Yablon, Jeffery L. From: Wing Theron Sent: Monday, October 26, 2015 3:32 PM To: Yablon, Jeffery L. Subject: RE: Thank you Mr. Yablon, You are quite welcome. It was truly a pleasure to work with you, but please don?t tell me that you have a similar case coming to Appeals any time soon!). Take care, T?eran Wz'?j IRS - Appeals, SOD, Team 9 From: Yablon, Jeffery L. Sent: Monday, October 26, 2015 12:10 PM To: Wing Theron Subject: Thank you Mr. Wing: Thank you so very much for your call of today informing me that a favorable determination letter will soon be issued by the IRS to my client Crossroads GPS. The hard work and hard thinking that you put into this case is greatly appreciated. And rest assured that you have indeed reached the correct answer. Best personal regards. eff Jeffery L. Yablon Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036?3006 202.663.8441 f202.663.8007 website bio This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ABU DHABI HOUSTON LONDON LOS ANGELES NASHVILLE NEW YORK NORTHERN VIRGINLA PALM BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN FRANCISCO VALLEY TOKYO WASHINGTON. DC pillslimu The contents of this message, together with any attachments, are intended only for the use of the individual or entity to which they are addressed and may contain information that is legally privileged, con?dential and exempt from disclosure. If you are not the intended recipient, you are hereby noti?ed that any dissemination, distribution, or copying of this message, or any attachment, is strictly prohibited. If you have received this message in error, please notify the original sender or the Pillsbury Winthrop Shaw Pittman Help Desk at Tel: 800-477-0770, Option 1, immediately by telephone or by return E-mail and delete this message, along with any attachments, from your computer. Thank you. . This document was obtained and uploaded by the Center for Resaonsive Politics (OpenSecrets.org) Yablon, Jeffery L. From: Sent: To: Subject: Mr. Wing: Yablon, Jeffery L. Monday, October 26, 2015 3:10 PM 'Wing Theron Thank you Thank you so very much for your call of today informing me that a favorable determinationJ yd work and hard thinking that you put int nd rest assured that you have indeed reac sonal regards. GP S. The ha appreciated. A Best p13+ Jeffery L. Yablon Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth 202.663.8441 ABU DHABI wusrm NORTHERN PA SAN FRANCISCO SHANGH This documth was obtained and uploaded by the Center for Res --J eff Street NW Washington, DC 20036?3006 202.663.8007 Isburylaw.com website bio N6 HOUSTON LONDON LDSANGELES NASHVILLE Vl BEACH SACRAMENTO SAN DIEGO VALLEY TOKYO WASHINGTON, DC SAN DIEGO NORTH COUNTY letter will soon be issued by the IRS to my client Crossroads 0 this case is greatly bed the correct answer. oonsive Politics (OpenSecrets.org) Yablon, Jeffery Li. From: Yablon, Jeffery L. Sent: Wednesday, September 30, 2015 5:03 PM To: 'Wing Theron Subject: Follow?up to Our Call of September 24, 2015 Attachments: Follow?Up to Our Conversation; Follow-Up to Our Conversation; Crossroads GPS -- Definition of Lobbying; Follow-up to Our Teleprone Call; Crossroads Follow?Up to Our call of August 24, 2015 Mr. Wing: Again, thank you for speaking with me on September 24. I am writing as a follow-up to that call and (ii) to provide information to you and your Manager, Ms. Shimizu, whomay not have had the opportunity to review all of the voluminous material GPS has previously submitted. I apologize for the length of this email. 1. I believe that we have always agreed on two threshold issues: Before your involvement, GPS had been mistreated by the IRS by seemingly illegal leaks to the press, (ii) odd (and possibly illegal and politically motivated) IRS National Of?ce interference in the normal processing of Form 1024 iniCincinnati, a logically, procedurally, and legally indefensible refusal to consider information helpful to GPS that had been requested by the IRS itself, and (iv) repeated and last-minute changes in the unique and made-for-the- occasion pre cedural rules that have been applied to this case. But for your 4 This docum int was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) purposes, the only signi?cance of these actions is to possibly reduce the level of deference thatlappellate conferees normally give to IRS decisions that they review. b. 2007-41 is, a ?confusing,? such persons The fact?and-circumstances test of Rev includes IRS Commissioner Koskinen (see . Rul. 2004-6 and Rev. Rul. tibest, extremely confusing and has been often described as ?vague,? and ?hard to understand? by many knowledgeable persons. The list of Testimony of Mr. Koskinen before the Senate Appropriations Committee on April 30, 2014 and (ii) the House Preamble to every knowledgeable person who has considered the ma maintained tl ?void-for?va Rev. Rul. 20 to consider count? meth eighteen fact )mmittee on Appropriations on March 18, 2 NPRM IRB 2013-52 (December 23, 2013)) h'at this test is unconstitutionally vague and gueness? doctrine. But although you agree 07?41 are vague and confusing, we agree th vhether the two rulings are inoperative for Ve also seem to have come to an agreement odology cannot be used; it is de?nitely Contrary to your initial and preliminai ors of Rev. Rul. 2004?6 and Rev. Rul. 200? 5 015) and the IRS itself (see . Along with virtually tter, GPS has always therefore invalid under the that Rev. Rul. 2004-6 and at it is beyond your purview his reason. on two other issues: ry thinking, a ?classify?and- not the case that the 7-41 can be equally This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) weighed, app a ?political/n superiority. I attached). case that all and/or logica e-mails to yo nothing but 1 without any do nothing or logical co August 17, 2 sense? test 0 reasonable 1: the commun of an electio b. educational or logical discussion whatsoeve Example 12, makes clear, a social ut distribute seven-word bumper stickers ntent and maintain its tax-exempt status. t(i)15, the requirements of the two rulings ca i. . . lied to every action or statement belng teste ot political? conclusion reached in each cas [n this regard please see my e-mail to you 0 Also contrary to your initial and prelirr Ll discussion. As demonstrated in my Augu (copies attached), a social welfare org: r, more accurately, a ?common sense? ques This is simple. This is logical. This is 6 1 ?social welfare? communications must have :d and simply counted, with ?simply? by numerical August 17, 2015 (copy Linary thinking, it is not the an element of education st 27 and August 30, 2015, inization may engage in obbying activities and (ii) those lobbying activities can be conducted As Treas. Reg. section welfare