. The New York Times gave front page treatment the event and printed the text the entire program.
Roosevelt Warned Our Debt Will Rise Billion Year, Dec. 18, 1933,
The extent benefits war veterans was the League foremost concern. repeatedly urged that benefits limited only those wounded war. (Appropriations the Veterans Administration was small budgetary
matter. praising the League stand, the New York Times noted that the appropriations had reached point
where they accounted for one-third the entire cost the Federal government, aside from service the national
debt. Useful Service, April 26, 1933, 16.) However, this position brought the League into conflict with
Senator Reed, who also made the veterans benefits his chief concern. Lurching unexpectedly leftward, outflanking
Pinchot and even Roosevelt, January 1934, Reed sponsored legislation restore benefits cut the year before.
Reed Leads Fight Veterans Cuts, Times, Jan. 1934, The League responded presenting its
own plan and excoriating Reed Plan Simplify Veteran Aid Urged, Times, Feb. 19, 1934, Reed
Lobbying Issues widely accepted that the 1934 legislation represents codification the Slee position
and rejection the strict Treasury point view, embodied the 1919 regulation.10 general statement, this true. However, there significant difference between the two
approaches, and not simply that the Congress did not share Judge Hand distaste for the
word propaganda. Rather, the tests used the two approaches are different. Slee
destination lobbying approach purpose test; the legislation substantial part
language signifies activities test. Different results may reached from this distinction -under the substantial part test, contributions the American Birth Control League would
remain deductible, regardless the purpose its legislative endeavors, such lobbying were
not substantial; conversely, the prevention cruelty societies legislative activities were
substantial, deductibility would lost regardless the lobbying purpose.11 Regulations
stratagem was successful both legislation and the substantive centerpiece his primary campaign. Arthur
Krock noted his post-primary analysis Reed victory over Pinchot: Before stripping for the fray, Mr. Reed
took the precaution getting into the money distributing class himself leading successful battle against the
administration for added benefits and restored government pay. This equipped him with least half Santa
Claus whiskers. Republicans See Renewed Party Victory Reed, Times, May 18, 1934, 24.
The remainder 1934 was not kind either the League the Senator. July 23, less than three months
after the effective date the lobbying restriction, the ruling letter the League was cancelled. Lehrfeld, supra, 64. November Senator Reed was defeated Joseph Guffey, who became the first Democratic Senator
elected from Pennsylvania years.
See, e.g., Hearings Res. 217 Before Special Committee Investigate Tax-Exempt Foundations and
Comparable Organizations, House Representatives, 83d Cong., Sess. part 433 (1954) (statement Assistant
Commissioner (Technical) Norman Sugarman) and G.C.M. 34289 (May 1970).
Slee purpose formulation still resonates IRC 501(c)(3). Rev. Rul. 80-278, 1980-2 C.B. 175, holds that organization that institutes and maintains environmental litigation party plaintiff operates exclusively for
charitable purposes within the meaning IRC 501(c)(3). reaching this conclusion, Rev. Rul. 80-278 states: determining whether organization meets the operational test, the issue
whether the particular activity undertaken the organization appropriately furtherance the organization exempt purpose, not whether that particular
activity and itself would considered charitable.
Therefore, making the determination whether organization activities
are consistent with exemption under section 501(c)(3) the Code, the Service
will rely three-part test. The organization activities will considered
permissible under section 501(c)(3) if:
the activities are not illegal, contrary clearly
defined and established public policy, conflict
with express statutory restrictions; and
The purpose the organization charitable;
the activities are furtherance the organization
exempt purpose and are reasonably related the
accomplishment that purpose.
Lobbying Issues
written after the enactment the lobbying restriction did not elaborate upon the statute.
Reg. 86.101(6)-1 (as amended 1935). The current action organization regulations were
proposed early 1959 (24 1420 (Feb. 26, 1959)), and adopted later that year T.D. 6391
(24 5217 (June 26, 1959)).
Subsequent Statutory Developments part the Tax Reform Act 1976, Congress enacted IRC 501(h) and IRC 4911
provide second test for determining the amount allowable lobbying. These provisions are
discussed Part this article. addition, Congress enacted IRC 504 provide, with certain
exceptions, that IRC 501(c)(3) organizations that lose exempt status due excessive lobbying
may not any time thereafter treated IRC 501(c)(4) organizations. IRC 504 discussed Part 1987, House Ways and Means Oversight Subcommittee Chairman J.J. Pickle
announced that was initiating investigation into the lobbying and electioneering activities IRC 501(c) organizations. The particular focus concern was the National Endowment for
the Preservation Liberty (NEPL), IRC 501(c)(3) organization. The organization reportedly
received funds from the Iran-Contra arms sales and used the proceeds both finance
conservative Congressional candidates the 1986 campaign and run negative advertisements
about Congressional incumbents who opposed aid the Nicaraguan Contras. NEPL also
engaged considerable amount grass roots lobbying garner support for Contra aid.12
The hearings resulted the enactment several statutes. One these, IRC 4912,
concerns the lobbying activities nonelecting public charities. For years beginning after
December 22, 1987, certain organizations whose IRC 501(c)(3) status revoked because
substantial lobbying activities are subject five percent excise tax imposed IRC 4912
their lobbying expenditures, for the year loss the exemption. Lobbying expenditure
defined IRC 4912(d)(1) any amount paid incurred charitable organization
carrying propaganda otherwise attempting influence legislation.13
What distinguishes lobbying activity from litigation activity, therefore, lobbying activity, regardless
its purpose, expressly restricted statute, whereas litigation activity tested the basis whether the particular
purpose the activity furtherance the particular organization IRC 501(c)(3) purposes.
For history the 1987 legislation, see Chisholm, supra, 203-204.
H.R. Rep. No. 100-391, 100th Cong., 1st Sess. 1631 (1987) explains the reason for the provision:
The committee concluded that revocation exempt status may ineffective the case certain
charitable organizations penalty deterrent engaging more than insubstantial
lobbying activities, particularly the organization ceases operations after has diverted all its
tax-deductible contributions and exempt income improper purposes but before has been
audited and any income tax liability has been assessed. Accordingly, the committee believes that such cases the sanction revocation tax-exempt status should supplemented excise
tax, just under present law excise taxes apply where public charity electing under section
Lobbying Issues
IRC 4912 also imposes similar tax the same rate any manager the organization
who willfully and without reasonable cause consented making the lobbying expenditures
knowing the expenditures would likely result the organization longer qualifying under
IRC 501(c)(3). There limit the amount this tax that may imposed against either
the organization its managers.
IRC 4912(c)(2)(C) excepts private foundations from the IRC 4912 taxes because their
lobbying expenditures are already subject the tax imposed IRC 4945. addition, the
IRC 4912 taxes are not imposed any organization that has elected subject the
lobbying limitations IRC 501(h) (IRC 4912(c)(2)(A)) churches and church-related
organizations that are not eligible make the IRC 501(h) election (IRC 4912(c)(2)(B)).
The Constitutional Issue Regan Taxation with Representation Washington, 461 U.S. 540 (1983), the Court
addressed the question whether the IRC 501(c)(3) restriction lobbying violates
constitutional guarantees.
Regan Taxation with Representation Washington was foreshadowed Christian
Echoes National Ministry, Inc. United States, 470 F.2d 849 (10th Cir. 1972); cert. denied, 414
U.S. 864 (1973), where the Tenth Circuit dismissed claim that the IRC 501(c)(3) prohibition lobbying and political activities was unconstitutional restriction the organization
freedom speech. doing, the court stated: light the fact that tax exemption privilege, matter
grace rather than right, hold that the limitations contained
section 501(c)(3) withholding exemption from nonprofit
corporations not deprive Christian Echoes its constitutionally
guaranteed right freedom speech. The taxpayer may engage all such activities without restraint, subject, however,
withholding the exemption, or, the alternative, the taxpayer
may refrain from such activities and obtain the privilege
exemption. The congressional purposes evidenced the 1934
and 1954 amendments are clearly constitutionally justified
keeping with the separation and neutrality principles particularly
applicable this case and, more succinctly, the principle that the
government shall not subsidize, directly indirectly, those
organizations whose substantial activities are directed toward the
accomplishment legislative goals the election defeat
particular candidates. 470 F.2d 857.
501(h) exceeds the permitted lobbying expenditures where private foundation engages any
political lobbying activities.
