Lobbying and Candidate
Electioneering: Overview
NFP2011, Session 13, Thursday, June 9, 11:10-12:25PM
Speaker Biography
TERRY MILLER brings years of training and consulting experience in
the nonprofit sector across a broad range of organizations. His
passion is making information accessible to nonprofit managers,
boards and advisors. He received his B.A. from Antioch College in
Yellow Springs, Ohio in 1977, and his M.B.A. from the University of
Portland in 1984. Terry balances consulting with his work as Finance
Manager for River Network, a Portland, Oregon based environmental
organization working to strengthen local watershed group nationally.
TERRY MILLER
www.TerryMiller.biz Terry@TerryMiller.biz
62 Rudden Ave San Francisco California 94112-2540
voice: 415-333-6320
fax: 415-333-6309
American Institute of CPAs
Session Overview
Conceptual clarity: lobbying VS. electioneering
• Activities & tax treatment by entity type
Voter Participation for public charity C3’s: parameters both
known & unknown; guidance not all precedential
Lobbying
• Public charity lobbying overview & the 501(h) election
• 501(c)(4,5,6) lobbying differences: definitions, possible proxy tax
Electioneering
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What is “a 527” in reality and in press lingo?
Lobbying “Issue Ads” as a 527 activity
Why “PAC” is a meaningless descriptor without specific information
Along comes the Citizens United decision
Non-Tax Dimension: Federal LDA and State/Local equivalents
(ethics laws)
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Conceptual Clarity
For Tax purposes: Lobbying is working to support or oppose
specific legislative proposals including ballot measures
(& some executive branch matters for (c)(4,5,6) organizations)
• Allowed for all types of exempt organizations except private foundations
For Tax purposes: Electioneering is working to support or
oppose candidates for office (a/k/a “political campaign” activity)
• Tax: IRC Section 527 = candidate electioneering
• Can be more indirect than “express advocacy”
• Certain “issue advocacy” grassroots lobbying messages, if targeted to
influence the election of a candidate, can be 527 activities
Best for advocacy organizations: learn and master the rules;
use them
WORST message: “all that lobbying and political stuff is risky
so don’t do very much of it” (too general)
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Activities Overview / Entity Type / Tax
501(c)(3)
Public Charities
501(c)(4,5,6)
527
Public
Education
Unlimited
Unlimited
Not primary
purpose
Lobbying
Not substantial
or 501(h)
Unlimited;
possible
excise tax
Not primary
purpose
Non-partisan
Voter
Ed/Register
Unlimited
(careful)
Unlimited
Not primary
purpose
Electioneering
Prohibited
Not primary
purpose
Unlimited
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Tax & Election Treatment & Reporting
501(c)(3)
Public Charities
501(c)(4,5,6)
527
990
990; possible
1120-POL
8871; possible
8872, 990,
1120-POL
Deductible
Nondeductible
(Gift-taxable?)
Nondeductible
NO Gift Tax
Donors’
Identity
Anonymous
Usually
Anonymous
Usually
Disclosed
Election
Commission
Reporting
No Federal;
States vary
Varies
Varies
Tax Reporting
Donors’ Tax
Treatment
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Voter Participation Activity by Charities
Parameters [Known & Unknown]
• Key precedential guidance: Rev Rul 86-95, 80-282, 78-248, 76-456,
66-256 (look at the years!)
• Non-precedential guidance (more recent): CPE Article 2002, PACI
Report 2004/2006, IRS Church Guide
• Voter Education / Participation: Candidate Questionnaires & Forums,
Voter Guides, Voting Records
- Broad range of issues, no editing of Q’airres
- No bias or grading, watch out for timing, distribution
- Even-handed treatment, broad participation (all candidates or
objective criteria)
- Pledges never work (indicate slant)
• Registration: Entirely nonpartisan; may target historically underparticipating communities
• GOTV: Entirely nonpartisan
“Facts & Circumstances” governs, as always in Tax Law
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Public Charity Lobbying - Overview
History
• 1930: Seasongood case, 1934: IRC no substantial part, 1955: IRC
electioneering prohibition, 1970: IRC 501(h), 1990: final lobby regs
Lobbying is charitable (within limits)
Choice of 2 tests:
• “no substantial part” (facts and circumstances) test, OR
• IRC 501(h) expenditure test
Lobbying definition varies depending on test chosen
501(h) expenditure test requires “election” via Form 5768
• takes effect at beginning of year in which 5768 filed
• revocation of election on same form, effective beginning of next year
Most, but not all, public charities are eligible to elect 501(h)
• (not eligible: churches & certain affiliates, government units, supporting
organizations to (c)(4,5,6) organizations, 509(a)(4) testing for public
safety)
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501(h) – To Elect or Not To Elect?
