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Foundations and Lobbying
n Foundation
Lobbying Information
n Grants
to Public Charities That Lobby
n Community
Foundations and Lobbying
n Resources
Foundations and nonprofits play a vital role
in the development and implementation of public
policy. There are important guidelines, rules,
opportunities and restrictions that apply to foundations
and nonprofits that participate in the policy
process through advocacy and lobbying.
"Lobbying" versus
"Advocacy"
The legal definition of lobbying usually involves
attempting to influence legislation. Advocacy
covers a much broader range of activities that
might or might not include lobbying. One way to
differentiate between the two terms is to understand
that lobbying always involves advocacy but advocacy
does not necessarily involve lobbying. Lobbying
may only be a small part of the advocacy carried
out by charities.
FOUNDATION
LOBBYING INFORMATION
Advocacy and lobbying are important tools for
foundations and can be used within the guidelines
established by federal law to educate public officials,
conduct grantmaking and respond to "self-defense"
legislative issues.
Generally private foundations may not lobby. However,
the tax rules recognize two important exceptions
to the definition of lobbying. A private foundation
may lobby if invited to do so by a legislative
body or in its "self-defense."
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Self-defense
lobbying
This exception protects communications with legislators,
their staffs and executive branch officials involved
in the legislative process concerning legislation
that might affect a private foundation's existence,
powers and duties, tax-exempt status, or right to
receive tax-deductible contributions. This exception
permits foundations to fund communications with
legislators and government officials -- but not
with the general public -- on a range of important
issues, including the foundation payout rate or
the proposal to reduce the excise tax that private
foundations pay on net investment income.
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Technical
assistance or lobbying by invitation
Another exception excludes response to written requests
for technical assistance from a legislative committee
or subcommittee or other governmental body. The
written request should be signed by an authorized
official of the governmental body, such as a committee
chairperson, but not an individual legislator who
is not considered a governmental body. Such requests
can provide organizations with broad scope for presenting
legislators, but not the general public, with facts,
analysis and recommendations on legislative issues.
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Two specific types of issue-oriented foundation work
also lie
outside of the definition of lobbying:
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Nonpartisan
analysis
Making available the results of nonpartisan analysis
on a legislative issue is not treated as lobbying
even if the research report includes specific legislative
recommendations. A communication qualifies as nonpartisan
analysis if it: presents a "sufficiently full
and fair exposition of the pertinent facts as to
permit the public to form an independent opinion
or conclusion," does not include a "direct"
call to action (that is, does not explicitly encourage
recipients to contact legislators or accomplish
the same objective by providing such information
or materials as legislators' addresses or phone
numbers or preprinted postcards to send to legislators),
and is not distributed to persons who are interested
solely in one side of the issue.
The "full and fair exposition" standard
requires the analysis to present a rational, fact-based
argument in support of the report's conclusions,
but it does not require that the report devote equal
space to the discussion of alternative points of
view. The tax rules also make clear that grants
to support the preparation and distribution of nonpartisan
analysis will not be treated as lobbying expenditures
even if the grantee, or others, subsequently use
the analysis as part of a lobbying communication
unless a foundation's primary purpose in funding
the analysis was to support the grantee's lobbying
or the foundation knew, or had reason to know, that
the grantee's primary purpose in performing the
research project was for lobbying use.
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Discussions
of broad social issues
Finally, the regulations exclude from the definition
of lobbying discussions of broad social, economic
and similar problems, even if the problems are the
subject of legislation already pending before a
legislative body. This exception affords a further
opening for foundations to fund communications on
general policy issues -- for example, the importance
of strong environmental protection standards or
a strong national defense -- provided the communications
do not address specific legislation.
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GRANTS TO PUBLIC CHARITIES
THAT LOBBY
Most foundation grantees qualify as public charities
for federal tax purposes, and as such may elect
to be subject to substantially more liberal rules
on lobbying activities. Specifically, an electing
public charity may make lobbying expenditures
up to 20 percent of the first $500,000 of its
charitable expenditures, and declining percentages
thereafter, up to a maximum of $1 million each
year. These permitted lobbying expenditures, combined
with the favorable rules on what does, and does
not, constitute lobbying, permit public charities--particularly
those with a substantial base of non-lobbying
expenditures--to play a quite active role in the
legislative process.
The tax rules in turn, permit private foundations
to make both general support and project grants
to public charities engaged in lobbying activities.
General support grants are permitted so long as
the funds are not earmarked for lobbying--that
is, so long as the public charity does not agree
to use the funds for that purpose. Project grants
are permitted--even if the project includes some
lobbying--provided that the funds are not earmarked
for lobbying and the amount of the grant does
not exceed the grantee's budget for the non-lobbying
components of the project.
Notwithstanding the federal tax rules' prohibition
on private foundation lobbying expenditures, foundations,
in fact, have broad flexibility to fund activities
that can have direct and significant impact on
the public policy process. As outlined above,
this flexibility derives from both the favorable
rules protecting grantmaking foundations from
attribution of their public charity grantees'
lobbying expenditures and the favorable definition
of lobbying. Through careful attention to the
applicable tax rules, foundations can thus play
an active role in the formation of public policy
without risk of adverse tax consequences.