Lobbying Issues
Taxation With Representation Washington (TWR) attacked the IRC 501(c)(3) lobbying
restriction not only the ground that violated the freedom speech guarantee the First
Amendment, but also the ground that violated the equal protection language the Fifth
Amendment Due Process Clause. The latter argument was based the contention that those
veterans organizations which qualify for exempt status under IRC 501(c)(19) and for deductible
contributions under IRC 170(c)(3) are permitted lobby; therefore, organizations qualifying for
exemption under IRC 501(c)(3) and for deductible contributions under IRC 170(c)(2) should
permitted lobby well.
The Supreme Court unanimously held that the IRC 501(c)(3) restriction lobbying
activities violates neither the freedom speech guarantee the First Amendment nor the equal
protection doctrine the Fifth Amendment. Concerning the First Amendment issue, the Court
stated that this aspect the case was controlled its decision Cammarano United States,
358 U.S. 498 (1959). Cammarano (which discussed Part below), the Court upheld Treasury Regulation (antecedent the passage IRC 162(e)), that denied business expense
deductions for lobbying activities. TWR equal protection claim, the Court stated that the general rule statutory
classifications that such classifications are valid they bear rational relation legitimate
governmental purpose, and that [l]egislatures have especially broad latitude creating
classifications and distinctions tax statutes. 461 U.S. 547. The Court noted that while
statutes are subject higher level scrutiny they interfere with the exercise
fundamental right, such freedom speech, the IRC 501(c)(3) legislative restriction does not
infringe upon freedom speech; therefore, the statutory distinction treatment
IRC 501(c)(3) and IRC 501(c)(19) organizations need only have rational basis. The Court
found such basis concluding: not irrational for Congress decide that tax exempt charities
such TWR should not further benefit the expense taxpayers large obtaining subsidy for lobbying. also not irrational for Congress decide that, even though
will not subsidize substantial lobbying charities generally will
subsidize lobbying veterans organizations. Our country has long standing policy compensating veterans for their past
contributions providing them with numerous advantages. This
policy has always been deemed legitimate. Personnel
Administrator Feeney, 442 U.S. 256, 279 (1979). Id.
Lobbying Issues
attempt influence legislation and organizations that intervene political campaigns.
For purposes the lobbying restriction, organization action organization
either two distinct grounds. The first occurs substantial part the organization
activities involves attempting influence legislation. Reg. 1.501(c)(3)-1(c)(3)(ii) states that
organization will regarded attempting influence legislation does the following:
Contacts, urges the public contact, members legislative body for
the purpose proposing, supporting, opposing legislation,
Advocates the adoption rejection legislation.
The second ground found Reg. 1.501(c)(3)-1(c)(3)(iv), which provides that
organization action organization has the following two characteristics:
Its main primary objective objectives (as distinguished from its
incidental secondary objectives) may attained only legislation defeat proposed legislation; and
(B) advocates, campaigns for, the attainment such main primary
objective objectives distinguished from engaging nonpartisan
analysis, study, research and making the results thereof available the
public. determining whether organization has these two characteristics, all the
surrounding facts and circumstances, including the articles and all activities the organization,
are considered.
Under IRC 501(c)(3), there are certain
circumstances where nonpartisan analysis, study,
How nonpartisan analysis research matters pertaining legislation
distinguished from attempts
may educational and will not constitute
influence legislation?
attempts influence legislation.18 This occurs
where the material available the public,
governmental bodies, officials, and employees,
and where the organization does not advocate the adoption rejection legislation. See
Reg. 1.501(c)(3)-1(c)(3)(iv). Several revenue rulings discuss this issue. Haswell U.S., 500 F.2d 1133, 1144 (Ct. Cl. 1974), cert. denied, 419 U.S. 1107 (1975), the Court
Claims explained what nonpartisan means follows:
Nonpartisan, used the statute and regulations, need not refer
organized political parties. Nonpartisan analysis, study, research oriented issues and requires fair exposition both sides the issue involved.
Lobbying Issues Rev. Rul. 64-195, 1964-2 C.B. 138, IRC 501(c)(3) organization that conducted
educational activities relating the law, legal education, and lawyers became interested the
question court reform the particular state which was organized. constitutional
amendment requiring revision the state court system was agreed the state legislature
and submitted the public for approval. The organization embarked upon program study,
research, and assembly the materials necessary make evaluation the legislation.
Experts were assembled and employed conduct extensive analysis all materials relating court reform the United States and detailed study and analysis the pertinent existing
case and statutory law the state. The organization did not expend any funds otherwise
participate any campaign present the bills persuade the public vote for the amendment.
The revenue ruling finds that the organization clearly did not expend funds participate any
way the presentation any proposed bills the State legislature advocate either approval disapproval the proposed constitutional amendment the electorate. Instead, the
organization involvement with court reform consisted the study, research, and assembling materials nonpartisan basis and the dissemination such materials the public.
Accordingly, the revenue ruling concludes that the organization not action organization that term defined Reg. 1.501(c)(3)-1(c)(3). Therefore, this activity does not affect its
IRC 501(c)(3) status. contrast, the IRC 501(c)(4) organization described Rev. Rul. 68-656, 1968-2 C.B.
216, drafted legislation and presented petitions supporting such legislation. These activities
placed the organization beyond the purview engagement nonpartisan analysis, study,
research matters pertaining legislation; had crossed over into attempting influence
legislation.19 Rev. Rul. 70-79, 1970-1 C.B. 127, organization was created assist local
governments metropolitan region studying and recommending regional policies directed the solution mutual problems. Although some the plans and policies formulated the
organization could only carried out through legislative enactments, the organization did not
direct its efforts expend funds making any legislative recommendations, preparing
prospective legislation, contacting legislators for the purpose influencing legislation. Rev.
Rul. 70-79 holds that the organization qualifies for IRC 501(c)(3) status because the
educational nature its activities and because abstained from advocating the adoption any
legislation legislative action implement its findings.
The facts described Rev. Rul. 64-195 and Rev. Rul 68-656 bear distinct resemblance the facts litigated Dulles Johnson, 273 362 (2d Cir. 1959). Dulles, the Second Circuit found that bequests various
Bar Associations were deductible from the taxable estate under the predecessor statute IRC 2055, part because
the legislative recommendations the Associations are designed improve court procedure and clarify
some technical matter substantive law. They are not intended for the economic aggrandizement particular
group promote some larger principle governmental policy. Id. 367. Rev. Rul. 64-195 also reaches
favorable conclusion, but the basis the absence advocacy. implication, therefore, rejects the Dulles
basis the nature the legislation. Rev. Rul. 64-195, accordingly, yet another repudiation the good/bad selfish/unselfish analysis.
Lobbying Issues
The organization described Rev. Rul. 70-79 can distinguished from the organization
discussed Rev. Rul. 62-71, 1962-1 C.B. 85. The latter organization corporation formed
for the purpose supporting educational program with regard particular doctrine
theory. was the announced policy the organization promote its philosophy educational
methods well the encouragement political action. Most the publications
disseminated the organization, together with substantial part its other activities, dealt with
the theory advocated. This theory doctrine can put into effect only legislative action.
Rev. Rul. 62-71 concludes that while the portion the organization activities that
consisted engaging nonpartisan analysis, study and research and making the results thereof
available the public, when considered alone, may classified educational within the
meaning IRC 501(c)(3), the organization was primarily engaged not only teaching but
advocating the adoption particular doctrine theory that can become effective only the
enactment legislation. Since the primary objective the organization can attained only legislative action, step that the organization encouraged advocated part its
announced policy, opposed merely engaging nonpartisan analysis, study and research and
making the results thereof available the public, action organization that term
defined Reg. 1.501(c)(3)-1(c)(3) the regulations. Accordingly, the organization does not
qualify for IRC 501(c)(3) exempt status. addition, should noted that activities which appear themselves educational nature may, fact, part broader purpose influence specific legislative action. For
example, the case Roberts Dairy Company Commissioner, 195 F.2d 948 (8th Cir. 1952),
cert. denied, 344 U.S. 865 (1952), the organization prepared and distributed materials inform
its members and the public certain tax disparities between business organizations. The court,
apparently looking beyond the actual material distributed, held that since the ultimate objective
was the revision the tax laws, the organization was attempting influence legislation.
