Lobbying Safe Harbors for Electing Public Charities

By Greif, Martin E. | The CPA Journal, April 1995 | Go to article overview

Lobbying Safe Harbors for Electing Public Charities


Greif, Martin E., The CPA Journal


In recent years, lobbying activities have become more important for public charities interested in a variety of issues, such as health care, civil rights, and environmental protection.

A public charity can lose its tax-exempt status and its qualification to receive deductible charitable contributions, as well as be subjected to excise taxes, if a "substantial part" of its activities are carried on to influence legislation. Whether an organization's legislative activity constitutes a "substantial part" of its overall activities is determined on the basis of all the pertinent facts and circumstances in each case.

Most public charities, however, can elect to avail themselves of safe harbors that permit limited lobbying activities. Organizations making this election have two distinct advantages over entities that forego it. First, electing charities know exactly how much they can disburse without incurring an excise tax on lobbying activities. Second, even if they exceed specified safe-harbor limits, electing charities generally can still preserve their tax-exempt status, at the cost of an excise tax on the excess expenditures.

Further, it must be emphasized that these safe-harbor limits do not apply to lobbying by nonelecting or ineligible charities. Accordingly, these charities continue to be covered by the subjective "substantial part" test regarding lobbying activities, which provide for loss of tax-exempt status if they violate this "vague" requirement.

SAFE HARBORS

IRC Sec. 4311 limits the amount that can be spent on permissible lobbying activities without incurring a tax, and places a separate limit on the total which may be spent on "grassroots lobbying." The amount of total lobbying expenses an electing organization can incur without triggering an excise tax (lobbying non-taxable amount) for a year is based upon the organization's exempt purpose expenditures, up to an overall limit of $1 million as show in the accompanying exhibit. …

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