organization can holly devoid of educational Vhere we may not agree is whether or not, per your e-mail to me of be reduced to a ?common tion, ?Would a erson think, taking into account all of the facts and circumstances, that ication or action being considered was intended to affect the outcome intuitively attractive. But it This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) is absolutely and demonstrably not the law as interpretec announced, and enforced by the IRS. See, e. my e-mails to you of July 1 and A attached). Intent does not matter. Please review the discussions of Vote AID, (ii) Project Vote 10, 2015. In forbidden to voter registre intent of elec conclude, tal were intende so. But in a] whatsoever. These carefully 00] law as publi less promin? the GPS ap}: conservative iliication for recognition of exemption if and 3 organizations is different from the law for in the Revised Protest and in my e?mails to all three situations, the IRS allowed a chari i engage in ?y political activity whatsoever [121011 in a manner that unquestionably had tl ting liberal/Democratic candidates. Every {ing into account all of the facts and circum to affect the outcome of an election and, i 1 three cases the IRS concluded that there Vi three decisions are not flukes or outliers. A isidered by the IRS at the highest levels. Tl cly announced by the IRS. Moreover, there :nt charitable organizations doing exactly t1 1 7 This document was obtained and uploaded by the Center for Res ugust 10, 2015 (copies TAM 9117001, and you of July 1 and August ty an organization to engage in targeted 1e motive, purpose, and reasonable person would stances, that these activities some cases, probably did as no political activity 11 three situations were aese three decisions are the are dozens of similar but 1e same thing. You can deny only if the laws for liberal organizations. aonsive Politics (OpenSecrets.org) Tobes Rul. 2007-41 replacing the however, anc currently star While repeat: Ther Code section and Project to GPS. If, how qualify unde in social we] if possible, 1 aspects of y< 11?1 1. an individua especially cl ure, the IRS well knows the problems with and has devoted substantial assets to the ta in the meanwhile you have to resolve this ids. is no logical or principled way of granting 501(c)(3) to Vote AID, the organization de /ote, without granting tax?exempt status un ever, you and Ms. Shimizu nonetheless con Code section 501(c)(4) because it did not fare activities, my co-counsel and I will me Vls. Shimizu. At that meeting, we will want )ur methodology: tem?bv-Item Analysis. Rev. Rul. 2004-6 ar Ll analysis of each and every action and con lear when the focus on the time element is 8 This document was obtained and uploaded by the Center for Res Rev. Rul. 2004?6 and Rev. 3k of revoking and with something that is intelligible. So far these efforts have failed, case under the law as it he law is a mess, one thing is clear: the IRS cannot play favorites. To ,tax-exempt status under scribed in TAM 9117001 der Code section 501(c)(4) .clude that GPS does not engage primarily (Le, 51%) et in Fresno with, you and, to discuss at least two id Rev. Rul. 2007?41 require imunication. (This is onsidered; an ad that is aired ponsive Politics (OpenSecrets.org) on television ?shortly before an election? may constitute ?political activities? even though a contrary result may be reached if the exact same ad is aired at another time, the day after the election.) Accordingly, we will want you to review with us each and every ad and other communication or action of GPS that you have classi?ed as ?political.? In particular, we would like y01 1r reasoned explanation of why, under all of the facts and circumstances, each of these ads, communications, or actions are more political than the actions considered Vote AID, We rea time. Indeec recognize th position wor Rev. Rul. 20 two rulings. reached an a and then complain that the rules are too demanding. 2. I September 2 election? as I i AM 9117001, and Project Vote. lize that an item-by-item analysis will take Li as noted at page 3 of our Second Supplerr at this is exactly what Ms. Lerner feared an 11d do. But this is exactly what is demandec 07-41. This is exactly what GPS did in its And this is exactly what you must have alr dverse conclusion. The IRS cannot issue e: xplanation of ?Shortly Before An Election. 2015 (copy attached) noted that the phra54 used in Rev. Rul. 2004-6 and Rev. Rul. 20( 9 3 and approved by the IRS in a signi?cant amount of rental Submission, we organization in 1by Rev. Rul. 2006-4 and efforts to comply with the eady done if you have (tremely demanding rules My e-mail to you of ?shortly before an )7-41 can only mean one of This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) two things: one month or (ii) whatever period of time an IRS agent wants it to be under, of course, ?all of the facts and circumstances.? We ask for your View in i this regard. I respectfully ask that you share this e-mail and the attached e-mails with Ms. Shimizu. As much as I would like to meet you in person, I am hope?ll that this material will convmce both you and her that a favorable ruling should be issued to GPS. i Again, thank you. --J eff Jeffery L. Yablor Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036-3006 202.663.8441 f202.663.8007 website bio ABU DHABI AUSTIN HOUSTON LONDON L05 NEW YORK NORTHERN PALM BEACH SAN SAN DIEGO NORTH COUNTY SAN FRANCSOO SHANEBM VALLEY WASHINGTON, DC pillsliuru 10 This docume twas obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffery L. From: Sent To: Subject: Mr. Wing: Thank Yablon, Jeffery L. Tuesday, September 22, 2015 3:48 PM 'Wing Theron Our Call of September 16 ou again for speaking with me on September 16, 2,015. I greatly appreciate your openness and desire to handle this case in a forthright manner. Our conversation, however, left me with a number of concerns and questions. As you 1 the IRS has consistently been inconsistent in how it has handled gave my client the sense that new, unusual or unique procedures the IRS to sup facts and with was uncovered by the House Ways and Means Committee and 1: Submission 01 As you strange. The i purported to errors, includi information (1 without explanation, ignored this information. GPS was left wi (now, and as the written record clearly demonstra port a pre-ordained adverse conclusion that was re out a fair application of the law. This View was b< ?May 7, 2014, with respect to Ms. Lerner?s persor also know, even the manner in which this case an Proposed Adverse Letter was issued to GPS on Se rovide a reasoned analysis, it was replete with fac ng an odd but telling feature: The IRS expressly I information relating to the