COMMUNITY
FOUNDATIONS AND LOBBYING
Community foundations are governed under the same
federal tax rules for lobbying as public charities,
under section 501(c)(3). Unlike private foundations
that are generally restricted from lobbying except
on "self-defense" issues like legislation
affecting their tax-exempt status or the foundation
payout rate, community foundations may lobby with
the same latitude permitted other public charities.
As stated before, lobbying is defined as any attempt
to influence specific legislation. By default,
community foundations are subject to the vague
"no substantial part" rule that says
no more than an insubstantial amount of a 501(c)(3)'s
exempt purpose expenditures may be used for lobbying.
Unfortunately the IRS never defined how much constitutes
an "insubstantial amount", so in 1976
Congress enacted an alternative set of rules called
the expenditure test. The expenditure test is
often known as the 501(h) election.
Why Make the Lobbying
Election?
Like public charities, it is beneficial for community
foundations to consider "electing" the
501(h) expenditure test rules of the 1976 lobby
law. Electing is simply the process by which a
501(c)(3) organization chooses to come under these
precise guidelines. Choosing to follow the 501(h)
expenditure test rules offer three main benefits:
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Safety:
The IRS has stated that making the election does
not raise the risk of audit. On the contrary, they
state that 501(c)(3)s that have elected are more
likely to be in compliance with the law than non-electing
501(c)(3) organizations. |
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Clarity:
The 501(h) rules provide clear definitions of direct
and grassroots lobbying. They also make it easy
to distinguish lobbying from general public policy
activities by including eight legislation related
activities that are excluded from the definitions.
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Latitude:
The 501(h) rules provide fairly generous lobby expenditure
limits, 20% of a 501(c)(3) organization's first
$500,000 of their exempt purpose expenditures may
be spent on lobbying. Up to $1 million may be spent
on lobbying in a year. If a community foundation
does not elect, then it is subject to the vague
"substantial part" rule that does not
clearly define lobbying or state how much money
a community foundation may spend on lobbying. |
Community foundations interested in exercising
their 501(h) election should complete the one-page
IRS
Form 5768 and send it in. Any subsequent lobbying
expenditures must be then be reported by the community
foundation on their annual tax Form 990 (Schedule
A, Part VI on the top half of page for electing
organizations).
Community Foundations
can Support Lobbying via Grantmaking
Community foundations may make general support
grants to public charities that lobby. They also
may make grants earmarked for lobbying to public
charities, to other community foundations, and
to organizations that are not charities. If a
community foundation makes a grant for lobbying,
the grant counts against the foundation's lobby
expenditure limits if it has already elected under
the 501(h) rules. If the community foundation
has not elected, and therefore is under the substantial
part rule, a grant to a public charity earmarked
for lobbying still counts as a lobbying expenditure
by the foundation.
What is the role of donors'
advisors in community foundation public policy
activities?
Community foundation staff may educate donors
about organizations that engage in public policy
and lobbying for causes they care about. Educating
donors about opportunities to support organizations
engaged in public policy can also be a way of
expanding the pipeline of usually scarce dollars
for advocacy and lobbying activities. Philanthropy
for public policy can be an exciting way for a
donor to feel apart of social change efforts.
It should be noted that a donor may not receive
a tax-deduction for a contribution to a 501(c)(3)
that is specifically earmarked for lobbying as
defined under section 501(c)(3) of the Internal
Revenue Code. Community foundation staff may advise
donors that funding broader public policy work
does not necessarily mean that a nonprofit will
engage in lobbying, but lobbying could be one
of many types of policy activity conducted by
the organizations ultimately receiving their contributions.
Therefore, donors may be encouraged to recommend
general support grants from advised funds to organizations
that engage in lobbying.
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RESOURCES
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A Foundation's Guide to Advocacy (2008) 
Prepared by the Council on Foundations, this publication explains what foundations can and cannot do to establish legal and long-lasting relationships with their members of Congress.
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Alliance
for Justice
A Washington, D.C.-based public charity that works
to strengthen the advocacy rights and abilities
of public interest organizations.
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Center
for Lobbying in the Public Interest
Educates charities about the important role that
lobbying and advocacy can play in achieving their
missions.
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Council
on Foundations' publication,
"Rules
of the Road" -
This guide to the laws governing charities in the
U.S. contains a chapter devoted to foundation Advocacy
and Lobbying.
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Disclaimer:
DVG maintains this page to provide general information
and guidance about the laws and regulations pertaining
to foundation lobbying. The law, however, can change
or vary from jurisdiction to jurisdiction. None of this
information should be used or relied on as legal advice
or opinion about specific matters, facts, situations
or issues. It is always advisable to consult a lawyer
about your particular circumstances.
The information above has been
provided courtesy of the Donors Forum of Chicago.
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