Generally, organization appears
before legislative committee discuss
May appearances before
legislation, that action will attempt
legislative committees
influence legislation. However, attempting
constitute attempts
influence legislation does not include such
influence legislation?
appearances when the organization appears before
legislative committees response official
requests for testimony. The Service has ruled
that university exemption would not jeopardized when, response official request, sent representatives who could advise Congressional committee the possible effects
specific legislation. See Rev. Rul. 70-449, 1970-2 C.B. 111, where the Service concludes that
attempts influence legislation described the regulations imply affirmative act and
require something more than mere passive response Committee invitation. While stating
that the legislative history silent this point, the Service concludes that unlikely that
Lobbying Issues
Congress, framing the language this provision, intended deny itself access the best
technical expertise available any matter with which concerns itself. noted above, legislation does not
include actions executive bodies. Therefore,
May requests executive
requesting executive bodies take some action
bodies constitute attempts
would generally not constitute attempting
influence legislation?
influence legislation. This not the case where
the organization requests the executive bodies
support oppose legislation.
executive bodies support oppose legislation included the purview attempting
influence legislation. Rev. Rul. 67-293, 1967-2 C.B. 185; Roberts Dairy Company
Commissioner, 195 F.2d 948 (8th Cir. 1952), cert. denied, 344 U.S. 865 (1952); American
Hardware and Equipment Company Commissioner, 202 F.2d 126 (4th Cir. 1953), cert. denied,
346 U.S. 814 (1953).
Where IRC 501(c)(3) organization
involved, frequently necessary determine
May lobbying activities
whether lobbying activity attributable the
individuals attributable
organization merely the act individual.
IRC 501(c)(3) organizations?
The Service has developed attribution rules fit number situations. Questions involving
lobbying activity, political campaign activity, and
illegal activity have provided body administrative law that may used address issues
attribution. noted G.C.M. 34631 (Oct. 1971) and G.C.M. 39414 (Feb. 29, 1984), principles agency law apply this determination. further discussion the standards used found G.C.M. 34523 (June 11, 1971), which addresses actions attributable colleges and universities considering their exempt status:
Only actions the exempt organization can disqualify from
501(c)(3) status. Since organizations act through individuals,
necessary distinguish those activities individuals done
official capacity from those that are not. Only official acts can
attributed the organization. Provision made the articles
organization which school created, its bylaws, and
other valid and proper means, for delegating authority and
Publication Rev. Rul. 70-449 was approved G.C.M. 34289 (May 1970). G.C.M. 34289 furnished
second rationale, i.e., the 1969 enactment IRC 4945, with the exceptions for nonpartisan analysis, technical advice,
and self-defense, was intended restate, rather than revise, the existing definition attempting influence
legislation. The same conclusion expressed G.C.M. 36127 (Jan. 1975). Rev. Rul. 70-449 did not adopt this
position, however; instead, noted above, the revenue ruling states that the legislative history silent this point. whether the self-defense exception applies nonelecting public charities, the Service has not published
precedential document adopting the favorable conclusion G.C.M. 34289.
Lobbying Issues
responsibility for operating the school various people; trustees,
administrators, faculty members, student leaders, etc. Each are
assigned various tasks. The school responsible for their acts
discharging these assigned duties. Their personal activities (those
not associated with official duties) are not attributable the
school, and are, therefore, not relevant investigation the
school qualification for 501(c)(3) status.
Actions person excess his official authority should not, rule, considered those the school. the school allows
such usurpation authority unchallenged, however,
impliedly ratifies the act.
G.C.M. 34631, considering the effect possibly illegal activities members
organization, makes the following observation: caution, however, that actions [the organization members
and officers not always reflect the organization. Only
(1) acts [the organization officials under actual purported
authority act for the organization, (2) acts agents the
organization within their authority act, (3) acts ratified the
organization, should considered activities the organization.
The activities individuals who are not officials the organization may also
attributed organization. G.C.M. 39414, the political campaign activities individual
members were attributed IRC 501(c)(3) organization. The organization publication stated
that the organization would sending members work political campaigns, members
working political campaigns identified themselves representing the organization, the
organization paid some the costs incurred members working political campaigns, and
officials the organization knew about the members political activities behalf the
organization and made effort prevent the members political activities. the other hand, Rev. Rul. 72-513, 1972-2 C.B. 246, the legislative activities
student newspaper did not jeopardize the exemption the sponsoring university, despite the fact
that the university provided office space and financial support for the publication the student
newspaper and made available several professors serve advisors the staff. The student
newspaper provided training for students various aspects newspaper publication (including
editorial policy) and was distributed primarily students the university. Editorial policy was
determined the student editors and not the university the faculty advisors. statement the editorial page clearly indicated that the views expressed were those the students and
not the university. The revenue ruling concludes that the legislative activities the student
editors are not attributable the university despite the university provision support the
Lobbying Issues
Limits Attempts Influence Legislation determination whether attempts
influence legislation constitute substantial
When are attempts
portion organization total activities
influence legislation
factual one and there simple rule what
considered substantial?
amount activities substantial. often cited
case the subject, Seasongood Commissioner,
227 F.2d 907 (6th Cir. 1955), limited help.
Seasongood held that attempts influence legislation that constituted five percent total
activities were not substantial. The case presents limited guidance because the court view
what set activities were measured longer supported the weight precedent.
Moreover, not clear how the court arrived the five percent figure.
Most cases have either tended avoid any attempt percentage measurement
activities or, least, have stated that percentage test not conclusive. Thus, Christian
Echoes National Ministry, Inc. United States, 470 F.2d 849 (10th Cir. 1972), cert. denied, 414
U.S. 864 (1974), the Tenth Circuit rejected the use percentage test determine whether
activities were substantial, stating that [a] percentage test determine whether activities were
substantial obscures the complexity balancing the organization activities relation its
objectives and circumstances. Haswell United States, 500 F.2d 1133 (Ct. Cl. 1974), cert.
denied, 419 U.S. 1107 (1975), the Court Claims cited percentage figures support its
determination that organization lobbying activities were substantial. (The amount the
organization expenditures for lobbying activities ranged from 16.6 percent 20.5 percent
total expenditures during the four years issue.) While the court stated that percentage test only one measure substantiality (and not, itself, determinative), held that these
percentages were strong indication that the organization purposes were longer consistent
with charity.
G.C.M. 36148 (Jan. 28, 1975) characterized the substantiality issue problem [that]
does not lend itself ready numerical boundaries. The G.C.M. then stated:
Moreover, the percentage the budget dedicated given
activity only one type evidence substantiality. Others are
the amount volunteer time devoted the activity, the amount
publicity the organization assigns the activity, and the
continuous intermittent nature the organization attention
it. All such factors have bearing the relative importance
the activity, and should given due consideration determining
whether its conduct reconcilable with the requirement that
operate exclusively for exempt purposes. therefore think that the Service should not adopt percentage total expenditures test for the substantiality nonexempt
activities conducted exempt organizations. also think that
ten percent would unjustifiably high, even percentage test
Lobbying Issues
were merely adopted for use threshold for more intensive
auditing which the Service can give due consideration the
relative importance volunteer services and the like.
Nevertheless, while neither the Service nor the courts have adopted percentage test for
determining whether substantial part organization activities consist lobbying, some
guidance can derived from Seasongood and Haswell. Under Seasongood, five percent safe
harbor has been frequently applied general rule thumb regarding what substantial.
Similarly, lobbying activities that exceed the roughly percent range total activities
found Haswell are generally considered substantial. (Compare these percentages the sliding
scale percentage expenditures allowed organizations that elect governed
IRC 501(h) discussed below.) determining whether organization
has engaged attempts influence legislation
May supporting activities also substantial activity, sometimes difficult considered attempts
determine what supporting activities should
influence legislation?
included with the proscribed attempts influence
legislation. This often problem where
organization has some activities that are
admittedly educational. Frequently, much effort devoted research, discussion, and similar
activities. The problem how much these back-up activities should considered part the
attempts influence legislation. League Women Voters the United States United
States, 180 Supp, 379 (Ct. Cl. 1960), cert. denied, 364 U.S. 882 (1960), the time spent
discussing public issues, formulating and agreeing upon positions, and studying them preparatory adopting position was taken into account and compared with the other activities
determining the substantiality the attempts influence legislation. Attempting influence
legislation does not necessarily begin the moment the organization first addresses itself the
public the legislature. See also Kuper Commissioner, 332 F.2d 562 (3d Cir. 1964), cert.
denied, 379 U.S. 920 (1964). Furthermore, all facts and circumstances must considered
determining whether the lobbying activities IRC 501(c)(3) organization are substantial, not
just the amount expenditures made.
Lobbying Activities IRC 501(c)(3) Electing Public Charities
Legislative and Regulatory History
Enactment the Statutes
During the period from 1934 1976, the lobbying limitation was subject increasing
public criticism. The passage IRC 162(e) 1962, permitting business expense deduction
for direct lobbying expenses, led the argument that equal treatment should given
charitable organizations. Meanwhile, the courts were having difficult time measuring the
substantiality these activities.