second year of ope 11 This document was obtained and uploaded by the Center for Res tes, prior to your involvement this case procedurally. This were being created and used by :ached without regard for the )lstered by the information that aresented in our Supplemental 1al antipathy for GPS. ived on your desk was ptember 6, 2013. While it tual, legal, and procedural asked for and received rations of GPS) and then, th the implication that this ponsive Politics (OpenSecrets.org) unique departure from normal procedure occurred because the IRS found the ignored information to After the Conference of Right on November 8, 2013, GPS be exculpatory and undermined the desired and pre?ordained conclusion. responded in writing to all of the points raised by the IRS personnel; see Revised Protest of February 28, 2014. GPS also asked for an explanation of exactly why the IRS was looking only at the ?rst year of Operations, given that the :kclusive focus on the ?rst year of operations conflicted with how the IRS has always handled these matters and that the IRS had the information for the second year because were initially told that there would be a follow-up meeting in Washington, DC to discuss in person the new matters raised by the Revised Protest, seemingly with the same IRS personnel. We were subsequently told that (1 based in Wash 0 written response to the Revised Protest. But then, w1thout ever 1 told that there would be no written response from the IRS ant been shipped 2,800 miles away to Fresno, California. Fortunately, however, once you turned to the case and yo procedural confusions were abated in three important regards: First, you stated and repeatedly con?rmed tl would be the decision maker and that, if ar being contemplated, you would allow us to I Fresno. 12 lfferent IRS personnel, also ington, DC, would handle the matter, but that in ainy event we would receive a "eceiving any answers, we were :1 (ii) all of the GPS ?les had and I began to communicate, at you and no one else 1 adverse decision was neet with you in person in This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Howev er, in our conversation of September 16, you made cast severe doubts on my understanding of what the procedure This docum int was obtained and uploaded by the Center for Res Second, you indicated that if you reached an adverse conclusion, that conclusion would be explained in a detailed determination letter. (This was obvious and i vritten adverse mplicit, because this is how the IRS has always handled adverse determination letters of all types and, indeed, is required in this case by the Internal Revenue Manual. See, IRM 7.20.2.11. Indeed,1 about how a favorable ruling would require even discussed with you ou to write only a single sentence, while an unfavorable ruling would require a explanation that would be compelled to deal with the errors contained in the Proposed Adverse Letter that GPS has submissions.) Third, you said that you would consider all (3 identi?ed in written the information in your possession, not merely the information relating to ?rst year of operations. 3 comments that in two regards would be: First, you stated that, contrary to my earlier understanding, you might not be the ultimate decision maker and that your ?Manager? might chose to overrule whatever you decided. Moreover, you implied that there may be other IRS personnel who might have the power to do the same. 13 aonsive Politics (OpenSecrets.org) To be Si ?Appeals Case document that if it would be My clie respectfully re determination decision make procedure of judicial author mail need not It must good faith. II circumstance Second, you said that if you reached an adve possible that you would not present GPS wit] explanation of that decision. But, as noted 21 procedures require such an explanation. M01 unfavorable ruling the IRS has always provic detailed explanation. And legal requirement ire, you said that, regardless of your decision, yor Memorandum? explaining your reasoning but is different than an adverse determination letter a made available to GPS. nt, my co-counsel and I are a bit concerned and Cl :quest that you con?rm to me in a short e?mail tha you will allow GPS an in-person meeting in I Jroviding a detailed written explanation of its reas ity will have a complete and reasoned record of exceed a single sentence. I be stressed that, despite my concerns, I continue 1 ideed, one of the many proofs of the unconstitutio tests of Rev. Ruls. 2004-6 and 2007-41 is that it 14 rse conclusion, it was 1 a detailed written bove, the own reover, when issuing an led taxpayers with a aside, it would be unfair and indefensible for the IRS to now change its procedures. i will be writing an i this is an internal nd (ii) you did not know )nfused. Accordingly, I if the IRS reaches an adverse ?resno with you and the other :rs before the ruling is ?nally issued and (ii) the IRS will follow its normal oning so that any reviewing he actions of the IRS. This e- believe that you are acting in nal vagueness of the ?facts-and- has lead you, an experienced, This docum? nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) knowledgeable demonstrably not be the law As we 1 reaching the vagueness dor intelligence? authorities cai and honest IRS reviewer, to at least temporarily and clearly are not the law, never were the law, on or example: I lave discussed, a favorable ruling can and should onstitutional issues. Nonetheless, I must again nc :?rine, a law, policy or procedure is invalid if eithe nust guess as to its meaning or (ii) the law is so i ilinterpret and enforce it inconsistently and witho i Your idea of counting rather than weighing rulings has never been asserted by anyone, e? as policy by the IRS. (My e-mail to you of 14 demonstrated why this theory is incorrect.) Similarly, there is an appeal to your notion organization must engage primarily in activii viewed to be bene?cial to the public. But th the National Ri?e Association and the Amer Union are social welfare organizations, even organizations have many vocal critics who 5 organizations do not engage in ?social welfa would de?ne the term and, indeed, cause gre society.) 