Tax Article - Lobbying Expense for Exempt Organizations - to Elect or Not to Elect

All Exempt Organizations (EO), can engage is some lobbying, or attempts to influence legislation.  The extent of the allowed involvement differs for each category of EO.  For 501(c)(3), different rules apply for 3 categories:

1. EO that elect to lobby.
2. EO's that choose not to lobby whose lobbying is limited by a substantial part test.
3. Private Foundation who can do no lobbying.

1. Non electing 501(c)(3) must prove that their lobbying activities do not represent a substantial part of their activities.  This is measured largely by expenditures.  Five to 10 percent of the EO's overall budget is generally considered permissible.  The amount of lobbying is measured by considering the actual dollar amounts expended, the amount of time expended by the staff and board, and the degree of success.  A excise tax is imposed on excessive lobbying.

2. An Electing 501 (c)(3) elects to monitor it expenses under a safe harbor test and removes the doubt.  The election can be filed with the Form 1023 or Form 990 and can be revoked at any time effective for the next tax year.  The safe harbor test is lobbying expenditures cannot exceeds the sum of:
• 20 percent of the first $500,000 of the EO exempt purpose expenditure (EPE)
• 15% of the next $500,000
• 10% of the next $500,000
• 5% of the rest

Grassroots lobbing expenditures cannot exceed 25% of the total lobbying limit.

Although the elective lobbying provisions were expected to eliminate confusion about the consequence, the areas have been in flux and few organizations have made the election.  The regulations are 57 pages long.  To summarize, the pros and cons of making the elections are:

Pros

• Volunteers time and influences are not counted.
• The revocation of the exemption is based on a 4 year average
• Specific mathematic limits
• Expected scrutinization of non electing organization
• Recording is less because volunteer time need not be recorded.

Cons

• Grassroots lobbying is not separately limited
• Making an election may trigger an audit
• Directors and officers can be personally liable for penalties for excess lobbying
• Affiliate organizations lobbying activities must be consolidated
• The maximum expenditure is $1,000,000 for any one organization
• Avoidance of the uncertainty caused by the multiple regulations.

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