During This Election Season, Remember Restrictions on a Public Charity's Lobbying Activities

Restrictions include taking a public position on a non-candidate election issue

With the election just around the corner, public charities should avoid any type of “grass roots” lobbying that would invite people to compare the views of a candidate for public office with the organization’s own views. Moreover, regardless of whether an election is on the horizon, the charity must always be careful to keep its lobbying activities limited.

A 501(c)(3) public charity is permitted to engage in lobbying, but only as an insubstantial portion of its activities. (Private foundations are subject to special additional restrictions.) For this purpose, lobbying includes “grass roots” lobbying which might generally be thought of as the charity’s taking a public stand on an issue in order to influence its members and/or the public – such as urging voters to pass a local levy for mental health services.

A few points to keep in mind: 

Some lobbying is allowed. Lobbying is permitted with restrictions for public charities. In order for an organization to qualify under 501(c)(3), the organization, among other things, cannot carry on propaganda or otherwise attempt to influence legislation as a substantial part of its activities. This test is often altered as if it read that the charity cannot carry on “any substantial lobbying activities.”

No fixed percentage test. The IRS and the courts frequently repeat that there is no fixed percentage of a charity’s expenditures that marks the line where the charity goes over the “substantial part” test (although the idea still persists that lobbying expenses of less than 5% keep the charity safe).

IRS substantial part test. The IRS uses its typical “all the facts and circumstances” test. The IRS considers a variety of factors, including the time devoted (by both compensated and volunteer workers) and the expenditures devoted by the organization to the activity, when determining whether the lobbying activity is substantial. Obviously, this test is vague, uncertain and unpredictable with no clear line about how much is too much.

The 501(h) safe harbor. A large block of public charities (but not all) are able to elect to fall within a safe harbor for lobbying activities where the test is based on percentages of expenditures (with ceilings), detailed definitions and expense allocations, allowing much more (but not total) certainty and predictability.

What is “lobbying” under the “substantial part” standard? An organization will be regarded as attempting to influence legislation if the organization:

  • Advocates the adoption or rejection of legislation; and
  • Either:
  • Engages in direct lobbying, generally by contacting members of a legislative body with respect to legislation; or
  • Engages in what is generally known as “grass roots lobbying,” which may take the form of urging the public (or the organization’s own members) to contact members of a legislative body with respect to legislation or may take the form of urging the public (or the organization’s own members) to take direct action on a particular issue (as when an issue is on the ballot). 

Note.  Part of the legislative activity (i.e., lobbying) of the public charity includes efforts expended in studying the matter, formulating the legislative position of the organization, and developing strategies and plans of action.

Grass roots lobbying.  There is no real definition of grass roots lobbying under the “substantial part” standard, although the term grass roots is used in the applicable regulations. For purposes of the 501(h) safe harbor and special rules governing private foundations, however, grass roots lobbying is defined as a communication which:

  1. Refers to specific legislation;
  2. Reflects a view on the legislation; and
  3. Unless the communication is made in mass media within two weeks of a vote on a highly publicized legislation, encourages the recipient to take action with respect to the legislation.

Again, “legislation” in the context of grass roots lobbying would include the wide variety of issues that may be placed before the electorate for a direct vote and is not restricted only to legislation being or to be considered by elected officials.

Broad interpretation of the restriction.  The concept of “legislation” that the charity is attempting to influence is fairly expansive, although it normally excludes action by administrative agencies and special purpose bodies. Further, depending on the purpose for the contact, “lobbying” may include contact with the executive branch and with administrative agencies and not just legislators − and their staff − or the voting public.

Consequences for violation of the “substantial part” standard. Generally, when a charity violates the lobbying restrictions, it risks (1) losing its tax-exempt status and eligibility for the contributions deduction and/or (2) a 5% excise tax. In relatively extreme cases the charity’s manager may face personal liability for the excise tax.

Note.  See our web article ’Tis the Season dated September 19, 2016, for a discussion about the dangers when issue advocacy/grassroots lobbying becomes entangled with a candidate’s political campaign for public office.

If you have questions about 501(c)(3) status and public elections, contact the Day Ketterer Non-Profit and Foundations Group attorneys at 330.455.0173.

The content of this article is for informational purposes only and is not intended as legal advice for any purpose. The article is not intended to present an exhaustive summary of all applicable laws, or to take the place of legal advice. If you have any questions regarding the law, please contact us for assistance.