Lobbying Issues
Congress enacted IRC 501(h) and IRC 4911 part the Tax Reform Act 1976.21
These provisions were intended remedy some the problems that had arisen under existing
law setting specific permissible expenditure limits. The Joint Committee Taxation, its
General Explanation the Tax Reform Act 1976, 1976-3 C.B. (Vol. 419-420, explains the
reasons for enactment these statutes:
The language the lobbying provision was first enacted 1934.
Since that time neither Treasury regulations nor court decisions
gave enough detailed meaning the statutory language permit
most charitable organizations know approximately where the
limits were between what was permitted the statute and what
was forbidden it. The vagueness was, large part, function the uncertainty the meaning the terms substantial part
and activities.
Many believed that the standards the permissible level
activities under prior law were too vague and thereby tended
encourage subjective and selective enforcement.
Except the case private foundations, the only sanctions
available under prior law with respect organization which
exceeded the limits permitted lobbying were loss exempt
status under section 501(c)(3) and loss qualification receive
charitable contributions.
Some organizations (particularly
organizations which had already built substantial endowments)
could split their activities between lobbying organization and charitable organization. For such organizations, these sanctions
may have had little effect, and the lack effect may have tended discourage enforcement effort.
For other organizations which could not split their activities
between lobbying organization and charitable organization and
which had continue rely the receipt deductible
contributions carry their exempt purposes, loss section
501(c)(3) status could not easily compensated for and
constituted severe blow the organization.
The Act designed set relatively specific expenditure limits
replace the uncertain standards prior law, provide more
rational relationship between the sanctions and the violation
standards, and make more practical properly enforce the
For account the progress the legislation until its enactment, see Bruce Hopkins, The Law
Tax-Exempt Organizations, 310-312 (4th ed. 1993). For another history, written just before passage the
legislation, see Pepper, Hamilton Sheetz, Legislative Activities Charitable Organizations Other Than Private
Foundations, Commission Private Philanthropy and Public Needs, Research Papers, 2917, 2926-2928 (1975).
Lobbying Issues
law. However, these new rules replace prior law only
charitable organizations which elect come under the Standards the Act. The new rules also not apply churches and
organizations affiliated with churches, nor they apply private
foundations; prior law continues apply these organizations.
The Act provides for tax percent the amount which
the expenditures exceed the permissible level. Revocation
exemption reserved for those cases where the excess
unreasonably great over period time. the same time, Congress enacted IRC 504.22 This provision provided, with certain
exceptions, that IRC 501(c)(3) organizations that lose exempt status due excessive lobbying
may not any time thereafter treated IRC 501(c)(4) organizations. IRC 504 discussed Part
Overview the Statutes
Eligible public charities (listed IRC 501(h)(4)) may elect governed the
IRC 501(h) substantiality test. Non-electing organizations (whether eligible not) will
subject the ordinary facts and circumstances substantiality test IRC 501(c)(3) discussed
IRC 501(h) establishes sliding scale permissible lobbying nontaxable amounts.
Nontaxable amounts are computed for both total and grass roots lobbying. These amounts are
deemed insubstantial, and expenditures under the nontaxable amounts will result neither tax
nor revocation. Expenditures excess the nontaxable amounts are excess lobbying
expenditures. excise tax under IRC 4911 imposed excess lobbying expenditures.
lobbying expenditures exceed both the permitted total lobbying amount and the grass roots
amount, the IRC 4911 tax imposed whichever excess greater. Affiliated organizations
generally are treated single organization for purposes computing lobbying expenditures.
IRC 501(h) applies for taxable years beginning after December 31, 1976.
For IRC 501(c)(3) organizations that elect covered IRC 501(h), lobbying may
cause revocation exempt status only the amounts spent lobbying normally exceed 150
percent either the nontaxable amounts over four year period. Therefore, the tests
whether organization action organization, set forth Reg. 1.501(c)(3)-1(c)(3), should
not used determine whether organization that has made the IRC 501(h) election has
engaged substantial lobbying activities.
Prior 1969, IRC 504 had provided rule against unreasonable accumulations charities. This provision
was repealed part the Tax Reform Act 1969 and replaced with IRC 4942, which applies only private
Lobbying Issues
History the Regulations 1986, proposed regulations were published implement the provisions IRC 501(h)
and IRC 4911. 40211 (Nov. 1986). Controversy ensued. The particular areas
concern were the definition grass roots lobbying and the allocation rules. the individuals who had primary responsibility for drafting the 1988 proposed
regulations, James McGovern, Paul Accetura, and Jerome Walsh Skelly, observe The
Revised Lobbying Regulations, Difficult Balance, Tax Notes 1426, 1428 (Dec. 26, 1988)
(hereinafter McGovern 1988 The nonprofit community was effectively mobilized
number umbrella groups and their constituent members. The Service and Congress received
more than ten thousand letters from charities and their members requesting withdrawal the
proposed regulations. These comments were generated concerns that the regulations were
overly restrictive and would have chilling effect charities involvement the policy
making process.23
Members Congress also expressed concern. Sixteen members the Senate Finance
Committee wrote letter asking the Service withdraw the proposed regulations. The letter
stated that the proposed regulations appear introduce ambiguity about what activities
constitute lobbying such groups, and believe that may restrict lobbying ways not
intended the 1976 Act. Congressional Tax Writers Seek Withdrawal Proposed Regs
Lobbying Tax-Exempt Groups, Tax Notes 929 (Mar. 1987). House Ways and Means
Committee Chairman Dan Rostenkowski also requested that the proposal regulations
withdrawn, suggesting that the Service consult with advisory group comprised
representatives the public and private sector. emphasized, however, that would
strongly resist any suggestion that the pending controversy settled legislatively the
Congress. See McGovern 1988 1428.
While the Service did not withdraw the 1986 proposed regulations, publicly stated information release, IR-87-49 (April 1987), that would reconsider key portions the
regulations. Two days public hearings were held 1987. June 1987, the Service
announced the establishment Commissioner Exempt Organizations Advisory Group (as had
been suggested Mr. Rostenkowski). public meetings held September 17, 1987, and
February 26, 1988, possible revisions the 1986 proposed regulations were discussed with this
Advisory Group. Substantial revisions the regulations were published proposed form
For example, approximately 200 organizations signed Independent Sector position statement asking that
the rules permanently withdrawn. Opposition IRS Lobbying Rules Solidifies: Senate Tax Writers Join
Cause, Daily Tax Report (BNA) No. 29, G-5 (Feb. 13, 1987). Similarly, OMB Watch, IRC 501(c)(4)
organization formed monitor activities the Office Management and Budget and other executive agencies,
asked readers contact Congress tell the Service withdraw these regulations through passing bill, sense Congress resolution, appropriations rider denying funds the IRS for any work enforcement these
regulations, any other method Congress thinks best. Congressional Support Sought for Protest IRS Lobbying
Proposal, Daily Tax Report (BNA) No. 15, G-1 (Jan. 23, 1987). addition, OMB Watch held community
briefings throughout the country educate people about the proposed rules and encourage grass roots campaign force IRS withdraw them. Id.
Lobbying Issues
1988. 51826 (Dec. 23, 1988). Messrs. McGovern, Accetura, and Walsh Skelly, The
Final Lobbying Regulations: Challenge for Both the IRS and Charities, Tax Notes 1305,
1306 (Sept. 1990); EOTR 766, 767 (Sept. 1990) (hereinafter McGovern 1990 explained
the approach the 1988 proposed regulations follows:
The 1988 proposed regulations were attempt address
charities legitimate concerns without eliminating the statutory
limits and thus opening the Service charges failing
fulfill its statutory mandate. accomplish this, the Service
crafted number bright-line objective rules. Like all bright-line
objective rules, these rules are imperfect: certain cases, the rules
will inevitably permit expenditures treated nonlobbying
even though the public would probably consider those expenditures clear examples lobbying. contrast the reception accorded the 1986 proposed regulations, the publication the
1988 proposed regulations resulted less than 100 written comments. The comments were
almost uniformly favorable. The 1988 proposed regulations were discussed with the
Commissioner Exempt Organizations Advisory Group public meeting held January 10,
1989, and formal public hearing was held April 1989. The final regulations were
published 1990 and contained few technical changes from the 1988 proposed regulations. They
were made effective the date publication. T.D. 8308, 35579 (Aug. 31, 1990).
