The Internal Revenue Code allows 501(c)(3) organizations to lobby on any issue that does not favor any partisan candidacy or particular candidate for political office, up to a percentage cost of the Organization's total expenditures during a given fiscal year.

Section 4911 (c)(2) of the Internal Revenue Code provides for the lobbying nontaxable amount to be figured according to a formula:

• 20 percent of the organization's total annual expenditures of $500,000 or under, plus
• 15 percent of expenditures between $500,000 and $1.5 million, plus
• 5 percent of expenditures above $1.5 million, up to a ceiling of $1 million on the total lobbying nontaxable amount.

No restriction on the amount of lobbying that may be undertaken is imposed by OMB Circular A-122, "as long as none of the lobbying costs, either direct or indirect, are met from funds obtained through a grant or contract or subgrant or subcontract from a federal agency."

The question of what issues to lobby on is entirely at the discretion of the 501(c)(3) organization.

As an election approaches, it is useful to review our policies regarding allowable activities for nonprofit organizations.

Although a charity may engage in certain types of lobbying activities, it may not engage in political activity. If a charity engages in political activity, or if its lobbying activities exceed either (1) a substantial part of its activities or (2) the limits under Section 501(h) of the Internal Revenue Code, the IRS may revoke the tax-exempt status of the organization.

The IRS may revoke an organization’s tax-exempt status if the organization intervenes or participates "in any political campaign, on behalf of (or in opposition to) any candidate for public office." [I.R.C. 501(c)(3),] Political activity is defined as intervention in a political campaign, while legislative activity concerns communication in regards to legislation (broadly defined). This restriction on political activity involves three major areas of consideration: who a candidate is, what "intervention" or "participation" is, and when political activity by individuals will be attributed to a particular organization. Therefore:

Who is candidate?
A candidate is a person running for an elective public office, on the national or local level. The fact that an election is nonpartisan does not make it any less a political campaign. A person becomes a candidate once he or she declares candidacy for the office.

What is "intervention" or "participation?
"Intervention or participation occurs when an organization expresses an opinion about any candidate in a political campaign.

Charities may, however, carry out "voter education" activities. The voter education activity could indicate how candidates voted in the past. Voter education could also mean a survey of candidates' opinions, as long as all the candidates were included and the charity did not indicate a preference.

When will political activity by individuals be attributed to the Alliance for Children and Families?
The law of agency, which generally describes how one entity can be responsible for the actions of others, governs whether political activity by individuals will be attributed to the Alliance. In other words, political activity by individuals under the actual or apparent authority of the Alliance, or whose acts are ratified by the, are treated as acts by the Alliance.

One word of warning: although the organization may want to distance itself from a staff member who is running for public office, laws in some states prohibit organizations from disciplining or discharging an employee because of his or her political activity. The organization must, nonetheless, make sure that none of its assets (such as phones, office supplies, computers, and fax machines) are used for political activities, and that the employee/candidate is not acting under the organization's direction or with its support.

Any endorsement of a political party by the Alliance volunteers or staff acting in an official capacity is specifically prohibited by IRS regulations.

It is important to remember that political participation as Alliance for Children and Families can cause the loss of the 501(c)(3) tax-exempt status.

Advocacy, Not Politics
As the election season approaches, it is appropriate for the Alliance to review the constraints imposed by law on political activity. The Alliance as a national organization and Alliance agencies at the local level are prohibited from political activity-campaigning and electioneering- by both the Tax Reform Act and an official Alliance policy.

As an organization, the Alliance is strictly forbidden to campaign for the election of a political candidate at local, state or federal level. Involvement in a general election, primary, run-off, special election or referendum is prohibited. Such activity could endanger the organization's tax-exempt status. Should that happen, individual contributions to the Alliance would no longer be tax deductible. The implications of the loss of tax-exempt status are harsh.

However, the Alliance as an organization may lobby for passage of legislation that furthers the causes of the organization, even if a campaign is under way. That lobbying effort must not be conducted so as to be interpreted as an endorsement or promotion of a particular candidate, nor as a condemnation of a particular candidate or group of candidates.

The Internal Revenue Service (IRS) officially states that a campaign for a given office begins when someone publicly announces candidacy or files notice with election officials that he or she is a candidate.

Position Statements from Candidates
It is proper for Alliance agencies to inform candidates of their position on issues and to urge candidates to support those positions if elected. It is also proper for the Alliance to ask candidates to go on record, pledging their support for a particular cause or bill. Often, getting the issues of concern to the Alliance movement into campaign dialogue may be an effective means to later get legislation favorable to the Alliance introduced in state or federal lawmaking bodies, or both.

It is not proper for the Alliance agencies to distribute a candidate's position papers or a candidate's answers to questions put forth by the Alliance. Such action is prohibited by law.

Individual Political Activity
IRS regulations do not in any way prohibit Alliance officers, individual members, volunteers, or employees from supporting or opposing a particular candidate, as individuals. Such action must be taken as private citizens, not as spokespersons for the Alliance movement, nor on stationery.

