Nonprofit Insider

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March 2011 Vol. 2 No. 2

U H Y LLP C e r t i f i e d P u b l i c A c c o u n t a n t s
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Yes, You Can Lobby... if Youre Careful Dont Forget to Deborah Crown, Senior Manager Take Your Credit
s many of us have experienced, inaccurate news can travel just as fast as the accurate stuff! Case in point: many of my 501(c)(3) clients believe that they cannot lobby under any circumstance. Well, that just isnt true. Yes, there are restrictions and rules to follow. Yes, if you dont follow the rules, the consequences could be devastating; but you can participate in lobbying activities. Let me offer some definitions, problem-solving tips and approaches to consider. To start, its important to remember that nonprofits are affected by public policy just as much as any other individual or company is; and such organizations have the right to access the public policy debate, just as other organizations and businesses do. There are actually federal laws in place encouraging charities to lobby within certain specific limits. The key is to understand these laws and what constitutes lobbying activities and the related limits, so that lobbying activities can be done legally and without negative consequences to the organization.

Federal law states that a 501(c)(3) publically supported charity may devote no more than an insubstantial portion of its activities to lobbying. What exactly is lobbying from the federal governments point of view? The IRS defines lobbying as the attempt to influence the passage, defeat, introduction or amendment of legislation, including bills introduced by a federal, state or local legislative body, bond issues, referenda, constitutional amendments, and Senate confirmation votes on Executive branch nominees. Wow, that was a mouthful! So, now that we have a basic understanding of what lobbying is, the next question to look at is how much lobbying can a 501(c)(3) organization do without getting into trouble? The IRS definition above includes an insubstantial portion of its activities. If you find yourself asking, What does that mean? then youre not alone. There are two ways to measure the definition of an insubstantial portion. The first is a subjective substantiality test based on facts and circumstances of each case. This sounds arbitrary and judgmental, and it is. This approach is risky since the regulators may not agree with your judgcontinued on page 2

Kerry Duvall, Manager

ou may have heard that a small business health care tax credit was included in the Affordable Care Act signed by the President in March 2010. The credit is designed either to 1) encourage small employers to offer health insurance coverage for the first time or 2) maintain the coverage they already have. In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage toward buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower- income workers. For the tax years 2010 to 2013, the maximum credit for eligible taxexempt employers is 25 percent of premiums. Beginning in 2014, the maximum tax credit will go up to 35 percent of premiums paid by eligible, tax-exempt organizations for two years. The maximum credit goes
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March 2011 Vol. 2 No. 2

Yes, You Can Lobby ... if Youre Careful

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Dont Forget to Take Your Credit

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ments regarding each case. The second measurement is called the expenditure test [also known as the 501(h) election], which is based solely on the amount of money spent on lobbying. An organization must file a short form (5768) with the IRS in order to to be governed by this test. This test has specific limits on how much money a charity can spend for lobbying. Its based on the charitys total exempt purpose expenditures.

lation through communication with a legislator, an employee of a legislative body or other government official. Also know that federal funds CANbe used for lobbying and that self-defense lobbying matters affecting the charitys own status are not considered to be lobbying. In addition, lobbying does NOT include political activities, which are completely prohibited. And lastly, all lobbying activity should be reported on Schedule C of the Form 990.
NOT

to smaller employers those with 10 or fewer full-time equivalent (FTE) employees that pay annual average wages of $25,000 or less. The credit is completely phased out for employers that 1) have 25 or more FTEs or 2) pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, organizations that use parttime help may qualify, even if they employ more than 25 individuals.

Lets take a look

If total exempt expenditures are $500,000 or less, then the charity can spend 20 percent (up to $100,000) on lobbying. If total exempt expenditures are $500,000 to $1 million, then the charity can spend $100,000 plus 15 percent over $500,000 of expenditures. If total exempt expenditures are $1 million to $1.5 million, then the charity can spend $175,000 plus 10 percent over $1 million of expenditures. If total exempt expenditures are $1.5 million or more, then the charity can spend $224,000 plus 5 percent over $1.5 million of expenditures. Charities can spend up to 25 percent of their total lobbying budget on grassroots lobbying and the rest on direct lobbying. Grassroots lobbying is defined as any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof. The remainder of the lobbying budget allowed would be for direct lobbying. Direct lobbying is defined as an attempt to influence any legis-

Wrapping up
Document your expenses and be sure to keep an eye on how much and what kind of lobbying you are doing. If youre careful, attentive and within the defined parameters for nonprofits, you should be okay.

Heres a quick tip

Use Form 8941 to calculate the credit. Youll claim the credit on the revised Form 990-T, even if your organization doesnt owe tax on unrelated business income.

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The statements contained herein are provided for informational purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. Furthermore, such statements are not presented or intended as, and should not be taken or assumed to constitute legal advice of any nature, for which advice it is recommended that you consult your own legal counselors or professionals. UHY Advisors, Inc., provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of UHY Advisors. UHY Advisors, Inc., and its subsidiary entities offer services from offices across the United States. UHY Advisors, Inc., and its subsidiary entities are not licensed CPA firms. UHY LLP is a licensed independent CPA firm that performs attest services. UHY Advisors, Inc., and UHY LLP are independent U.S. members of Urbach Hacker Young International Limited.