Advocacy Without Fear

You ought to be clear about what you can and can't do when you get involved as an advocate in the public policy arena. In a quite tangible sense, knowledge is power here. You can do quite a lot before you cross the line of the impermissible. If you have done your homework, there is no need to worry over the repercussions of some action of yours. The rules at issue are federal tax rules that must be followed to protect your federal income tax exemption and eligibility for charitable contributions. (State and local laws may require registration and reporting of lobbying activities, but do not limit the amount of lobbying you may do.)

Here, in shorthand, are the federal tax rules on lobbying that you should bear in mind as you go about your work.

Public charities must engage in no campaigning for candidates and must make sure that no substantial part of their activities consists of lobbying. Briefly, lobbying consists of trying to persuade legislators to enact or not to enact bills ("direct lobbying") or of encouraging constituents of legislators to exercise their influence with such legislators on behalf of or against some legislation ("grass roots lobbying"). Political campaigning -- working for or against candidates' election to office -- is, as noted, prohibited. Special rules apply to private foundations. They are generally prohibited from spending any funds themselves on lobbying (e.g., paying wages to someone for engaging in lobbying activity) but, under specified guidelines, they can make grants to organizations that lobby.

What You Can Do

First, it is important to realize that there is a great deal of governmental activity that is neither lobbying nor campaigning. For example, the following activities are not lobbying for federal tax purposes (other definitions apply under other laws regulating lobbying):

* Advocacy aimed at regulatory and administrative agencies, e.g., trying to get the Human Resources Administration to adopt or change its policies, rules or regulations.

* Advocacy aimed at the executive (e.g., the Mayor or Governor), so long as it does not ask her to promote, discourage or veto legislation.

* Any and all public interest litigation and related judicial efforts.

* The development of general policy positions aimed at some problem that has not been reduced to a specific legislative proposal.

* Testifying before a legislative committee if the organization has received a written request from the committee to testify.

* Testifying on a subject that involves the organization's own self-defense, e.g., a proposal to remove its tax exemption.

For example, the following activities are not campaigning:

* Non-partisan voter registration drives.

* Voter education material which (1) states the positions of all the candidates, (2) covers a broad range of issues and (3) describes candidates' positions in ways which do not show a bias on the issues or a preference or evaluation of the candidates.

* In certain circumstances, a single-issue organization can use the campaign season, when politicians are particularly receptive to their constituents' views, to advance its issue without running afoul of the prohibition against campaigning.

Second, it is important to realize that the limitations apply only to organizations, and not to individuals acting in their individual capacity and not as representatives of their organization. Staff or board members can advocate individually or join volunteer advocacy groups formed to advocate positions so long as the advocacy group has no connection to the exempt organization with which they are associated. When acting on their own, they should not use the letterhead of their exempt organization. If their name appears on the letterhead of some unrelated volunteer advocacy group, it is better not to list their organization's name although if it is done with the disclaimer "for identification purposes only," it may be alright. A caveat: if an individual is associated very closely in the public's eye with an organization, she should probably not engage in any advocacy on her own.

Sooner or later an active volunteer advocacy group will need to have staff work done and will want to pay someone to do it. This can be done by setting up a 501(c)(4) organization for which there are no limits on the amount of lobbying. 501(c)(4)s are also freer to do more campaigning than 501(c)(3)s. 501(c)(4)s are tax exempt but are not eligible for the charitable contribution deduction. Generally, 501(c)(4)s are also not eligible for grants from private foundations. Many 501(c)(3)s, who over time develop a significant advocacy agenda, set up parallel 501(c)(4)s out of which they can safely do their advocacy work. In this situation, the (c)(3) and the (c)(4) can have the same board. So long as the (c)(4) is supported solely by after-tax dollars -- for example, by member dues for which the members receive no charitable contribution deduction -- and it receives no support from its sister (c)(3), there should be no problem.

A Refinement on the Rules

A 501(c)(3) can elect to have the question of whether it is doing too much lobbying governed by a simple mechanical test which very generally provides that so long as it spends no more than 5% of its expenditures on grass roots lobbying and no more than 20% on the total of grass roots and direct lobbying, it will not jeopardize its exemption. This is called the Section 501(h) election. (For a detailed discussion of this election, click here.) If a group does not make the 501(h) election, it will be governed by the "no substantial part" test. The rules provided under the election provision are clear and objective and in that way are much different than the "no substantial part" test which rests upon subjective criteria that have been developed in an unclear and inconsistent manner. Activity which under the rules that apply to electing groups would clearly not be lobbying may in fact be lobbying under the "no substantial part" test. Most of the uncertainty involves grass roots lobbying. Under these rules, for groups who have made the election, before a communication will be characterized as a grass roots lobbying communication, it must contain a call to action. Thus, a communication may refer to specific legislation and comment on it in the most partisan manner and, so long as it contains no call to action, it will not be characterized as grass roots lobbying. Further, nonpartisan analysis or research -- material which presents a full and fair exposition of the facts so that its readers can form an independent opinion on the matter -- or discussions of broad social, economic and similar problems will not be considered grass roots lobbying even if they contain an indirect call to action. It could be that without the election all these communications would be considered lobbying. Since the test for those groups who have made the election is based solely on expenditures, lobbying may be done by uncompensated board members, without limit, and not have any effect on the organization's tax status. Under the "no substantial part" test, such efforts would be taken into account.

Foundation Grants

A foundation may make a general support grant to a public charity, even though the grantee engages in some lobbying, so long as the grant is not earmarked for lobbying or campaigning and there is no agreement whereby the grantor foundation could cause the grantee to lobby or campaign. A foundation may make a grant to support a special project that has lobbying as a component so long as the amount of the grant is less than the amount that will be spent by the project for non-lobbying activities. Grants in support of nonpartisan studies and examinations and discussions of broad social, economic and similar problems are also permissible.

Copyright 2001 Nonprofit Coordinating Committee of New York, Inc.

Revised May 2003