Consensus advice: Electing is always better unless budget is
way >$20M, and even then get advice before revoking 501(h);
why?
• 501(h) is an expenditure test with better (e.g. any) definitions about
what is NOT lobbying
• Four-year basis / averaging vs. single-year revocation risk
• Recordkeeping complexity (direct & grassroots lobbying totals) vs. line
item expense disclosure + various activity Yes/No questions
• 990 Schedule C Part II-A (electing) or II-B (non-electing)
Why consider revocation over $20M?
• 501(h) has maximum allowance of $1M no matter how large, so a
$100M organization could spend a mere 3% on lobbying and that’s
$3M, BUT cannot be certain that % expenditures would be the primary
indicator of whether lobbying is substantial (e.g. volunteer effort,
impact, organizational focus may all count as well)
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501(c)(4,5,6) Lobbying
1/3
Two key differences from public charity rules:
1) Possibly taxable if business dues income
2) Different definitions of lobbying activity
1) IRC 6033(e): non-deductible dues or “proxy tax”
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Businesses may not deduct most lobbying – IRC 162(e)
No deduction for indirect lobbying via association “dues or similar
amounts” (since 1965)
(IRC162(e)(3))
OBRA 1993: placed disallowance notice requirements on many
(c)(4,5,6) organizations
(IRC 6033(e))
“Dues/similar amounts” does not require member voting & does
include voluntary payments & assessments (Rev Proc 98-19, §5.01)
Either business dues are non-deductible or the organization pays a
“proxy tax” of 35% - mostly applicable to 501(c)(6) business leagues
and some 501(c)(5) “horticultural” organizations (e.g. Farm Bureau)
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501(c)(4,5,6) Lobbying
2) Definitions of (c)(4,5,6) Lobbying
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Direct lobbying
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•
2/3
Federal and State legislation only, not city/county (!) (IRC 162(e) &
Reg. 1.162-29); definition essentially identical to that for 501(c)(3)
organizations, but “influencing legislation” explicitly includes:
planning, preparation, and coordination for a lobbying
communication
(Reg. 1.162-29(b)(1)(ii))
- No specific exceptions unlike electing public charities
(nonpartisan analysis, technical advice, self-defense)
- De minimis exception for in-house expenditures <=$2,000
Grassroots lobbying
-
Broader definition than for electing public charities: does not
require calls to action. Test is “attempt to influence.”
- No exception for LOCAL
(IRC 162(e)(2)(A))
- No exception for de minimis
(IRC 162(e)(5)(B)(ii))
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501(c)(4,5,6) Lobbying
3/3
2) Definitions of (c)(4,5,6) Lobbying
•
2/2
Administrative Lobbying (doesn’t exist at all for (c)(3) definition)
- Direct communication with “covered” executive branch officials in
an attempt to influence their official actions or positions
- “Covered” are President, Vice President, Cabinet Officers,
deputies, and certain other specified high-level employees
(IRC 162(e)(6))
-
State and Local exception: Federal officials only
De minimis exception: in-house expenditures <= $2,000
(IRC 162(e)(5)(B)(ii))
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What is a “527” organization?
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IRC 527(e)(1)&(2) ““Political organization” means a party,
committee, association, fund, or other organization (whether or
not incorporated) organized and operated primarily for the
purpose of directly or indirectly accepting contributions or making
expenditures, or both, for an “exempt function” … “influencing or
attempting to influence the selection, nomination, election or
appointment of any individual to any Federal, State, or local
public office or office in a political organization, or the election
of Presidential or Vice-Presidential electors, whether or not such
individual or electors are selected, nominated, elected, or
appointed. …”
You can also refer to “527 activities” of a
501(c)(4,5,6) or, though prohibited, of a 501(c)(3)
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What is a “527” organization?
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Shorthand: 527’s are parties, candidate committees, PACs
• “Express advocacy” for/against Federal candidates, also comes under
the Federal Election Campaign Act – FECA – election law – “Federal
PAC,” (or party) and must disclose transaction details frequently
(failure to do so is technically a crime)
- Express advocacy is sometimes referred to as seven “magic words”
such as “oppose” “support” “vote for/against” and so on: explicit
calls, not indirect
Tax treatment for 527s
• 527s file IRS 1120-POL and pay 35% tax on investment income if more
than $100 (another organization engaging in 527 activity can owe
527(f) tax on the lesser of its investment income or 527 activity)
• Donations to a 527 are not deductible but are explicitly not gift-taxable
to the donor, while
• Donations to a 501(c)(4) may be gift-taxable to the donor (but this has
not been enforced)
…so…donors wanting anonymity hired smart tax lawyers and…
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What is a “527” organization?