15 embrace legal theories that uld not be the law, and should he 18 factors of the two much less announced Lugust 17, 2015 hat a ?social welfare? ties that are generally at is not the law. (Both ican Civil Liberties though both incerely believe that these re? as the average person :at harm to American be issued to GPS without >te that under the void?for? 3r (1) ?men of common ague that governmental ut reference to ?objective This documeni was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) norms.? Whil I understand why you are institutionally unable to speak to the issue, the plain truth is that the dif?culties that you have said that you have with this case are further proof that Rev. Ruls. 2001l-6 and 2007?41 cannot withstand constitutional As always, thank you for your time and consideration. Jeffery L. Yablor LPartner Pillsbury Winthra? Shaw Pittman LLP Jeff 1200 Seventeenth Street NW Washington, DC 20036?3006 202.663.8441 f202.663.8007 website bio ABU DHABI ausrm ammo HOUSTON LONDON LOSANGELES NASHVILLE NEW YORK NORTHERN BEACH SACMMENTO SAN SAN DIEGO NORTH COUNTY SAN FRANCISCO SHANGHAI SILICON VALLEY TOKYO WASHINGTOND-C pillshurq This docume twas obtained and uploaded by the Center for Resl 16 scrutiny. Jonsive Politics (OpenSecrets.org) Yablon, Jeffe (L. From: Sent: To: Subject: Mr. Wing: As pro discussed in writing to ex Proposed Ac GPS the election. political can conclusion facts-and?cii easy decoup adverse cha regarded ev election. Al But th Yablon, Jeffery L. Tuesday, September 08, 2015 1:37 PM 'Wing Theron Follow-Up to Our call of August 24, 2015 mised, I am writing to follow up with respe our wide-ranging telephone call of August .plain why the ?11-week rule? that was imp lverse Letter is indefensible. egan to run its TV ads on August 17, 2010, The Proposed Adverse Letter regarded eve 1paign activity. It is impossible to know wi Jecause the Service did not disclose its tl rcumstances tests of Rev. Rul. 2004?6 and]? ling of conclusions from reasons. Nonethe racterization rate, it appears that this was lai ery moment in time during this period as 011 nd it appears that you are considering adopt is position cannot withstand logical, legal 0 17 This document was obtained and uploaded by the Center for Resl ct to an issue that we 24, 2015. Speci?cally, I am licitly adopted in the 77 days 11 weeks before :ry one of these ads as th certainty the basis for this tought processes and (ii) the {ev. Rul. 2007-41 allows the less, because of the 100% rgely because the Service ase in time to the ing the same View. factual scrutiny: aonsive Politics (OpenSecrets.org) 1. days? Or 90 never, ever, I 2. days? Or 180 days? This number is comp Jeen applied to another organization. here is a de?nite attraction to having ?brigh If77 days before the election is close to the election, what about 78 letely arbitrary and has Lt lines,? which is why posted automobile speed limits are presented as ?55 Miles Per Hour? rather than ?Not Too Fa day rule was rule. of pro; annoui fairnes retroac have of the using a) As you know, in 2013 the IRS propose st.? But speed limits are posted for all to se not. ee NPRM IRB 2013-52 (December 23, 20] >osed rules was broadly attacked and withdi iced hard numerical cut?offs makes sense a1 S. b) In contrast, a 77-day rule that is unann :tively, and that is applied only to GPS is ne old me that, at least tentatively, you regard 1 percentages you have calculated. With that a 60?day cut-off or a 30-day cut-off would 18 This documdnt was obtained and uploaded by the Center for Res in advance, while this 77- a 60-day rule and a 30-day 3). Although the entire set 'awn by the Service, having id has a semblance of ounced, that is applied :ither sensible nor fair. You his as a close case in terms in mind, please note that :hange the result you have aonsive Politics (OpenSecrets.org) reachec Letter. 3. con?icts wit repeatedly and only 0 refers to a 3; speech was prove that rr election,? th means. Sim a month bef election the which seem defend the before a judge. The Proposed Adverse Letter also ignores o] just as it would change the result of the :See pages 21 and 22 of the Revised Protes i Vhat the Proposed Adverse Letter does and ti Rev. Rul. 2004-6 and Rev. Rul. 2007-41. ne point there is an elaboration: Situation that is given ?in the month before the nade ?shortly before the election.? While than 30 or 31 days before the election 1 is does provide better evidence than anythir ply put, the phrase ?shortly before the elect ore the election or (ii) within whatever peric IRS agent who is reviewing the matter wan {more fair? were with the Service, I w< eicond position, either in a ?nal written advr 19 iadvertisements that are run ?shortly before roposed Adverse of February 28, 2014. what you proposed to do Both rulings speak 3 an election.? At one point 16 of Rev. Rul. 2007?41 election? and states that this his does not conclusively not ?shortly before the 1g else as to what the phrase ion? means either within )d of time before the ts it to be. Of the two, )uld not want to explain or arse determination letter or rucial facts in this regard: This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) before days bi social A A runnin these a the election) and stopped running them on :fore the election). All of these ads were se wielfare issue advocacy. 3) GPS then stopped running TV ads for c) On September 21, 2010 (42 days befor TV ads again and continued to do so until GPS began running the TV ads on August 17, 2010 (77 days September 20, 2010 (53 lf?classi?ed by GPS as :leven days. the election), GPS started November 2, 2010. All of ,ds were self?classi?ed by GPS as political activity. substa of Rev 5.1 own rules ir social welfa exempt. A itself to abu Again contrary result can be reached only by adop d) In other words, GPS was substantially ntially more conservative than the one?mon Rul. 2007-41 suggests is necessary. 11 sum, if the Service looks at the real facts 1 a logical and consistent fashion, enough 01 re activity to tip the balance in favor of recc s'es because it is subjective, unannounced, thank you for your consideration. 20 1 more cautious and th cut-off that Situation 16 of this case and interprets its GPS TV ads qualify as >gnizing GPS as tax- ting an approach that lends npredictable and arbitrary. This docum? nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Jeffery L. Yablon Pillsbury 1200 Seventeeni 202.663.8441 jeffery.yablon@ ABU OHABI AUSTIN NORTHERNVIRGINIA SAN FRANCISCO pilshuru The contents of 1 entity to which exempt from dis i distribution, or message in error 800-477-0770, attachments, fror Jeff Partner an Shaw Pittman LLP Street NW Washington, Dc 20036-3006 202.663.8007 aiilsburylawrom website bio EUING HOUSTON LONDON L05 NASHVILLE NEW YORK BEACH SACRAMENTD SAN DIEGO SAN DIEGO NORTH COUNTY I SIUCON VALLEY TOKYO WASHINGTON, DC his message, together with any attachments, are intended osure. If you are not the intended recipient, you are herel opying of this message, or any attachment, is strictly proh please notify the original sender or the Pillsbury >ption 1, immediately by telephone or by return Email an your computer. Thank you. 21 only for the use of the individual or are addressed and may contain information that is legally privileged, con?dential and 3y noti?ed that any dissemination, ibited. If you have received this Shaw Pittman Help Desk at Tel: :1 delete this message, along with any This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffen yL. From: Sent: To: Subject: Attachments: Mr. Wing: In our ?social welf. in some sens stating that 2 no requirem proof of this 1. Let sect for dis0th org else soc ofc rm term being is of two basic types, ?direct lobb bying. Roughly speaking, direct lobbying . Lo] 10 . 