Specific Issues
The IRC 501(h) Election
IRC 501(h)(3) provides that the provisions IRC 501(h) will apply any eligible
What organizations may make
IRC 501(c)(3) organization that has elected election under IRC 501(h)?
have those provisions apply.24 eligible
make the IRC 501(h) election, the IRC 501(c)(3)
organization must organization described
IRC 501(h)(4) and must not disqualified organization described IRC 501(h)(5). The
IRC 501(c)(3) organizations described IRC 501(h)(4) are follows:
Educational institutions described IRC 170(b)(1)(A)(ii);
The Service records indicate that, April 1996, 6,087 organizations have made the election filing
Form 5768 over the past five years. The IRC 501(c)(3) population eligible make the election, March
1996, approximately 452,000 organizations. contrast, during that same time period, 2,407 organizations checked yes the attempted influence
legislation question (Question Part III Schedule Form 990), but did not file Form 5768.
Lobbying Issues
Organizations that support government schools described
IRC 170(b)(1)(A)(iv);
Organizations publicly supported charitable contributions
described IRC 170(b)(1)(A)(vi);
Organizations publicly supported admissions, sales, etc. related their exempt purpose described IRC 509(a)(2); and
Hospitals and medical research organizations described
IRC 170(b)(1)(A)(iii);
Organizations that are public charities because they are supporting
organization described IRC 509(a)(3) IRC 501(c)(3) organization
that described IRC 509(a)(1) IRC 509(a)(2).
What organizations may not
use the IRC 501(h) election?
IRC 501(c)(3) organizations may not elect covered the provisions IRC 501(h)
they are not described under IRC 501(h)(4)
they are disqualified under IRC 501(h)(5). The
organizations that are ineligible make
IRC 501(h) election are follows:
Churches conventions associations churches described
IRC 170(b)(1)(A)(i);
Integrated auxiliaries church convention association churches
(IRC 508(c) and IRC 6033);
Organizations described IRC 501(c)(3) and affiliated with least one
church convention association churches integrated auxiliary
(an affiliated group within the meaning IRC 4911(f)(2));
Organizations that are public charities because they are supporting
organization described IRC 509(a)(3) certain organizations exempt
under IRC 501(c)(4), IRC 501(c)(5), IRC 501(c)(6);
Organizations engaged testing for public safety and thus described
IRC 509(a)(4); and
Lobbying Issues
Private foundations.
Churches, along with church-related
organizations, were precluded from making
Why are churches precluded
election under IRC 501(h) their own request.
from making election
The Joint Committee Taxation, its General
under IRC 501(h)?
Explanation the Tax Reform Act 1976,
1976-3 C.B. (Vol. 415-416, notes that church
groups expressed concern that any restriction
their lobbying activities might violate their rights under the First Amendment. More particularly,
the church groups were concerned that including them among the class organizations eligible elect might imply Congressional ratification the decision Christian Echoes National
Ministry, Inc. United States, 470 F.2d 849 (10th Cir. 1972), cert. denied, 414 U.S. 864 (1973),
which held that the limitations lobbying were constitutionally valid and that First Amendment
rights the face such limitations were not absolute. disqualifying churches and church-related organizations from making the election,
Congress sought remain neutral the constitutional issue; fact the Joint Committee
Taxation Explanation explicitly states: that unwarranted inferences may not drawn from
the enactment this Act, the Congress states that its actions are not regarded any way approval disapproval the decision [in Christian Echoes], the reasoning any the opinions leading that decision. Id. 420. eligible IRC 501(c)(3) organization
may make IRC 501(h) election for any taxable
How election under
year the organization beginning after December
IRC 501(h) made?
31, 1976, other than the first taxable year for
which voluntary revocation the election
effective. Voluntary revocations are discussed
below. The election made filing completed Form 5768, Election/Revocation Election Eligible Section 501(c)(3) Organization Make Expenditures Influence Legislation,
with the appropriate Internal Revenue Service Center.
Under IRC 501(h)(6), the election
effective with the beginning the taxable year
When election under
which the Form 5768 filed. For example,
IRC 501(h) effective?
eligible organization with the calendar year its
taxable year files Form 5768 making the
IRC 501(h) election December 31, 1996. The
organization IRC 501(h) election effective for its taxable year beginning January 1996.
Once the IRC 501(h) election made, effective (without again filing Form 5768) for each
succeeding taxable year for which the organization eligible organization and which begins
before notice revocation filed. Reg. 1.501(h)-2(a). newly created organization may submit Form 5768 elect the expenditure test under
IRC 501(h) the time submits its Form 1023, Application for Recognition Exemption under
Lobbying Issues
Section 501(c)(3) the Internal Revenue
Code.25 the organization determined
When may newly created
eligible under IRC 501(h), the election will
organization make election
effective with the beginning the taxable year
under IRC 501(h)?
which the Form 5768 filed. However, the
organization determined the Service not eligible make IRC 501(h) election, the
election will not effective and the substantial part test will apply from the effective date
its IRC 501(c)(3) classification. Reg. 1.501(h)-2(c).
How may organization lun tarily revok
IRC 501(h) election? organization may voluntarily revoke
expenditure test election filing notice
voluntary revocation (Form 5768) with the
appropriate Service Center. IRC 501(h)(6)(B),
voluntary revocation effective with the
beginning the first taxable year after the
taxable year which the notice filed.
For example, eligible organization with the calendar year its taxable year files
Form 5768 revoking its IRC 501(h) election May 31, 1996. The organization IRC 501(h)
election remains effect for its taxable year beginning January 1996, but longer
effect for its taxable year beginning January 1997. When organization voluntarily revokes
its election, the substantial part test IRC 501(c)(3) (as discussed above) will apply with respect the organization activities attempting influence legislation beginning with the taxable
year for which the voluntary revocation effective. Reg. 1.501(h)-2(d)(1). organization that voluntarily revokes
its election under IRC 501(h) may make the
May organization that
IRC 501(h) expenditure test election again.
voluntarily revoked its election
However, the new election may effective
make the election again?
earlier than the taxable year following the first
taxable year for which the voluntary revocation
Reg. 1.501(h)-2(d)(2).
Reg. 1.501(h)-2(d)(3) furnishes the following example: organization whose taxable year the calendar year, plans voluntarily revoke its expenditure test election effective
beginning with its taxable year 1985. must file its notice
voluntary revocation Form 5768 after December 31, 1983, and
before January 1985. files notice voluntary revocation December 31, 1984, the revocation effective beginning with
its taxable year 1985. The organization may again elect the
The organization may submit its Form 5768 the appropriate key district office long its application
for recognition IRC 501(c)(3) exemption being considered that office.
Lobbying Issues
What are
Exempt Purpose Expenditures
expenditures percent the nontaxable
amount lobbying expenditures.
IRC 4911(c)(4). The following table sets forth
the nontaxable amounts:
Total Nontaxable
Grass Roots Nontaxable $500,000
$500,000 $1,000,000
$100,000 15%
excess over $500,000
$25,000 3.75%
excess over $500,000
$1,000,000 $1,500,000
$175,000 10%
excess over $1,000,000
$43,750 2.5%
excess over $1,000,000
$1,500,000 $17,000,000
excess over $1,500,000
$56,250 1.25%
excess over $1,500,000
Over $17,000,000
$250,000 IRC 501(c)(3) organization that has
made the election covered IRC 501(h)
What are the lobbying and
will not denied exemption due substantial
grass roots ceiling amounts?
lobbying activities unless normally makes
lobbying grass roots expenditures excess
the applicable ceiling amounts. The applicable
ceiling amounts for lobbying expenditures 150 percent the lobbying nontaxable amount for
the base years (IRC 501(h)(2)(B)) and for grass roots expenditures 150 percent the
grassroots lobbying nontaxable amount for the base years (IRC 501(h)(2)(D)). general, the term base years means the determination year and the three taxable years
immediately preceding the determination year.27 The base years, however, not include any
taxable year preceding the taxable year for which the organization first treated described
IRC 501(c)(3). Reg. 1.501(h)-3(c)(7).
Reg. 1.501(h)-3(b)(2), however, provides special exception for organization first
election. Under this exception, for the first, second, third consecutive determination year for
which organization first expenditure test election effect, the organization will not
denied exemption from tax reason IRC 501(h) if, taking into account base years only
those years for which the expenditure test election effect the following conditions are met:
The sum the organization lobbying expenditures for such base years does not
exceed 150 percent the sum its lobbying nontaxable amounts for the same
base years; and taxable year determination year year for which the expenditure test election effect,
other than the taxable year for which the organization first treated described IRC 501(c)(3).
Reg. 1.501(h)-3(c)(8).
