Over the last year, several issues have arisen that could affect charitable nonprofits’ advocacy rights and the laws that govern lobbying and voter education. While some have taken effect, others will be debated and possibly acted upon by the next Congress and the administration. Following is a description of the specific issues and how to get more information.
When the Internal Revenue Service issued regulations on lobbying by 501(c)(3) organizations in 1990, charitable nonprofits were left with a set of decisions and approximately thirty-nine pages of rules to follow. The 1976 law does provide clearer definitions of what is and is not lobbying, and a defined amount of how much an organization can spend based on their budget size.
Nevertheless, over the last ten years, many charitable nonprofits have had difficulty understanding the differences between grassroots and direct lobbying for purposes of calculating their expenses to report on tax Form 990.
Last year, a proposal emerged that would do away with the different expenditure limit formulas for grassroots, versus direct lobbying. Under current law, an organization with a one million dollar budget would have a total limit of approximately $200,000 for direct lobbying and a grassroots limit of $50,000, one-quarter of the total amount. The new proposal would remove the distinction and put all lobbying under the total limit, in this case, $200,000. This change would hopefully ease accounting burdens.
The proposal was included in last year’s tax bill that was vetoed by the Clinton administration due to opposition to larger tax cuts. Tax-writing committees will consider the proposal in the next Congress. It was supported by Focus on the Family, led Dr. James Dobson, and by organizations that advocate on these issues including OMB Watch, Alliance for Justice and Independent Sector.
In January 2000, the staff of the Joint Committee on Taxation issued a study on disclosure by nonprofit organizations. The purpose was to determine whether the public interest would be served by increased disclosure of information about nonprofits’ activities and expenditures. Several of the study’s recommendations relate to advocacy and lobbying. If enacted into law, they would impose unnecessary and potentially burdensome lobby-related disclosure requirements on charitable nonprofits.
One of the recommendations calls for all charitable nonprofits that engage in lobbying to submit a narrative description with their tax Form 990 detailing the legislation they lobbied on and the manner in which they lobbied, including a description of the lobbying activities. Currently, under the 1976 law, there is no such requirement for charities. The staff of the Joint Committee on Taxation believes that the public has an interest and right to know more about the lobbying activities of organizations that they are considering supporting. They also believe that requiring further disclosure will enhance the ability of regulators to monitor charities’ tax-exempt operations.
Recognizing that the federal Lobby Disclosure Act and many state laws already call for disclosure of lobbying activities, it seems unnecessary to add to the thicket of rules that, ironically, were intended to encourage charitable nonprofits’ participation in the public policy process, not hinder it. Just as charities are trying to understand and comply with the existing regulations, this proposal burdens organizations with yet more paperwork.
Two other recommendations call for disclosure of expenditures for nonpartisan research and analysis of legislation that contains a limited “call to action,” and for “self-defense lobbying.” Organizations that have elected to come under the 1976 lobby law currently do not have to report these expenditures because they are considered categories of public policy work, not lobbying. The problems with these recommendations are twofold. First, they add to the complexity of reporting on Form 990. Imagine what would happen if every time an organization wrote a “white paper” to educate policy-makers about a legislative proposal, it had to calculate and report on its tax form the costs of research, preparation and dissemination. Even a certified accountant would have trouble with all the new math.
As for reporting “self-defense lobbying,” which pertains to lobbying to protect the tax-exempt status or lobbying rights as in the Istook Amendment fight of a few years ago, the Committee’s proposal has no basis. The public is not exactly crying out to know how much money charities in their community are spending to fight proposals by municipalities to make them pay sales and property taxes. Furthermore, the Committee’s recommendations run counter to the spirit of the bipartisan 1976 lobby law that recognized the value of charitable nonprofits being able to defend their existence and to have a strong voice in the policymaking process. In this case, the usually laudable principles of transparency and accountability are inappropriately applied and may erode nonprofits’ historic role as providers of the street-level expertise about social problems that Congress desperately needs to make better policy decisions. The Department of Treasury is currently reviewing the study and will make recommendations back to Congress.
While Congress remains deadlocked over legislation to eliminate soft money contributions sponsored by Senators John McCain (AZ) and Russell Feingold (WI), Congress and the Clinton administration took action in June to require that nonprofit Section 527 organizations (sometimes known as stealth PACs) register with the IRS and disclose their expenditures and contributions. With increasing frequency, candidates and organized interests were using Section 527 of the tax code to set up organizations that, until this legislation was enacted, operated as political action committees, but did not have to identify who set them up, or any of the sources of funding. This legislation, also sponsored by McCain, was strongly supported by Sen. Joe Lieberman (CT). The issue received national attention with articles in the New York Times, Washington Post and Wall Street Journal and served as the one piece of reform legislation that was politically viable during the election season.
It is important for nonprofit leaders to understand that the 527 organizations are set up for the purpose of partisan electoral activities, unlike 501(c)(3) and 501(c)(4) organizations. The similarity between 527s and 501(c)(4) organizations is that they both may conduct “issue advocacy,” or advocacy during an election year that aims to educate voters. However, the new disclosure requirements facing section 527 organizations begins to open the door for policymakers to consider further disclosure requirements for other types of nonprofits, including 501(c)(4)s and charitable organizations (especially in light of the Joint Committee on Taxation staff’s recommendations). It also raised fundamental questions about what constitutes a nonprofit’s right to privacy. Currently, a charity’s donor lists are confidential, but the public may view any charitable organization’s tax Form 990 on demand.
The debate over Section 527 nonprofits may be a warm-up to a much larger policy discussion about all types of nonprofits and their rights to be involved in politics during the next Congress. There is the potential for actions taken under the auspice of campaign finance reform to further limit nonprofits’ ability to advocate on behalf of the people and causes they serve. Many believe that the nonprofit sector has a vital stake in campaign finance reform. Without comprehensive reform, nonprofits will never have the influence necessary to compel government to invest in affordable housing, fully develop renewable energy sources, provide universal pre-school and address many other causes that are not at the top of the major parties’ political agendas. As the debate continues, it is terribly important for nonprofits to get involved in efforts to defend our ability to advocate, to push for laws that will allow us to be more involved in public policymaking and most importantly, to mobilize the millions of people that volunteer and are served by nonprofits to be an even stronger force for tackling America’s pressing issues.
David Arons is the codirector of Charity Lobbying in the Public Interest in Washington, D.C. and senior fellow at the Lincoln Filene Center for Citizen and Public Affairs at Tufts University in Medford, Massachusetts.