3/4
The lawyers threaded the needle and the so-called “soft PAC” or
“527 organization” was born to do targeted partisan Voter
Participation
• IRS LTRs 98-08-037, 97-25-036 flip (c)(3) electioneering prohibition
around and identify activities prohibited under 501(c)(3), which are
exempt function under 527, yet stop short of express advocacy
- reverse facts and circumstances: Voter Education / Participation:
Candidate Questionnaires, Forums, Voter Guides, Voting Records:
- Narrow range of issues, edited Q’airre responses
- Bias and grading, timed & distributed to influence
election
- NOT even-handed treatment, not necessarily broad
participation
- Pledges possible
• but NO express advocacy, so no FEC jurisdiction, and no donors were
to remain anonymous since 527’s barely file
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What is a “527” organization?
4/4
also bringing in “soft-PAC” Lobbying as 527 Activity
• IRS LTR 1999-25-051 describes how an organization can work entirely
on / donate entirely to ballot measures but be a 527 if it chooses
campaigns based on nexus to candidates
- This gives donors anonymity and no risk of gift tax assessment
Leading to Public law 106-230, signed 7/1/2000 by Clinton on a
fast track
• new tax forms 8871 (formation) / 8872 (transactions, resembling PAC
reporting and disclosing all donors)
• due from organizations not subject to FECA or State & Local
equivalents
Which led in turn to the “re-birth” of the 501(c)(4) which has to
be >50% non-electioneering social welfare, but offers donor
anonymity
• however, this >50% constraint seemed to hold them back until Citizens
United…more in a minute on this
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Why “PAC” is a meaningless
descriptor (without more detail):
In states with ballot measures and initiatives, ballot
measure committees are State PACs, but for IRS
purposes are 501(c)(4) organizations
• so “PAC” without further information, at least the words
“candidate PAC” does not mean anything
• although there are no Federal ballot measures, so “Federal
PAC” does mean a 527 organization
…by “527 organization” the MEDIA means:
• an organization which is sufficiently political to be exempt
under 527, not 501(c) (thereby escaping risk of gift tax),
• yet stops short of express advocacy in order to escape
various limitations imposed by FECA (even though the law
now, and since 2000, requires donor disclosure on 8872 if
FECA is eluded)
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FECA limits: independent expenditures
vs. coordination
FEC has limited the amounts that individuals may
contribute to Federal PACs or candidates in order to
avoid the corrupting influence of single large donors
• (various subversions around political parties, convention
committees and so-forth already existed of course)
…but if a person, or a PAC, absolutely does not
coordinate or contribute to a candidate, then these
limits are null, “independent expenditures” (based on
free speech)
• coordination even means sometimes old friends no longer dine
together during a campaign
• (often such messages still seem remarkably well-coordinated )
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Along comes Citizens United
FECA & CREEP
• One of the roots of FECA was public criticism of bags of cash
handed over to CREEP – Richard Nixon’s “Committee to ReElect the President” by interested corporations
• Building on a half-century of other law, FECA explicitly banned
corporate (and union) contributions to political campaigns
• Many states followed suit (many did not)
• (Union Members, and Corporate Management, could still
contribute to connected “Separate Segregated Fund” Federal
PACs and the sponsoring entity could pay admin + fundraising,
and/or they could, as individuals, form “non-connected” PACs)
In 2010, the Supreme Court, in Citizens United v. FEC:
• affirmed the personhood and free speech rights of corporations,
and abolished the constitutionality of most FECA limits
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And the birth of the “I.E. Only” Federal PAC
plus the re-rise of the 501(c)(4,5,6)
501(c)(4,5,6) organizations are nearly always themselves
corporations or unions, which had been banned under FECA
from contributing to candidates
• No longer
We now see the rise of a new breed of (c)(4)/527
• Karl Rove et al’s 2008 “Crossroads GPS” (c)(4) and “American
Crossroads” (527; IE PAC)
• recent press about Bill Burton et al (Obama’s team) starting “Priorities
USA” (c)(4) and “Priorities USA Action” (527; IE PAC) along with SEIU
and EMILY’s List’s founder; towards expected 1st >$1BILLION campaign
And the rise of the US Chamber of Commerce as a player
• business corporations can give assessments to the Chamber without
being identified
• the Chamber, as a corporation, can make independent expenditures, or
fund an IE only PAC, in unlimited amounts (not deductible to the
corporations however)
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What’s next?