Alliance for Children and Families
The Alliance for Children and Families is a nonprofit membership association representing more than 350 child- and family-serving organizations. Alliance members serve more than 5 million individuals each year in more than 2,000 communities. The Alliance’s mission is to strengthen members’ capacity to serve and advocate for children, families, and communities. The Alliance formed in October 1998 when Family Service America (established 1911) and the National Association of Homes and Services for Children (established 1975) merged.

The Alliance is registered as a lobbyist under the Tax Reform Act of 1976. The Alliance monitors and lobbies on federal legislation and regulations with potential impact on the Alliance and reports to the national organization and Alliance agencies on federal legislation and issues affecting the national organization and Alliance members. The Alliance also serves as the organization’s primary link to the White House and to the departments, agencies, and special commissions of the federal government, interpreting to them Alliance purposes, policies, and mission.

The Alliance also provides technical advice and assistance to state legislative associations.

As a member of the INDEPENDENT SECTOR, the National Assembly of Health and Human Service Organizations, and the National Collaboration for Youth, the Alliance supports these organizations in their lobbying efforts on legislation with broad impact on the not-for-profit sector with significance for the national organization and Alliance agencies.

The Alliance has been very careful in its selection of issues for lobbying activity. Such lobbying activity is addressed to legislation that impacts the Alliance’s corporate rights and the Alliance’s programs. From time to time, the Alliance Board and its Public Policy Committee adopt resolutions expressing concepts the organization supports, or expressing support for or against specific legislation, to guide the Alliance in its advocacy. This action is communicated by the Alliance to the appropriate members of Congress.

The Alliance monitors closely all federal legislation and regulations relating to charitable contributions, volunteer mileage deductions and other issues of importance to volunteers, nonprofit postal rates, sales and property taxes, and user fees. Legislation relevant to the Alliance’s programs and to member agencies is also monitored on an ongoing basis.

Resources from the Alliance for Children and Families
The Alliance produces several documents helpful to Alliance agencies and state legislative associations.

Legislative Alerts -These are usually one-page alerts or bulletins calling attention action within a state or in the U.S. Congress, that needs immediate action from the Alliance and its members. These alerts are issued as necessary.

Nonprofit Political Activities
Nonprofit organizations should not be afraid of lobbying out of fear of committing an illegal act. Nonprofits can legally take a position on legislation or policy, engage in analysis and public education around a policy issue, meet and communicate with public officials in an attempt to influence their decisions, and participate in nonpartisan voter registration or get out the vote activities. The rules of nonprofit lobbying are simple and easy to follow.

Nonprofit 501(c)(3) organizations are forbidden from engaging in any political activity in support or opposition of a candidate for public office. The Internal Revenue Code states that 501(c)(3) organizations must "not participate in, or intervene in (including publishing or distribution of statements), any political campaign on behalf of any candidate for public office." A 501(c)(3) organization that violates this rule may lose its tax-exempt status and face other financial penalties. The IRS allows 501(c)(3) organizations to undertake nonpartisan activities to educate the public about issues or encourage citizens to vote. In order to distinguish between illegal political activities and legal voter education and registration activities, note that the following activities are clearly prohibited by 501(c)(3) organizations:

• Formal or informal endorsement of a candidate for public office. Recruiting an individual to run for public office, or supporting an individual before he or she officially registers as a candidate is considered political activity.
• Publication or distribution of statements in favor of or in opposition to a candidate.
• Direct financial contributions or other support to a candidate, political party, or political action committee (PAC).
• In-kind contributions to a candidate, political party or PAC, including, but not limited to provision of facilities or office space, mailing, membership, or donor lists; or other resources for fund raising.

FEDERAL NONPROFIT LOBBYING REGULATIONS

Although the IRS does prohibit 501(c)(3) organizations from involvement in political activity, nonprofits are allowed involvement in legislative activities.

Lobbying is an effective means for nonprofits to help those they seek to serve. Playing an active role in the enactment of legislation that helps meet the needs of the disadvantaged or increases appropriations for human services programs can be an effective way to assist your cause and your community.

The tax law has always allowed some lobbying by nonprofits. Congress and the IRS have shown their support for nonprofit lobbying in the enactment of the 1976 Public Charity Lobbying Law and in the 1990 regulations that continue to endorse nonprofit lobbying activities.

Direct versus Grassroots Lobbying
Federal guidelines address two types of lobbying, "grassroots lobbying" and "direct lobbying." In general, attempts to influence legislation by influencing public opinion are considered grassroots lobbying. To qualify as grassroots lobbying, a communication must contain all three of the following elements: (1) reference to specific legislation; (2) reflect a point of view/opinion on that legislation; (3) encourage its audience to take action in respect to that legislation. Direct lobbying consists of contact with legislators, their staff, or executive branch officials to express a specific point of view about legislation, referendum or ballot initiative.