Lobbying Issues
The sum the organization grass roots expenditure for those base years does
not exceed 150 percent the sum its grass roots nontaxable amounts for such
base years.
Thus, the mere fact that organization pays tax under IRC 4911 does not indicate that will lose its exemption under IRC 501(c)(3). the contrary, using the election and
occasionally paying the tax, necessary, was designed allow that leeway.
Reg. 1.501(h)-3(e) provides number
examples illustrating how excess lobbying
How are these rules applied?
expenditures are calculated, how the tax imposed IRC 4911(a)(1) calculated, and how the
determination made concerning whether the
electing public charity denied exempt status under IRC 501(c)(3) because its lobbying
One example involves organization whose taxable year the calendar year that has
been recognized IRC 501(c)(3) organization for number years prior making the
expenditure test election under IRC 501(h) effective for taxable year 1979. The organization has
not revoked the election. The following table contains information used this example.
Grass roots
amount (25% LNTA)
Grass roots
(20% $500,000
15% $200,000
(20% $500,000
15% $300,000
(20% $500,000
15% $300,000
(20% $500,000
15% $400,000
220,000 this example, the organization liable for the tax imposed under IRC 4911 for 1980,
1981, and 1982 because its grass roots expenditures exceeded its grass roots nontaxable amount each those years, even though its total lobbying expenditures did not exceed the lobbying
nontaxable amount. The tax imposed IRC 4911(a) for 1980 $5,937.50 which equal percent $13,750 (the difference between $60,000 and $36,250). For 1981, the tax
$7,187.50 and for 1982, the tax $6,250. For the tax years 1979, 1980, and 1981, the
organization meets the special exception under Reg. 1.501(h)-3(b)(2). However, for the taxable
year 1982, the total grass roots expenditures for the base years (1979 through 1982) exceeds the
grass roots ceiling amount $217,500 (150 percent $145,000). Consequently, for the taxable
year 1983, the organization denied tax exemption organization described
IRC 501(c)(3). The organization must again apply for recognition exemption pursuant
Reg. 1.501(h)-3(d) for taxable years after 1983. Reg. 1.501(h)-3(e), Example (2).
Lobbying Issues
Another example concerns organization, whose taxable year the calendar year, that
made its IRC 501(h) election effective for its taxable year 1977, the first year was treated organization described IRC 501(c)(3). The organization has not revoked the election. The
following table contains information used this example.
Grass roots
amount (25% LNTA)
Grass roots
(20% $500,000
15% $200,000
(20% $500,000
15% $300,000
(20% $500,000
15% $400,000 this example, the organization liable for the tax imposed under IRC 4911 1977,
1978, and 1979 because its total lobbying expenditures exceed its lobbying nontaxable amount each those years. Although its grass roots lobbying expenditures exceeded its grass roots
lobbying nontaxable amount 1979, the tax calculated based the excess lobbying
expenditures all three years since that amount greater. The tax for 1977 percent
the difference between $182,000 and $130,000 ($13,000). The tax for 1978 $19,937.50 and
the tax for 1979 $26,000. Pursuant Reg. 1.501(h)-3(c)(8), the organization not required determine continues qualify for IRC 501(c)(3) exempt status for 1977 since that its
first year IRC 501(c)(3) organization. For 1978, the total lobbying expenditures and grass
roots expenditures for the organization base years (1977 and 1978) not exceed 150 percent its lobbying nontaxable amount its grass roots nontaxable amount. However, for 1979, the
total lobbying expenditures the organization for its base years (1977 through 1979) exceed
$652,500 (150 percent $435,000). result, for the taxable year 1980, the organization
denied tax exemption organization described IRC 501(c)(3). The organization must
again apply for recognition exemption pursuant Reg. 1.501(h)-3(d) for taxable years after
1980. Reg. 1.501(h)-3(e), Example (3).
Lobbying Issues
The amounts any transfer described Reg. 56.4911-4(e);
Amounts paid incurred for separate fundraising unit the
organization affiliated organization;29
Amounts paid incurred for any person not employee, any
organization not affiliated organization, paid incurred primarily for
fundraising, but only such person organization engages fundraising,
fundraising counselling the provision similar advice services;
Amounts paid incurred chargeable capital account, determined
accordance with the principles that apply under IRC 263 IRC 263A,
with respect unrelated trade business;
Amounts paid incurred for tax that not imposed connection with
the organization efforts accomplish IRC 170(c)(2)(B) purpose, such taxes imposed under IRC 511(a)(1) and IRC 4911(a); and
Amounts paid incurred for the production income.30
There are two types transfers that will treated exempt purpose expenditure.
When are transfers exempt
The first transfer made organization
purpose expenditures?
described IRC 501(c)(3) furtherance the
transferor exempt purposes that not
earmarked for any purpose other than one
described IRC 170(c)(2)(B). Therefore, payment dues local state organization to,
respectively, state national organization that described IRC 501(c)(3) considered
exempt purpose expenditure the transferor the extent not otherwise earmarked.
Reg. 56.4911-4(f)(2) provides that, for this purpose, separate fundraising unit any organization must
consist either two more individuals majority whose time spent fundraising for the organization,
any separate accounting unit the organization that devoted fundraising. Furthermore, for this purpose,
amounts paid incurred for separate fundraising unit include all amounts incurred for the creation, production,
copying, and distribution the fundraising portion separate fundraising unit communication. (For example, electing public charity that has separate fundraising unit may not count the cost postage for separate
fundraising unit communication exempt purpose expenditure even though, under the electing public charity
accounting system, that cost attributable the mailroom rather than the separate fundraising unit.)
For purposes this section, amounts are paid incurred for the production income they are paid
incurred for purpose activity that not substantially related (aside from the need the organization for income funds the use makes the profits derived) the exercise performance the organization its
charitable, educational other purpose function constituting the basis for its exemption under IRC 501. For
example, the costs managing endowment are amounts that are paid incurred for the production income
and are thus not exempt purpose expenditures. Fundraising expenditures are not, for purposes this section,
amounts that are paid incurred for the production income. Instead, the determination whether fundraising
costs are exempt purpose expenditures must made with reference IRC 4911(e)(1)(C), Reg. 56.4911-4(b)(8),
Reg. 56.4911-4(c)(3), and Reg. 56.4911-4(c)(4).
Lobbying Issues
Reg. 56.4911-4(d)(2). The second type controlled grant, but only the extent the
amounts that are paid incurred the transferee that would exempt purpose expenditures paid incurred the transferor.31 Reg. 56.4911-4(d)(3). the other hand, Reg. 56.4911-4(e) provides that three types transfers cannot
considered exempt purpose expenditures. The first type transfer made member any
affiliated group (as defined Reg. 56.4911-7(e)) which the transferor member.
Reg. 56.4911-4(e)(2).
The second type transfer that the Commissioner determines artificially inflates the
amount the transferor transferee exempt purpose expenditures. The regulation provides
that this determination generally will made substantial purpose transfer inflate
those exempt purpose expenditures. When this determination made, the transfer will not
considered exempt purpose expenditure the transferor; rather, will exempt purpose
expenditure the transferee the extent that the transferee expends the transfer the active
conduct its charitable activities attempts influence legislation. Standards similar those
found Reg. 53.4942(b)-1(b) (relating operating foundations) may applied determining
whether the transferee has expended amounts the active conduct its charitable activities attempts influence legislation. Reg. 56.4911-4(e)(3).
The third type transfer that not controlled grant and made organization
not described IRC 501(c)(3) that does not attempt influence legislation.
Reg. 56.4911-4(e)(4).
Reg. 56.4911-4(g) illustrates the provisions
relating the determination exempt purpose
How are exempt purpose
expenditures discussing the example
expenditures determined?
organization that exempt organization
described IRC 501(c)(3) organized for the
purpose rehabilitating alcoholics.
organization elected subject the provisions IRC 501(h) 1981. For 1981, the
organization had expenditures indicated the following chart. Those expenditures are
included its exempt purpose expenditures the extent indicated.
Reg. 56.4911-4(f)(3) defines controlled grant grant made organization eligible elect the
expenditure test organization not described IRC 501(c)(3) that meets the following requirements:
The donor limits the grant specific project the recipient that furtherance
the donor (nonlobbying) exempt purposes; and
The donor maintains records establish that the grant used furtherance the
donor (nonlobbying) exempt purposes.