3 >cial welfare organization if it is an ?action? ial welfare organizations may attempt to inl :ommunications that are described as ?prop Yablon, Jeffery L. Sunday, August 30, 2015 1:35 PM 'Wing Theron Crossroads GPS Definition of Lobbying eotopicp97.pdf last conversation you stated that for a comr are? for purposes of Code section 501(c)(4) l6 and/or (ii) appeal to logic in some sense. ill ?lobbying? quali?es as social welfare for ent that lobbying be either educational or 10 and you accepted: Accordingly, please not ?5 begin at the beginning: The de?nition'oi ion 501(c)(3) organizations is the same as Code section 501(c)(4) organizations. This iute. If you disagree, however, please tell me so as quickly as possible. . Of course, lobbying is ?bad? for Code sec because charities may lobby only to a sev lobbying is ?good? for Code section 501( lobbying is different from ?political activ welfare activity. But the de?nition is the hough Code section 501(c)(4) makes no rel . section states that an words of Treas. Reg. section ictivities is attempting to in?uence legislati erwise.? In sum, there is no limit to the ext: anization can attempt to in?uence legislatio . More to the point, this Treasury Regulati that strongly suggests a lack of education co munications with legislators and/or their Sl le 'slation; grass roots lobbying consists of cc 22 This docum nt was obtained and uploaded by the Center for Res nunication to qualify as it must be ?educational? I strongly disputed this, these purposes and there is gical. I offered to send e: 7?lobbying? for Code he definition of ?lobbying? seems to be far beyond :tion 501(c)(3) organizations erely limited extent, while organizations because ity? and qualifies as a social same. ?erence to lobbying, Treas. organization may qualify as organizations; ?if [in a substantial part of on by propaganda or ant to which a social welfare n; many do nothing on expressly states that :luence legislation by means aganda? an undefined al content and/or logic. ying? and (ii) ?grass roots? :onsists of direct :aff in order to affect mmunications with the aonsive Politics (OpenSecrets.org) general public or a segment thereof in order to indirectly; e. ?Call Your Congressman and Keystone XL Pipeline.? The direct/grass roots charities, but not for social welfare organizatio . For a complete discussion of lobbying, see Cha 1997 E0 CPE Text by Judith E. Kindell and discussed, Ms. Kindell is the principal author 0 Rev. Rul. 2007-41.) For your convenience, a docr following: . Outside of IRC 501(c)(3), there is 501(c) that restricts lobbying activities. Co imposed on the lobbying activities of non-I that the lobbying activities must be german organization?s exempt purpose. As a result, in support of its . Thei fede lobl: educorr. ral statute, regulation or publication that ev tying by a social welfare organization must :ational content or logic. To be sure, educa 1e following day, I used the example of a bi imunication that because of space limitat educational or logical content but (ii) nonethele therefore falls within the ambit of social welfar section 501(c)(4). A bit of research reveals tha? Regulation expressly agrees. Treas. Reg. sectic Example (12) is as follows: Organization pays for a bumper sticker tl Vote NO on Prop. also pays for a 30-5 and a billboard that similarly advocate oppi re is not a single hint, suggestion or whispei ffect legislation ell Him to Vote for the istinction is important for ter P. ?Lobbying Issues,? Francis Reilly. (As we both Rev. Rul. 2004-6 and of this [ment is attached. You will note that the ?r page contains the specific provision of IRC sequently, the only limit 501(c)(3) organizations is to the accomplishment of the the organization?s sole activity exempt purpose may be lobbying without jeopardizing its tax exemption. in the Code or in any other en remotely implies that have some level of tion and logic may make for effective lobbying, but that does not mean that either is required. ur conversation of August 26, 2015 and in my follow-up e?mail to you imper sticker -- a ions can contain no 33 quali?es as lobbying and for purposes of Code a 35-year?old Treasury >n 1at reads: ABORTION: econd television advertisement osition to Prop. X. In light of the of the communications is limited scope of the communications, none within the exception for nonpartisan analy 23 is, study or research. First, none of the communications rises to the Ie el of analysis, study or research. Second, none of the communica ions is nonpartisan because This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) none contains a sufficiently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent opinion or conclusion. Thus, each communication is a direct lobbying communication. 7. In sum, it is clear that there is no requirement that lobbying by Code section 501(c)(4) organizations must be educational or logical. Please let me know if you agree. Thank yipu for your attention to this matter. Please: contact me if further discussion would be helpful in this or any other regard. --J eff Jeffery L. Yablon Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036-3006 202.663.8441 I 112026638007 jeffery.yablon@ aiillsburylawcom website bio ABU DHABI AUSTIN BEIJING HOUSTON LONDON LDS ANGELES NASHVILLE NEW YORK NORTHERN VIRGINIA PALM BEACH SACMMENTO SAN SAN DIEGO NORTH COU SAN FRANCISCO SHAN SIUCON VALLEY TOKYO WASHINGTON, DC pl lshuru From: Yablon, Je'fery L. Sent: Sunday, August 30, 2015 12:48 PM To: Yablon, Jeffery L. Subject: FW: Emailing: eotopicp97.pdf Jeffery L. Yablon Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036?3006 202.663.8441 I f202.663.8007 website bio 24 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ABU DHABI AUSTIN BHU NG HOUSTON LONDON NASHVILLE NORTHERN BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN FRANCISCO VALLEY TOKYO pillshunl From: YabIOn, Je ery L. Sent: Friday, Aug 28, 2015 5:00 PM To: Yablon, Jeffery L. Subject: Emailing: eotopicp97.pdf 25 This document was obtained and uploaded by the Center for Resoonsive Politics (OpenSecrets.org) 1. The last two years have witnessed a ?urry of legislative ac of tax?exempt organizations. Concerns have been raised activities lobbying of these Ci 1, 1996. to register engage in concerning further, non-tax legislation continues. Ne Eroduction P. LOBBYING ISSUES by Judith E. Kindell and John Francis Reilly and whether additional limitations should be imposed. )ncerns, the Lobbying Disclosure Act of 1995 was enactec 2' U.S.C. 1601 et seg. In addition to requiring organiza1 and report on their activities, the Act provides that IRC lobbying are not eligible to receive Federal funds as an a :vertheless, as Miriam Galston has noted in ?Lobby' 1997 E0 CPE Text tivity regarding the lobbying regarding the extent of their ast year, in reSponse to some 1, to become effective January ,ions that engage in lobbying 501(c)(4) organizations that ward, grant, or loan.1 Debate and the Public Interest: Rethinkin 1269 (199 Revenue very diffe the Internal Revenue Code?s Treatment of Legislative Activities,? 