Charities' Activities Attracting Congressional Attention

On two separate occasions in the first two months of 2024, members of Congress have invited IRS scrutiny of tax-exempt charitable organizations for activities that were perceived to be political lobbying. In January, Representative Bill Pascrell of New Jersey called on the IRS to investigate a charity for its close ties to a political candidate. In February, the chair of the House Committee on Oversight and Accountability asked the IRS commissioner to provide documents and communications on the political activities and lobbying practices of a charitable organization focused on minimum wage protections for workers. In its letter to the IRS, the chair expressed concern that the organization, and others like it, are “primarily engaged in a host of lobbying practices” at odds with the entities' charitable purposes.  

Charitable organizations that are exempt from tax under Section 501(c)(3) must be “operated exclusively” for a designated charitable purpose. In addition, charities are prohibited from political campaigning for or against candidates and are strictly limited in the work they can do to influence legislation. The Treasury Regulations provide that an organization that attempts to influence legislation or intervenes in any political campaign on behalf of or in opposition to any candidate for public office does not meet the “operated exclusively” requirement and will have its tax exemption denied or revoked. If an organization loses its exemption due to lobbying activities, both the entity and the managers are subject to an excise tax equal to 5% of the lobbying expenditures.

For some charities, Congress has offered an alternative that allows a charity to elect to apply a lobbying expenditures test. This provision permits charities to spend a limited amount on lobbying each year without jeopardizing its exemption. However, if a charity expends more than the allowable amount in any year, a 25% excise tax on the excess lobbying expenditures is imposed. In addition, the charity can lose its exemption if its lobbying expenditures exceed its cumulative allowable limit by more than 150% during a rolling 4-year period.  

For many charities, activities and education in the public sphere are an important part of their charitable mission. Unfortunately, these activities may be perceived as crossing the line into political activity and lobbying. Without carefully drafted governance documents, public engagement guidelines, and well-advised directors and employees, a charity's activities not in support of its charitable purpose can risk its tax exemption and charitable status, jeopardizing public support for the charity and its mission.  

Despite the risk for tax-exempt organizations that engage in lobbying activities, organizations can maximize their advocacy efforts while protecting their tax-exempt status. Our attorneys can guide you through the process of asking the right questions to help identify and mitigate the potential risks associated with your organization's lobbying activities. For example:

• To what extent is lobbying consistent with your organization's tax-exempt status?
• Does your organization engage in direct or grassroots lobbying?  
• Is your organization properly reporting its lobbying activities on its Form 990?
• If your organization has elected the lobbying expenditure test, does it utilize one or more of the exceptions available under the rules?
• If your organization has not elected to use the lobbying expenditure test, why not?

Although the laws, rules, and regulations affecting your organization may seem daunting, Sherman & Howard's attorneys have the experience to assist you to engage in lobbying activities that are compliant.