First, who knows?
Congress experimented in 2010 with the DISCLOSE Act which
would have forced Independent Expenditure campaigns to
disclose the underlying donors
• Failed, and was said to be poorly drafted but may return in a fashion
IRS could aggressively pursue:
• Gift Tax on 501(c)(4,5,6) gifts
• Proxy tax on business assessments used for electioneering
NYTimes, Politico.com and other sources have been paying
attention, and presumably so has Common Cause and
Democracy 21, but so far there’ve been no substantive calls for
enforcement
Could conceivably open up a challenge that electioneering
within a charitable purpose is not prohibited (loss of charity
“halo”)
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Non-Tax Considerations:
Federal Lobbying Disclosure Act, etc.
Federal Lobbying Disclosure Act (“LDA”) of 1995; amended
effective 1/1/8 by Leadership and Open Government Act of
2007
• Ethics-based: disclose money-in-government
• Applies to nonprofits; registers individuals and organizations (was just
organizations); churches exempt
“Trigger” when registration required (within 45 days):
• At least one staffer more than 20% devoted to Federal direct lobbying
(in a Qtr), AND
• Qtrly expenditures over $11.5K or outside lobbyist over $5K
Covers both Legislative and Executive Branch contacts
• Filing requirements: quarterly, Clerk of U.S. House and Secretary of the
U.S. Senate; online, e-signature verification takes time
LDA is Federal only, but similar laws exist in some states, and
even some local governments
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Federal LDA overview details
1/2
Lobbying activities include
• preparation, research & planning,
• coordination with allies,
• contacts made to arrange a lobbying contact, around:
- Federal legislation
- Federal rules, regulations, executive orders, and other executive
branch positions
- Nominations subject to US Senate confirmation
Certain specific exclusions from lobbying activity, including:
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•
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Materials made available to public or mass media
Mere request for meeting or information
Testimony before a committee or subcommittee
Responding to a specific written request from a covered official
Responding to a published request for comment
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Federal LDA overview details
2/2
Covered officials are specified
• high-level, includes military
Associations can lead to required disclosures by members
• if they contribute more than $5,000 toward the registrant’s lobbying
activities (either directly to the registrant or indirectly through the client)
in a quarterly period, and
• actively participate in the planning, supervision, or control of such
lobbying activities
Electing Public Charities may use hybrid LDA/501(h)
definitions to determine both
• trigger point expenditures, and lobbying activity costs;
• all other nonprofits use the LDA only
Quarterly reporting by organizations, semi-annual reporting of
[certain political] contributions by organizations and lobbyists
(staff or contract) and certification that no prohibited gifts or
travel were made or paid for
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Resources / Readings
1/2
…links to all are also at: www.TerryMiller.biz/AICPA-NFP11
“Public Policy Advocacy Bibliography & Resources: A Selection” Ver 7.0 2011 (my
material & updates, based on early initial help from John Pomeranz)
Charity Voter Participation
•
•
All cited Revenue Rulings
IRS CPE 2002 “I. Election Year Issues” Judith Kindell & Jack Reilly
http://www.irs.gov/pub/irs-tege/eotopici02.pdf
Charity Lobbying
•
•
IRS CPE 1997 “P. Lobbying Issues” Judith Kindell & Jack Reilly
http://www.irs.gov/pub/irs-tege/eotopicp97.pdf
“Public Charity Lobbying” – overview + advanced strategies (my material)
501(c)(4,5,6) Lobbying
•
•
IRS CPE 2003 “L. Political Campaign & Lobbying Activities of IRC 501(c)(4),
(c)(5), and (c)(6) Organizations,” Jack Reilly & Barbara Braig Allen
AICPA NFP09 “Lobbying by all types of Exempt Organizations” (my material)
527 Organizations
•
•
Rev Rul 2003-49
IRS CPE 2002 “I. Election Year Issues” Judith Kindell & Jack Reilly
http://www.irs.gov/pub/irs-tege/eotopici02.pdf
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Resources / Readings
2/2
Citizens United
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Political Tax Law After Citizens United: A Time for Reform, Gregory L. Colvin,
Adler & Colvin (you can find it on YouTube and in print)
Search on Citizens United, particularly in NYTimes
Lobbying Disclosure Act
•
•
Search on it
Alliance for Justice did a Webinar I attended and saved but don’t have copyright
to (www.afj.org)
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