71 Tex. L. Rev. the primary vehicle for regulating organizations? legi lative activities is the Internal Code. In her article, Professor Galston observes that the ode creates four separate and rent regulatory ?regimes? regarding lobbying. 1d, at 12 5-81. ?rst regime, which applies to IRC 501(c)(3) pu lic charities, permits these organizat ons to lobby so long as they do not devote a ?substan 'al part? of their activities to attempti to influence legislation. This system has two subsets, which employ different tests of substantiality. The older, enacted in 1934, applies facts and circumstances criteria to determine ?substantial part.? The newer was introduced in 1976, by the enactment of IRC 501(h) and IRC 4911. IRC 501(h) provides that certain blic charities may make an election and have their lobbying activities governed by expenditure tests in lieu of being subject to the IRC 501(c)(3) "substantial part? test. If the expenditure limits are exceeded, a tax under IRC 491 1 will be imposed or, if the limits are exceeded by 150 percent over a de?ned period, exempt status will be lost. The tests are discussed in Parts second regime applies to IRC 501(c)(3) private foundations. Under this regime, any 1res incurred for lobbying activities are treated as taxable expenditures under and subject to the tax imposed by IRC 4945(a). Part 4 discusses this topic. expenditl IRC 494 IRC 501 he third regime involves other federally tax?exempt organizations. Outside of there is no specific provision of IRC 501(0) that restricts lobbying activities. Consequ organiza organiza exempt in Part 5. ently, the only limit imposed on the lobbying act :ions is that the lobbying activities must be germane tion?s exempt purpose. As a result, the organization?s lurpose may be lobbying without jeopardizing its tax exer 1995,? 13 EOTR 45 Robert A. Boisture, "What Charities Need to Know to Comply vs EOTR 35 (Jan. 1996) and Miriam Galston, ?Simpson?s Lobbying 1 (Jan. 1996) for descriptions of the provisions and effects of the L0 ivities of non-IRC 501(c)(3) the accomplishment of the sole activity in support of its nption. This topic is discussed rith the Lobbying Disclosure Act of 3revision: More Bark than Bite,? 13 )binig Disclosure Act. This documgnt was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbuinq Issues The fourth regime concerns the lobbying expenditures of businesses. These rules are set forth in IRC 162. Until recently, this was not a subject that particular concerned exempt organizations. Now, however, because of the lobbying disallowan<:e provisions of the Omnibus Budget Redonciliation Act of 1993 (OBRA 1993), exempt organizations also must consider the provisions that disallow deductions for lobbying by businesses. Part 6 discusses this topic. 2. chbying Activities of IRC 501(c)(3) Nonelecting Public Charities A. Legislative and Regulatory History (1) The Pre-Statutory Era Prior to 1934, there was no speci?c statutory restriction on the lobbying activities of charities. Early regulations, however, provided that organizations ?formed to disseminate controversial or partisan propaganda? were not ?educational? within the meaning of the statute. Treas. Reg. 45, art 517 (1919 TD. 2831, 21 Treas. Dec. Int. Rev. 285 (1919). The import of the reg ullation became the subject of litigation concerning the cleductibility of a contribution or bequest to an organization. The deduction was disallowed in some cases. Herbert E. ales, 9 B.T.A. 828 (1927) (contributions to various temperance organizations); Joseph M. Price, 12 B.T.A. 1186 (1928) (contribution to the Civic Fund of the City Club of New York); Slee v. Commissio_ner, 42 F.2d 184 (1930), ?g 15 B.T.A. 710 (1929) (contribution to the American Birth Control League); Henriette T. Noyes, 31 B.T.A. 121 (1934) (contribution to a women voters? league); Vanderbilt v. Commissioner, 48 F.2d 360 (lst Cir. 1937) (bequest to the National Women?s Party). In other cases, the deduction was allowed. See Weyl v. Commissioner, 48 F.2d 811 (2nd Cir. 1931), ?g 18 B.T.A. 1092 (1930) (contribution to the League for Industrial Democracy); Cochran v. Commissioner, 78 F.2d 176 (4th Cir. 1935), Lv?g 30 B.T.A. 1115 (1934) (contribution to the World League Against Alcoholism). In one case, a contribution to an organization was allowed, while another, to a cognate organization, was disallowed. Leubusc er v. Commissioner, 54 F.2d 998 (2d Cir. 1932), Mifying 30 B.T.A 1022 (1930) (bequest to two organizations to teach the ideas of Henry George relative to the single tax on land).2 2 Commentators differ on the overall import of these decisions. Dean E. Sharp, "Re?ections on the Disallowancle of Income Tax Deductions for Lobbying Expenditures,? 39 B.U. L. Rev. 365, 387 (1959), simply notes that these cases, as well as cases decided after 1934, "are in conflict.? Others have deduced a trend. William H. Lehrfeld, The Taxation of Ideology,? 19 Cath. U. L. Rev. 52, 59 (1969), errphasizes the controversial nature of the organization?s agenda; he concludes that "[o]nly the meek inherited the tax exemption.? Tormny F. Thompson, "The Availability of the Federal Educational Tax Exemption for Propaganda Organizations,? 18 U.C. Davis L. Rev. 487, 498-5 01 (1985), contends that the determining factor in these cases was Vi hether the organization attempted to in?uence legislation. (Thompson also states, at 498 n. 29, that "no evidence suggests that the Service actively discriminated against organizations that advocated extreme viewpoints, or in favor of organizations that advocated mainstreainlviewpoints. The evidence suggests that the Service did in fact apply the standard strictly and eyenhandedly.?) Laura B. Chisholm, ?Exempt Organization Advocacy: Matching the Rules to the Rationales," 63 Ind. LI. 201, 216 n. 78, after noting Mr. Lehrfeld?s and Professor Thompson?s analyses, concludes: "With a few exception.., the cases seem to support the [legislative activity] contention at least as convincingly as they support the proposition that advocacy pg or controversiality was the basis for denial of exemption or cleductibility.? 