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Q&A: Lobbying & Advocacy

Legal Counsel for Philanthropy and the Nonprofit Sector

Information and resources on nonprofit law & regulation

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Q&A: Lobbying & Advocacy

  1. By now just about everyone knows that nonprofit organizations are prohibited from lobbying, but I bet, like me, very few know why. Since lobbying would often advance an organization's exempt purposes - the same way operating a gift store furthers a museum's mission - why does the government place this restriction on the organization? What's the rationale?
  2. I've learned secondhand that the nonprofit organization I work for gives campaign contributions - albeit small ones - to various political candidates in my state. Is this legal? Is it ethical? Certainly our donors, who surely wouldn't agree with the beliefs of some of these candidates, don't expect their gifts to end up this way.
  3. I understand that a charity cannot contribute to a political campaign. But I'm wondering if that same charity can in fact give to a citizen group (i.e. citizens for good health) which in turn contributes to a candidate for political office? If so, it seems we have a big loophole.

  1. By now just about everyone knows that nonprofit organizations are prohibited from lobbying, but I bet, like me, very few know why. Since lobbying would often advance an organization's exempt purposes - the same way operating a gift store furthers a museum's mission - why does the government place this restriction on the organization? What's the rationale?

    The theory is that in return for the grant of tax-exempt status and the ability to receive tax-deductible donations, an organization is required to engage primarily in 1) recognized charitable or nonprofit activities which 2) benefit the public as a whole. Lobbying is not considered to be of a sufficiently charitable or nonprofit nature to justify such privileged status

    Additionally, an organization engaging in partisan lobbying for or against legislation serves to benefit only that portion of the public which sympathizes with its point of view.

    In regard to the premise of your question, remember also that nonprofits are not in fact prohibited from lobbying. They are prohibited from devoting more than an insubstantial portion of their resources on lobbying. The term insubstantial has not been clearly defined in this context.

    Suffice it to say that if no more than five to ten percent of an organization's total efforts are devoted to lobbying, it is probably acting within legal limits.

    Many organizations shy away from activities they presume to be lobbying but which in fact fall outside of the definition of lobbying, which is narrowly defined by the IRS. Generally speaking, lobbying is the expression of a view or a call to action on specific legislation. Lobbying does not include, for instance, nonpartisan analysis of legislation, the expression of a position on issues (as opposed to legislation) of public concern, or action taken in "self-defense" of the organization.

    If more than an insubstantial amount of an organization's resources are devoted to lobbying, the organization may wish to choose what is called a 501(h) election. This allows the organization to expend up to approximately 20% of its funds on lobbying.

    If you wish to lobby more than that, you might want to consider establishing a separate 501(c)(4) tax-exempt organization specifically for the purposes of advocacy and lobbying. The main difference between 501(c)(3) and (c)(4) organizations is that contributions to the latter are not tax-deductible.

  2. I've learned secondhand that the nonprofit organization I work for gives campaign contributions - albeit small ones - to various political candidates in my state. Is this legal? Is it ethical? Certainly our donors, who surely wouldn't agree with the beliefs of some of these candidates, don't expect their gifts to end up this way.

    Probably the best way to jeopardize your tax exempt status, other than embezzling your endowment, is to engage in political campaign activities. The Internal Revenue Code is rarely so clear and unequivocal as it is in specifically prohibiting 501(c)(3) organizations from participating or intervening in any political campaign on behalf of, or in opposition to, candidates for public office.

    The reasons for the restrictions on campaign activities relate to the ethical concerns you raise. Donors give, and are allowed to take charitable deductions, with the expectation that contributions will be applied solely to the organization's tax exempt purposes. The use of contributions for other purposes breaches the public trust under which the organization holds the funds.

  3. I understand that a charity cannot contribute to a political campaign. But I'm wondering if that same charity can in fact give to a citizen group (i.e. citizens for good health) which in turn contributes to a candidate for political office? If so, it seems we have a big loophole.

    There's not a loophole because an organization can not achieve an otherwise unlawful purpose simply by channeling (known less politely as laundering) funds through an intermediary. If the organization is aware of the end use of the funds, regardless of how many entities it uses to obscure the scheme, the organization risks losing tax exemption. Those who knowingly participate may also be personally fined for misallocating funds held for charitable purposes.

    The scenario you describe may, however, be phrased in a slightly more innocent way. Suppose a public charity makes a grant or expenditure for legitimate program purposes to an outside recipient. The recipient, unbeknownst to the charity, gives the funds to a political campaign.

    In that case, the public charity is not at risk. If the charity should subsequently learn of the political use, it should seek repayment and/or rescind future grant commitments.

    Public charities have broad leeway in deciding how to achieve their charitable purposes. If an organization makes a good faith determination that a particular grant serves the best interests of fulfilling its purposes, then it may fund another organization or individual.

    A public charity may even make a grant to a 501(c)(4) lobbying organization (as distinguished from a political organization or PAC) if the funds are dedicated to a specific program that furthers a charitable purpose of the public charity.

    The key is acting in good faith. An organization acts in bad faith if it knowingly or negligently allows its funds to be used for inappropriate purposes.