Elect or Non-Elect Treatment
A charitable organization can lose its tax-exempt status if a "substantial part" of its activities consist of attempts to influence legislation. In 1990, the IRS established guidelines for complying with the Public Charity Lobbying Law of 1976 with the release of its final regulations under Sections 501(h) and 4911. Eligible organizations (most charitable organizations other than private foundations, churches, and certain related organizations) may consequently choose between two courses of action: (1) "elect" treatment under the "expenditure test" provided by Section 501 (h) and 4911; or (2) maintain the status quo ("non-elect") and continue to be evaluated under the Section 501(c)(3) "substantiality test."

The Substantiality Test. The "substantiality test" requires that "no substantial part" of a public charity's activities be devoted to "attempting to influence legislation." Meeting this test is an inexact science. The difficulties arise from the fact that "substantial" has never been clearly defined. The penalty for violating the substantiality test is revocation of an organization's tax-exempt status and payment of an excise tax after just one offense.

The Expenditure Test. Most legal counsels agree that this is the preferred test for most IRS Section 501(c)(3) nonprofit organizations to use. The 501(h) election eliminates any ambiguity about whether a nonprofit organization will lose its tax-exempt status by lobbying. This test sets limits on an organization's lobbying efforts based on a percentage of the organization’s annual exempt purpose expenditures, which include everything spent by a nonprofit to accomplish its exempt purpose (e.g., program service expenses, administration, lobbying, and capital expenditures such as computers where a straight depreciation may be included in the base). Expenditures related to managing investments, unrelated business income, and charitable fund raising are excluded from the base. Under this test, only the cost of communications for direct grassroots lobbying are counted against the lobbying limits. Communications costs include the costs of preparing the message such as staff time, research, facilities, and overhead. Obtain and fill out Form 5786 from the IRS and submit it where you file your Form 990 return in order to elect to come under Section 501(h). There is no penalty for electing to come under section 501(h), and an organization can revoke its election if it chooses by filling in a simple form.

Total lobbying expenses for organizations electing the expenditure test cannot exceed $1 million per year.
(2) Of that 20 percent, no more than one-quarter (i.e. 5 percent of the organization's exempt purpose expenditures) can be used for grassroots lobbying.
(3) The rest of the 20 percent can be spent on direct lobbying activities.

Exemptions
Section 501(h) and Section 49121(d)(2) of the Federal Tax Reform Act of 1976 identify six important exceptions to the "lobbying" definitions. The IRS does NOT consider the following to be lobbying by nonprofit organizations:

1. Making available the results of nonpartisan analysis, study, or research (as long as you are not advocating action).
2. Providing technical advice or assistance to a governmental body or committee, in response to a written request by such body.
3. Appearances before, or testimony and other communications to, any legislative body, with respect to a possible decision by such body which might affect the existence of the contributions to the organization (the so-called "self-defense exception").
4. Communications between the organization and its bona fide members, with respect to legislation or proposed legislation of direct interest to the organization and such members, as long as the members are not directly encouraged to lobby.
5. Communication with government officials or employees, where the nonprofit is not attempting to influence legislation.
6. Examinations and discussions of broad social, economic, and similar problems even if the problems are the type which government would be expected to deal with ultimately.

Penalties
For nonprofits electing to use the expenditure test: If over a four-year-period, a nonprofit organization’s lobbying expenditures exceed the grassroots or direct lobbying limits by more than 150 percent, the nonprofit will automatically lose its tax-exempt status. Furthermore, the charity is prohibited from converting to a 501(c)(4) organization (which cannot receive tax-deductible contributions but can lobby without any limitations).

For nonprofits using the substantiality test: If a nonprofit fails the substantiality test it loses its tax-exempt status. It is also subject to a 5 percent tax on the entire amount spent on lobbying. The 5 percent test can also be imposed on the organization's managers who authorize the lobbying expenditures.

Record Keeping
Time Sheets. Each employee of the nonprofit organization should complete a weekly time sheet noting how many hours were spent in direct lobbying and how many in grassroots lobbying. This information will provide the basis for determining the percentage of payroll and benefits that can be attributed to lobbying. The aggregate percentage of total staff time devoted to the two forms of lobbying can also be used to allocate rent and other overhead costs covered in the organization's "exempt purpose expenditures."

Expenses. Employees should keep a record of all out-of-the-pocket expenses, such as payments to lobbyists, travel to meet with legislators, costs of producing and sending materials, and telephone and fax expenses.

IRS Forms to File
IRS Form 5768: File this form to elect to use the Expenditure Test outlined in Section 501(h) of the IRS Code.

IRS Form 990, Schedule A, Part VI: Part VI-A is used to report lobbying expenditures by organizations using the Expenditure Test. Part VI-B is used to report lobbying activities and expenditures by organizations using the Substantiality Test.

These forms are available at your local IRS office.