262 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Oi Birth Con informatic in repealii unanimou cannot dis focused :ation at issue, the American en, collected and distributed nd cooperation of legislators Learned Hand, writing for a 3 program as irrelevant: ?We ?ee, at 185. Instead, he all these cases, is paramount. In the organi: trol League, gave free medical services to married worn in about birth control, and sought to enlist the support a ig' and amending statutes preventing birth control. Judge 5 court, dismissed the controversial nature of the League? .criminate unless we doubt the good faith of the enterpris the League?s legislative activity: that its Iniimediately after this statement, however, Judge Hand ma he League, however, did not come within this exception I legislative activity was ?con?ned solely to relieving the aim, though it adds nothing to dub it ?pr polemical word used to decry the publicity of Controversies of that sort must be conducted 1 subvention; the Treasury stands aside from them. Nevertheless, there are many charitable, literary ventures that as an incident to their success require law. A charity may need a special charter allowir larger gifts than the general laws allow. . . . A soc cruelty to children, or animals, needs the positive to accomplish its ends. . . . We should not think tl booklovers or scientists was less ?literary? or ?s took part in agitation to relax the taboos upon wc propriety, or to put scientific instruments on the ?ee activities are mediate to the primary purpose, and should think, unclass the promoters. The agitation the end in chief, which remains the exclusive 1 association. Trinidad v. Sagrada Orden, 263 US. 204, 68 L. Ed. 458 [1924]. 1d. (Emphasis added.) 3 This in any othc :r jurisdiction. Girard Trust Co. v. Commissioner, 122 F.2d 108, olding was re?ective of the common law regarding lobbying in Er Political agitation as such is outside the statute, hon/ever innocent 1 opaganda,? a he other side. vithout public 1-3 de a distinction: and scienti?c changes in the 2g it to receive iety to prevent support of law at a society of cientz?c, if it irks of dubious ZliSl?S. All such would not, we is ancillary to mrpose of the 578, 44 S. Ct. 1 36031186 there was no evidence its hospital work from legal gland and in Massachusetts, but not 113-114 (Clark, J., dissenting); Elias Clark, "Tle Limitation on Political on Political Activities: A Discordant Note in the Law of Charities,? 46 Va. L. Rev. 439, 447-448 (1960). Professor Clark, who is critical of the decision because it "assumes the validity of the restriction without attempting to justify it by argument or authority,? neverthele is notes: "Later courts have accepted the princi] 4 The statute "52 Trinidad, status so 916: as settled.? 1d. at 446-447. citation of Trinidad is an obvious reference to the Court?s observe yis nothing about the source of the income, but makes the destinat ong as the income was used for exempt purposes; its source was ir ttion in that case that the exemption ion the ultimate test of exemption.? at 581. The practical result of the Court?s statement was that an orgahization could qualify for tax exempt "elevant. This became known as the with charitable exemption until the in the Revenue Act of 1950. of income? test, and was the pervading standard for congruence the unrelated business income tax and the feeder organization rule "destinatit passage 0 263 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq .Issues obstacles. 1d. Therefore, contributions to the League were not deductible. This disallowance, accordingly, was based not upon the controversial nature of the Le ague?s activities, nor upon its attempts tpin?uence legislation per se; instead, it was based upon the assumption (actually, the lack of evidence to refute the assumption) that its legislative activit es went beyond its charitable purposes. What proclaims is an analog to Trinidad?s ?desti ation of income? test a ?destination of lobbying? test. As will be discussed in the next section, this did not become the precise formulation of the statutory restriction on lobbying; nevertheless, Sig; served as the basis of what was to follow. (2) The Lobbying Restriction . In 1934, the limitation on the lobbying activities of IRC 501 organizations, requiring that ?no substantial part of an organization?s activities constitute carrying on propaganda or otherwise attempting to in?uence legislation,? became part of the statute. Revenue Act of 1934. The legislative history is sparse. What we do know is that the Senate Finance Committee staff drafted the provision and that it was added to the Revenue Act of 1934 as a ?oor amendment.6 We also know that Senator David Reed, the ranking minority member of the Committee and the provision?s apparent sponsor, was dissatisfied with its formulation: i There is no reason in the world why a contribution made to the National Economy League should be deductible as if it were a charitable contribution if it is a selfish one made to advance the personal interests of the giver of the money. That is what the committee was trying to reach; but we found great di?iculty in phrasing the amendment. 1 do not reproach the draftsmen. 1 think we gave them an impossible task; but this amendment goes much further than the committee intended to go. 78 Cong. Rec. 5,861 (1934). It not clear, however, to what extent Senator Reed was speaking for the entire Committee. If the Committee were so dissatisfied with the provision, they could have tabled it -- contributions to most charities are unsel?shly motivated. Likewise, if the Congress or the Adminiszration felt that the critical issue was that more prevention of cruelty societies and crippled children?s organizations would be affected by its enactme it than ?sel?sh? organizations, 5 Judge Hand?s decision made no mention of the Treasury regulation. The Board of Tax Appeals decision, in contrast, discussed it. Slee, 15 B.T.A. at 715. 6 The ovision also contained a restriction on ?participation in partisan politics.? The provision, however, was dropped in ionference, so that only the lobbying restriction remained. H.R. Conf. Rep. No. 73-1385, 73d Cong, 2d Sess. 3-4 (1934). In explaining its deletion, one of the House managers, Representative Samuel B. Hill stated, "We were afraid this provision was too broad." 73 Cong. Rec. 7,831 (1934). 