I know that charities may engage in lobbying. Indeed, lobbying is often critical for our work. The Internal Revenue Service's "Project Grant Rule" that allows a private foundation to fund the non-lobbying portion of a public charity’s project without being deemed to have funded the lobbying amount is expressed entirely in dollars, not time. If 75% of our executive director's time is spent on "lobbying,” but she is entirely unpaid, is there no "taxable expenditure" that a private foundation needs to worry about? Am I right that it would only raise a tax question if 75% of her total compensation was material to the organization's budget? —By email.
There are two ways a private foundation could fund your efforts. It could give you a general operating grant and not worry how you spend the money. It can also fund the non-lobbying amount of a project. (See Ready Reference Page: “Lobbying Rules Create Opportunity for Charities”) Let’s say you want to develop a new statute on granting pardons to convicts after they have rehabilitated their lives. You have a $100,000 project that calls for spending $60,000 researching the need and benefits of such legislation and drafting a model statute, which is permitted nonpartisan analysis and research under the federal lobbying rules, and $40,000 lobbying to get it passed. A private foundation could fund up to $60,000 of the project without being deemed to fund the lobbying amount. A second private foundation could fund the other $40,000 and neither would be deemed to fund lobbying. (See Treasury Regulation 53.4945-2)
If your executive director is not paid, the budget would include nothing for her work. The private foundation would have to be sure that it was not funding the lobbying work in preparing and distributing literature in support of the bill, mobilizing public support for it, and perhaps paying professional lobbyists to directly lobby the legislature. But the executive director’s volunteer time, however much it might be or be worth, would not be part of the budgeted expenditures.
Having a volunteer executive director may help with a private foundation grant. It may not make you safe, however, from the IRS’s determination whether your organization is lobbying more than an insubstantial amount and is therefore not eligible for charitable exemption. If you have not elected to make the calculation solely on the basis of expenditures under section 501(h) (See Ready Reference Page: “Should Your Organization Elect Under 501(h)?”), the calculation is based on total activity, including the time of your volunteer members, board members, and staff. If the E.D. is your only staff and she is spending 75% of her time lobbying, that sounds like a substantial lobbying activity. You probably have a problem and could lose your 501(c)(3) exemption. You should find a whole lot of non-lobbying activity for your E.D, directors and members so that lobbying is not remotely close to 75% of your organization’s overall activity.
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