The recent Tax Court opinion in Parks v. Commissioner[1] has put the non-profit community on alert of the possible pitfalls involved with lobbying efforts by non-profit organizations. The case highlights the extensive rules and regulations that govern lobbying and political activities by non-profits. In addition, there are different rules depending on the type of non-profit organization that is engaging in the conduct. I have attached an earlier White Paper that I had written on political activities of 501(c)(3) organizations, but in this particular instance the case highlights the more restrictive rules that apply to private foundations as compared to public charities.
There are basically four sets of rules that govern lobbying and legislative activities by non-profits The first is for lobbying expenditures by businesses, which will not be covered in this brief article. It is important to note, however, that there are restrictions on the deductibility of such expenses, generally under IRC § 162 as “business expenses.”
The second set of rules applies to IRC § 501(c)(3) public charities, which is covered in my attached White Paper. Such organizations are permitted to lobby, so long as they do not devote a “substantial part” of their activities to attempting to influence legislation.
The third set of rules applies to IRC § 501(c)(3) private foundations, which was the subject of the Parks’ case. Unlike public charities, any expenditures incurred for lobbying activities by private foundations are treated as taxable expenditures under IRC § 4945(d)(1), and are subject to the excise tax imposed by IRC § 4945(a). Whereas a public charity is allowed to engage in “carrying on propaganda, or otherwise attempting to influence legislation” so long as the foregoing is not “a substantial part of the activities” of the organization, a private foundation is subject to excise taxes if it expends “any amount to carry on propaganda, or otherwise attempt to influence legislation.” The rules further provide that the excise taxes apply if a private foundation expends any amount for any purpose other than for the charitable purposes defined in IRC § 170(c)(2)(B).
The fourth set of rules applies to other federally tax exempt organizations which are not restricted by the charitable deduction rules, and are generally only required to make sure that the lobbying activities are germane to the accomplishments of the organization’s exempt purpose. As a result, the organization’s sole activity in support of its exempt purpose may be lobbying without jeopardizing its tax exemption.
Such organizations generally include § 501(c)(4) social welfare organizations, § 501(c)(5) labor, agricultural, or horticultural organizations, and § 501(c)(6) business leagues, chambers of commerce, real estate boards, boards of trade, or professional leagues, not organized for profit. They also are exempt from reporting the dues allocable to lobbying if 90% or more of the dues are from members paying $112 (2016 limit) or less for dues. More detailed information can be found at the IRS website (www.irs.gov), clicking on the “help & resources” tab, and then “charities & non-profits” under the additional resources section. As mentioned earlier, I also have attached my earlier White Paper written a few years ago about political activities of § 501(c)(3) organizations.
In addition, IRC § 527 allows the formation of political organizations, but it includes very extensive statutory and regulatory provisions. It generally allows a tax exemption for influencing or attempting to influence the selection, nomination, election or appointment of an individual to a federal, state, or local public office or office in a political organization. The election of presidential or vice-presidential electors is also part of the exempt function of a political organization. Activities that directly or indirectly relate to or support of an exempt function are exempt function activities.