Lobbying Issues communication with legislator
government official will not treated direct
What direct lobbying
lobbying communication accordance with
Reg. 56.4911-2(b)(1) unless both refers
specific legislation and reflects view such
legislation. Reg. 56.4911-2(b)(1)(ii). Therefore, position letter pending bill prepared organization employee and distributed
members Congress personal contacts the employee with members Congress their
staffs seek support for the organization position the bill would constitute direct lobbying.
Reg. 56.4911-2(b)(4)(i), Example (1). contrast, letter sent member Congress
requesting that she write administrative agency regarding proposed regulations recently
published that agency and also requesting that she state her support for particular type
permit granted the agency not direct lobbying communication. Reg. 56.4911-2(b)(4)(i),
Example (2). Similarly, sending paper state legislator particular state environmental
problems that does not reflect view any specific legislation that the organization either
supports opposes likewise not direct lobbying communication. Reg. 56.4911-2(b)(4)(i),
Example (3).
Yes. The regulations furnish example organization that researched, prepared, and
May some, but not all, the
printed safety code for electrical wiring. The
expenses associated with
organization sold the code the public and
study treated direct
was widely used professionals the
lobbying expenditures?
installation electrical wiring. number
states have codified all, part, the code
standards mandatory safety standards.
occasion, the organization lobbied state legislators for passage the code standards for safety
reasons. Because the primary purpose preparing the code standards was the promotion
public safety and the standards were specifically used profession for that purpose, separate
from any legislative requirement, the research, preparation, printing and public distribution the
code standards not expenditure for direct (or grass roots) lobbying communication.
However, costs, such transportation, photocopying, and other similar expenses, incurred
lobbying state legislators for passage the code standards into law are expenditures for direct
lobbying communications. Reg. 56.4911-2(b)(4)(i), Example (5). some situations, the news media may
report that organization has communicated
Will news media reports
with the legislature support opposition
convert communication from
particular legislation. The mere fact that the
direct grass roots lobbying?
organization position the legislation has been
reported the news media, and therefore
communicated the general public, does not
convert into grass-roots lobbying communication. The communication remains direct
lobbying communication. Reg. 56.4911-2(b)(4)(i), Example (6).
Lobbying Issues
Therefore, adding exhortation such oppose 549 the previously discussed
example passage 549 would mean the end civilization know would not
affect the analysis. The statement still would not constitute grass roots lobbying because the
exhortation does not reach the level specificity set forth the above paragraphs.
Furthermore, there distinction observed here. Communications described
paragraphs (A) through (C) not only encourage, but also directly encourage the recipient
take action with respect legislation. Communications described paragraph (D), however, not directly encourage the recipient take action with respect legislation. Therefore, communication would encourage the recipient take action with respect legislation, but
not directly encourage such action, the communication does more than identify
legislator who will vote the legislation opposing the organization view with respect the
legislation. Reg. 56.4911-2(b)(2)(iv). Communications that encourage the recipient take
action with respect legislation but that not directly encourage the recipient take action
with respect legislation may within the exception for nonpartisan analysis, study research
and thus not grass roots lobbying communications. Reg. 56.4911-2(c)(1)(vi). The distinction
also assumes importance the rules regarding membership communications.
Reg. 56.4911-5(f)(6).
Legislators may identified name specific reference, e.g., the junior Senator
from State Reg. 56.4911-2(b)(4)(ii)(C), Example (6). However, more general reference,
e.g., most the Senators from the Farm Belt states are inexplicably favor the bill, would
not identify legislator. Reg. 56.4911-2(b)(4)(ii)(C), Example (7).
Reg. 56.4911-2(b)(4)(ii)(C), Example (8),
discusses organization that trains volunteers
Must volunteer activity costs door-to-door seek signatures for petitions treated lobbying costs? sent legislators favor specific bill.
When the organization asks the volunteers
contact others and urge them sign the petitions, encourages those volunteers take action favor the specific bill. The organization does
not reimburse the volunteers for their time and expenses. Any costs incurred the volunteers carrying this activity are not lobbying exempt purpose expenditures made the
organization. Furthermore, the volunteers may not deduct their out-of-pocket expenditures. See
IRC 170(f)(6). However, the organization costs soliciting the volunteers help and its costs training the volunteers are grass roots expenditures. addition, the costs preparing,
copying, distributing, etc., the petitions (and any other materials the same specific subject used the door-to-door signature gathering effort) are grass roots expenditures.
Nevertheless, noted Reg. 1.501(h)-3(e), Example (5), the fact that numerous unpaid
volunteers conduct lobbying activities with reimbursement behalf electing public
charity will not considered determining whether the organization has engaged substantial
lobbying for purposes its exemption under IRC 501(c)(3). Unlike the test for nonelecting
public charities where such activities would considered, the test under IRC 501(h) solely
based upon expenditures.
Lobbying Issues
Reg. 56.4911-2(c)(1)(vii), Examples (8) and (9), provide illustrations the difference between
encouraging and directly encouraging. Example (8), analysis pending bill study
names certain undecided Senators the Senate committee considering the bill. Although the
study meets the three part test for determining whether communication grass roots lobbying
communication, the study within the exception for nonpartisan analysis, study research,
because does not directly encourage recipients the communication urge legislator
oppose the bill. Example (9), the facts are identical except that the study concludes: You
should write the undecided committee members support this crucial bill. The study not
within the exception for nonpartisan analysis, study research because directly encourages
the recipients urge legislator support specific piece legislation.
Reg. 56.4911-2(c)(1)(iv) provides that
organization may choose any suitable means
How may nonpartisan analysis
distribute the results its nonpartisan analysis,
results distributed?
study, research, including oral written
presentations, with without charge. This
includes distribution reprints speeches,
articles and reports; presentation information through conferences, meetings and discussions;
and dissemination the news media, including radio, television and newspapers, and other
public forums. However, such communications may not limited to, directed toward,
persons who are interested solely one side particular issue.
Normally, whether publication
broadcast qualifies nonpartisan analysis,
What happens when results
study, research determined based upon each
are distributed series?
However, the results are
presented series prepared supported the
organization and the series whole meets the
standards Reg. 56.4911-2(c)(1)(ii), then any individual presentation within the series not
direct grass roots lobbying communication even though such individual presentation does not, itself, meet the standards for nonpartisan analysis, study, research. Whether
presentation considered part series will depend upon all the facts and circumstances
each particular situation. However, with respect broadcast activities, all broadcasts within any
period six consecutive months will ordinarily eligible considered part series.
Reg. 56.4911-2(c)(1)(iii).
Nevertheless, electing organization times channels part series manner
designed influence the general public the action legislative body with respect
specific legislative proposal, the expenses preparing and distributing such part the analysis,
study, research will expenditures for direct grass roots lobbying communications,
the case may be. example such circumstance set forth Reg. 56.4911-2(c)(1)(vii),
Example (7). the example, organization presented within period six consecutive
months two-program television series relating pesticide issue. The organization arranges
for the first program, which contains information, arguments, and conclusions favoring
legislation, televised 8:00pm Thursday. arranges for the second program, which
opposes such legislation, televised 7:00am Sunday. The example concludes that
Lobbying Issues
Under this exception, charity may communicate with entire legislative body, with
committees subcommittees legislative body, with individual legislators, with legislative
staff members, with representatives the executive branch who are involved with the
legislative process, long such communication limited the prescribed subjects.
Similarly, under the self-defense exception, charity may make expenditures order initiate
legislation such legislation concerns only matters which might affect the existence the
charity, its powers and duties, its tax-exempt status, the deductibility contributions such
Therefore, bill would cause organization lose its exemption from taxation
engages certain transactions, expenditures paid incurred with respect the organization
submissions the bill not constitute taxable expenditures since they are made with respect possible decision Congress which might affect the existence the organization, its
powers and duties, its tax-exempt status, the deduction contributions such foundation.
Reg. 53.4945-2(d)(3)(ii), Example (1). However, the exception would not apply expenditures
incurred organization that appeared before appropriations committee order attempt persuade the committee the advisability continuing contract research program whose
discontinuance would affect the organization financially. Expenditures paid incurred with
respect such appearance are not made with respect possible decisions the legislature that
might affect the existence the organization, its powers and duties, its tax-exempt status, the
deduction contributions such foundation, but rather merely affect the scope the
organization future activities. Reg. 53.4945-2(d)(3)(ii), Example (4).
Special Rules for Mass Media Advertising
Reg. 56.4911-2(b)(5) contains special
rule for certain mass media advertisements.
What are the rules concerning
Under this rule, mass media advertisement that
mass media advertising?
does not qualify grass roots lobbying
communication under the three-part definition (as
discussed above) may nevertheless considered grass roots lobbying communication. This special rule generally applies only limited type paid advertisements that appear the mass media.
