FOR: FSC MEMBERS AND FRIENDS
SUBJECT: Tax Code Amendments Regarding Lobbying by Nonprofits
DATE: APRIL 12, 2001
IRC 501(c)(3) organizations have made an IRC 501(h) election in
order to be sure their issue advocacy does not run afoul of the
ambiguous tax code language limiting the amount of lobbying they
may do. The 501(h) designation authorizes lobbying by a 501(c)(3)
up to a specified dollar limit. This designation removes the uncertainty
and allows the nonprofit to be judged under a percentage test.
the percentage test of the 501(h) election, a nonprofit may spend
no more than 25 percent of the allowable lobbying expenditures for
grass roots lobbying, as contrasted to direct lobbying.
amendments to the tax code are being proposed.
Remove the artificial distinction between grass roots and direct
lobbying. It serves no useful purpose and it forces nonprofits to
incur unnecessary and expensive bookkeeping and legal expenses to
be sure they have categorized their lobbying activities appropriately.
amendment was previously included in Sen. Roths tax bill in
the last Congress, but it was vetoed by President Clinton. There
is no known opposition to this change.
The current allowable spending limit for lobbying (its a sliding
scale related to the size of ones budget, with a maximum of
$1 million) was set in 1976 and has never been updated. The proposed
amendment would update the allowable limits and would index the
amounts in the future to account for inflation. Updating would bring
the new maximum up to $3 million.
Among FSC members, there is some division of opinion,
with the American Conservative Union opposing the second amendment.
the current law, when either the grass roots limit or the total
lobbying expenditure is exceeded, the nonprofit is assessed a tax
on the overage. From the latest records available (1999), 72 nonprofits
exceeded one limit or the other and paid taxes on the overages.
Almost all of the taxed groups were small local nonprofits, such
as sports groups, PTAs, animal groups, health groups, and arts groups.
The ONLY national groups on this list are the Family Research Council
and Liberty Counsel, Inc., two conservative groups. The largest
tax assessments were against the Georgia Wildlife Federation and
Planned Parenthood of Connecticut.
If your organization is a 501(c)(3), we need your CEO to write to
your friends in Congress to urge support for one or both of these
amendments. There is no bill number, as we expect these amendments
will be added to a major tax bill.
If you are a fund raising agent or vendor for 501(c)(3) organizations,
please contact those clients and advise them of these proposed amendments.
They will probably want to write letters of support to their Members