Legislation to put new restrictions on lobbying by nonprofit groups, spearheaded by Rep. Ernest Istook (R-Okla.) last year and again during the current Congress, have focused attention on some fundamental questions confronting substance abuse and gun violence organizations. Can non-profit organizations lobby, for example? And if they can, how much can they do, and what activities are considered lobbying?
“For many nonprofits … understanding which activities are permissible advocacy for the public's health and which are the more restricted 'lobbying' may be a matter of great confusion,” notes Jon S. Vernick, J.D., MPH, assistant professor at the Johns Hopkins School of Public Health's Department of Health Policy and Management. Writing in the September 1999 edition of the American Journal of Public Health, Vernick continues, “As a result, these organizations may simply ignore the law, placing their tax-exempt status in jeopardy. Conversely, they may be reluctant to engage in perfectly legitimate activities rather than risk breaking rules that they understand imperfectly at best. This may make them less effective in accomplishing their public health goals.”
Different rules apply to the two main types of tax-exempt organizations, notes Vernick. Groups organized under section 501(c)3 of the IRS Code, known generally as public charities, are more limited in their ability to lobby than 501(c)4 organizations, known generally as social welfare organizations. The trade-off is that while supporters of 501(c)3 groups can deduct their donations on their income tax, donations to 501(c)4 groups are not tax-deductible. 501(c)4 groups also are prohibited from receiving federal funds of any kind.
To determine how much lobbying your group can do, the first thing to understand is the difference between lobbying and “electioneering” — that is, supporting or opposing a candidate for public office. According to Vernick, 501(c)3 groups are permitted to do some lobbying, but can never electioneer. 501(c)4 groups, on the other hand, have almost unlimited ability to lobby and electioneer. “For this reason, some public charities also have associated (“sister”) social welfare organizations,” said Vernick. “This allows the public charity to shift some or all of its lobbying activities to its sister organization.”
The law defines lobbying in two ways, said Vernick: “direct lobbying,” which includes all attempts to influence specific legislation by communicating with lawmakers, government officials or staff members; and “grassroots lobbying,” which is defined as attempting to sway public opinion on specific legislation by offering your group's viewpoint and issuing a “call to action” for the recipient to follow.
Vernick notes that legislative proposals as well as introduced bills fall under these definitions, but that broad discussions of solutions to community problems do not. Even a newspaper ad paid for by a 501(c)3 group that takes a strong position on a specific piece of legislation would not be considered lobbying unless a call to action was included, he wrote.
Also, nonpartisan analysis, study and research on legislative issues also is generally exempt from the lobbying definition. “To quality, the communication must not be made solely to persons who are interested in only one side of a particular issue,” stressed Vernick. “For example, for a research report to qualify for the exception, it should not be sent only to those members of a congressional committee who supported a specific legislative proposal. Instead, it should be sent to all members of the committee.” Other exceptions to the lobbying rules exist for answering inquiries from lawmakers, and communicating directly with your membership.
How Much is Too Much?
All nonprofits can engage in some lobbying; how much depends partly on the way in which your group wants the IRS to assess your lobbying activities. The normal rules applied by the IRS are rather amorphous: the standard is that groups may use “no substantial part” of their funding for lobbying. “Although the IRS does not specify a maximum amount, some commentators and courts have concluded that it is safe to devote about 5 percent of an organization's total efforts to lobbying,” noted Vernick.
Your other option — and a much more clear-cut one — is to tell the IRS that your 501(c)3 group is electing to be covered under section 501(h) of the tax code. This section allows groups to spend up to $1 million on lobbying, based on a sliding scale pegged to your annual tax-exempt expenditures. For example, under section 501(h), groups can use up to 20 percent of their first $500,000 in expenditures on lobbying, with no more than 5 percent used for grassroots lobbying. “With the election, there is more certainty about what amount of lobbying is permitted, and generally a higher ceiling applies,” wrote Vernick.
Finally, it's important to note that the IRS rules apply primarily to spending of private donations received by your group. 501(c)3 groups that receive federal grants are further limited in the amount of lobbying they can do by rules issued by the Office of Management and Budget (known as circular A21 for educational institutions and circular A-122 for other nonprofits), and funds received from foundations also may be subject to other restrictions.
For the full text of Vernick's article, see the September 1999 issue of the American Journal of Public Health.