Reg. 56.4911-2(b)(5)(ii) contains presumption regarding certain paid mass media
advertisements about highly publicized legislation. Under this presumption, organization
paid advertisement appears the mass media within two weeks before vote legislative
body, committee (but not subcommittee) such body, highly publicized piece
legislation, the paid advertisement will considered grass roots lobbying communication the paid advertisement both reflects view the general subject such legislation and either
refers the highly publicized legislation encourages the public communicate with
legislators the general subject such legislation. This presumption can rebutted
demonstrating that the paid advertisement type mass media communication regularly made the organization without regard the timing legislation (that is, customary course
business exception) that the timing the paid advertisement was unrelated the upcoming
Lobbying Issues
When electing public charity makes
transfer that earmarked for grass roots lobbying
What are the rules relating
purposes, the transfer grass roots expenditure.
transfers electing charities?
Reg. 56.4911-3(c)(1). When electing public
charity makes transfer that earmarked for
direct lobbying purposes for direct lobbying
and grass roots lobbying purposes, the transfer treated grass roots expenditure full
except the extent the electing public charity demonstrates that all part the amounts
transferred were expended for direct lobbying purposes, which case that part the amounts
transferred direct lobbying expenditure the electing public charity.39
Reg. 56.4911-3(c)(2). transfer for less than fair market value electing public charity any organization
(other than those described IRC 501(c)) that makes lobbying expenditures not exempt
purpose expenditure unless the public charity makes the benefit generally available less than
fair market value the course activity that substantially related accomplishing the
exempt purpose the charity.40 Reg. 56.4911-3(c)(3). Transfers for fair market value, whether related unrelated organizations, are not covered this rule.
The amount which the cost fair market value (whichever greater) the transfer
exceeds the value given the electing public charity return for the transfer the amount
subject this rule. Reg. 56.4911-3(c)(3)(i)(E). This amount treated grass roots
expenditure the extent the transferee grass roots expenditures. the transferred amount
exceeds the transferee grass roots expenditures, the excess treated direct lobbying
expenditure the extent the transferee direct lobbying expenditures. the transfer exceeds
both grass roots and direct lobbying expenditures the transferee, the excess not treated lobbying expenditure. Reg. 56.4911-3(c)(3)(ii). Reg. 56.4911-3(c)(3)(iii) illustrates this
provision the following example:
Organization electing public charity, shares employee with noncharity that makes lobbying expenditures. grass roots
expenditures are $5,000 and its direct lobbying expenditures are
$25,000. Each organization pays one-half the $100,000
direct and overhead costs associated with devotes one-quarter his time and three-quarters his time substance,
this arrangement transfer (for less than fair market value)
from the amount $25,000 (one-quarter the $100,000 direct and overhead costs associated with work).
These rules not apply transfers that are not exempt purpose expenditures because they are described Reg. 56.4911-4(e).
This rule also does not apply controlled grants transfers that are not exempt purpose expenditures
because they are described Reg. 56.4911-4(e).
Lobbying Issues
Accordingly, treated having made $5,000 grass roots
expenditure (the lesser grass roots expenditures ($5,000)
the amount the transfer ($25,000)). also treated having
made $20,000 direct lobbying expenditure (the lesser
direct lobbying expenditures ($25,000) the remaining amount
the transfer ($20,000)). treated lobbying expenditure
accordance with Reg. 56.4911-3(c)(1)
When transfer earmarked
Reg. 56.4911-3(c)(2), transfer must
for specific purpose?
earmarked for direct grass roots lobbying
purposes pursuant Reg. 56.4911-4(f)(4). This
regulation provides that transfer, including
grant payment dues, earmarked for direct grass roots lobbying purposes the extent
the transfer meets either one the following requirements:
The transferor directs the transferee add the amount transferred
fund established accomplish the direct grass roots lobbying purpose,
The amount transferred or, less, the amount agreed upon the expended accomplish the purpose, there exists agreement, oral written,
whereby the transferor may cause the transferee expend amounts
accomplish the direct grass roots lobbying purpose whereby the
transferee agrees expend amount accomplish the direct grass
roots lobbying purpose.
Allocation Rules
Reg. 56.4911-3 contains allocation rules
for determining what portion the costs
What are the principles the
lobbying communication direct lobbying
allocation rules?
expenditure, what portion grass roots
lobbying expenditure, and what portion not
lobbying expenditure. The general principle
involved that all costs preparing direct grass roots lobbying communication are included expenditures for direct grass roots lobbying lobbying expenditures including both direct
and indirect costs. Therefore, lobbying expenditures include amounts paid incurred current deferred compensation for employee services well the allocable portion
administrative, overhead, and other general expenditures attributable the direct grass roots
lobbying communication. For example, general rule, all expenditures for researching,
drafting, reviewing, copying, publishing and mailing direct grass roots lobbying
communication, well allocable share overhead expenses, are included expenditures
for direct grass roots lobbying. Reg. 56.4911-3(a)(1).
Lobbying Issues
conclude that the first three pages the document are the same specific subject; therefore,
all expenditures preparing and distributing those three pages are grass roots lobbying
expenditures. However, the cost the fourth page not lobbying expenditure since not the same specific subject.
Reg. 56.4911-3(a)(2)(ii) provides that
the case lobbying expenditures for
How are expenditures for
communication that also has bona fide
member communications
nonlobbying purpose and that sent only
primarily members, electing public charity
must make reasonable allocation between the
amount expended for the lobbying purpose and
the amount expended for the nonlobbying purpose. For the purpose applying this rule, more
than half the recipients lobbying communication are members the organization within
the meaning Reg. 4911-5, then the communication considered sent only primarily members. (See the discussion below for the rules regarding communications with members.)
The regulation further provides that electing public charity that includes lobbying
expenditure only the amount expended for the specific sentence sentences that encourage the
recipient take action with respect legislation has not made reasonable allocation.
Reg. 56.4911-3(b), Examples (10) and (11), illustrate these principles. member organization
that prepared and mailed document primarily members that discusses the need for child care,
refers and reflects view specific legislation concerning child care, and states that readers
should contact the legislature regarding the specific legislation. The organization determines that
the document has bona fide nonlobbying purpose, educating its members about the need for
child care. Example (10), the organization allocates one-half the preparation and
distribution costs lobbying, which the regulation concludes reasonable. However,
Example (11), the regulations conclude that allocation only one percent the costs
lobbying based upon the fact that only two lines out 200 state that the recipient should contact
the legislature was not reasonable.
Generally, communication (to which the
membership rules Reg. 56.4911-5 does not
How are mixed lobbying
apply) that both direct lobbying
expenditures allocated?
communication and grass roots lobbying
communication will treated grass roots
lobbying communication. However, the extent
the electing public charity demonstrates that the communication was made primarily for direct
lobbying purposes, the organization may make reasonable allocation between the direct and the
grass roots lobbying purposes served the communication. Reg. 56.4911-3(a)(3).42
Under the proposed 1986 regulations, the organization had demonstrate that the expenditure was incurred
solely for direct lobbying purposes. 40211, 40223 (Nov. 1986).
Lobbying Issues
The communication does not directly encourage the member engage
direct lobbying (whether individually through the organization); and
The communication does not directly encourage the member engage
grass roots lobbying (whether individually through the organization). communication that otherwise meets the
requirements set forth Reg. 56.4911-5(b) but
What happens when
does not come within that rule because directly
member communication
encourages the members engage direct
encourages direct lobbying?
lobbying will treated direct lobbying
IRC 4911(d)(3)(A);
Reg. 56.4911-5(c).
Reg. 56.4911-5(f)(6)(i)(A)
provides that member communication directly encourages recipient engage direct
lobbying, whether individually through the organization, the communication does any the
The communication states the recipient should contact individual
described Reg. 56.4911-2(b)(1)(i);
The communication states the address, telephone number, similar
information legislator employee legislative body;
The communication provides petition, tear-off postcard similar
material for the recipient communicate his her views individual
described Reg. 56.4911-2(b)(1)(i). communication that meets the
requirements Reg. 56.4911-5(b) that
What happens when member
directed only members and refer and reflect
communications encourage view specific legislation direct interest
grass roots lobbying?
and concern the organization and its members,
but does not qualify under that rule because
directly encourages the members urge persons
other than members engage direct grass roots lobbying treated grass roots lobbying.
IRC 4911(d)(3)(B); Reg. 56.4911-5(d). Reg. 56.4911-5(f)(6)(ii) provides that communication
directly encourages recipients engage