264 This document was obtained and uploaded by the Center for Resoonsive Politics (OpenSecrets.org) Lobbuinq Issues it would was a gen the ?selfis Committe Economy may not 1 broader re ot have become law. One suspects that the provision was e?staff tried to draft it but found it impossible.8 However, League seems to indicate that the Senator had embarke lave been taken too seriously by his colleagues, who seiz :striction.9 7 The( associations . 8 The motivated chairman?s 27, 1933, a standard is 9 Sena Harding, reduced, as and Penn. being subje the Senate occurred le opposite, tl (In additio fought "lik Pinchot we '1 to their ideological differences, they detested each other: Harold Zommittee considered, and rejected, application of the provision to re E. at 5,861 (remarks of Senator Pat Harrison, chairman of the National Economy League is discussed in note 9. Senator Reed? was not universally shared. For example, in an editorial, the (and, by implication, the League?s) "patriotism, disinterestedness, an 16. The impossibility of starting with the National Economy Leagi apparent. tor Reed had been one of the leaders of the considerable number of Jolidge, and Hoover administrations. After the 1932 election, howeve had Reed?s in?uence. A 1933 Newsweek portrait of the Senator, Senator, May 6, 1933, at 18-19, presents him as a beleaguered ?guri cted to the abuse of the acid-tongued Senator Harrison. By the time floor, his situation had worsened. He was locked in a nasty primary 1e Governor of Gifford Pinchot, a leader of the Progre 3 two tomcats sitting on a fence.? Arthur M. Schlesinger, Jr., The Co 3 not Reed?s only problem; he was also opposed by an organization eral sentiment that lobbying by charities should be restrictr h/unselfish? formula was what Senator Reed wanted drafted, nor that, as he stated, the than two months after his ?oor speech; the outcome was in doubt. ssive wing of the Republican Party. ckes observed that they had always ming of the New Deal, 346 (1959).) enacted simply because there 'ed.7 This is not to doubt that the reference to the National (1 on a personal crusade that ed the opportunity to enact a strict contributions to war veterans? Jmmittee). 3 view of the League as selfisth York Times praised the League loyalty.? "Useful Service,? April 1e and drafting a "sel?sh/unsel?sh? Old Guard? Republicans during the r, their numbers had been drastically eed: Hamiltonian, Mellon Attorney, 3, having virtually no in?uence and he was denouncing his own bill on battle for renomination; the election His Opponent was his ideological that would appear to have been his natural ally, the National Economy League. apparently dedicated I chief spok Nicholas 1? President 1 State (Elih Sims. states that letter date Congress. ?Roosevel be limited matter. II where the? debt.? Senator of the 1930?s. Organized in 1932, vanished. A ?revolt of the haves,? anything but obscure, however. Its decided to travel to the Antarctic); :lvisory board consisted of a former 3. Smith), two former Secretaries of ring, and Admiral Williams Sowden 3, at 5. Mr. Lehrfeld, supra, at 63, deductible contributions, in a ruling omic program to the President and tinted the text of the entire program. 1. 1e National Economy League was one of the short-lived phenomena in reaction to the Bonus March, after two years of prominence, it ola radical reduction in government expenditures, its leadership was :s'man was Admiral Richard (who served as chairman until he Aurray Butler was its honorary chairman; its original six member a Calvin Coolidge), a defeated candidate for the Presidency (Alfred I Root and Newton D. Baker), General of the Armies John W. Persl (rd Quits as Head of Economy Group,? NY. Times April 26, 193 it had been accorded charitable status, and the right to receive tax- November 3, 1933. Soon thereafter, it submitted its own econ The New York Times gave front page treatment to the event and Warned Our Debt Will Rise 4 Billion in Year," Dec. 18, 1933, at ern. It repeatedly urged that bene?ts ministration was no small budgetary appropriations "had reached a point It, aside from service on the national ought the League into con?ict with unexpectedly leftward, out?anking restore bene?ts cut the year before. League responded by presenting its Times, Feb. 19, 1934, at 4. Reed?s he extent of benefits to war veterans was the League?s foremost come only to those wounded in war. (Appropriations to the Veterans Ad 1 praising the League?s stand, the New York Times noted that the ,1 accounted for one-third of the entire cost of the Federal govemmer lse?il Service,? April 26, 1933, at 16.) However, this position br eed, who also made the veterans? bene?ts his chief concern. Lurchin Pinchot aid even Roosevelt, in January 1934, Reed sponsored legislation to ?Reed Leadls Fight on Veterans? Cuts,? N. Y. Times Jan. 9, 1934, at 5. The own plan and excoriating Reed?s. "Plan to Simplify Veteran Aid Urged,? NJ 265 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinc Issues It is widely accepted that the 1934 legislation represents a co :li?cation of the glee position and a rejection of the strict Treasury point of View, as embodied in the 1919 regulation.lo As a general statement, this is true. However, there is a signi?cant difference between the two approaches,i and it is not simply that the Congress did not share Judge Hand?s distaste for the word ?propaganda.? Rather, the tests used by the two approaches are different. "destination of lobbying? approach is a purpose test; the legislation?s ?no substantial part? language signi?es an activities test. Different results may be reached from this distinction -- under the ?no substantial part? test, contributions to the American Birth Control League would remain deductible, regardless of the purpose of its legislative endeavors, if such lobbying were not ?subs:aptial;? conversely, if the prevention of cruelty societies? legislative activities were ?substantial,? deductibility would be lost regardless of the lobbying purpose.ll Regulations stratagem was successful both as legislation and as the substantive centerpiece of his primary campaign. As Arthur Krock noted in his post-primary analysis of Reed?s victory over Pinchot: "Before stripping for the fray, Mr. Reed took the predaution of getting into the money distributing class himself by leading a successful battle against the administrat on for added bene?ts and restored government pay. . . . This equipped him with at least half of Santa Claus?s whiskers.? "Republicans See Renewed Party in Victory of Reed,? Times, May 18, 1934, at 24. Tl remainder of 1934 was not kind to either the League or the Senator On July 23, less than three months after the effective date of the lobbying restriction, the ruling letter to the League was cancelled. Lehrfeld, supra, n. 2, at 64. it November 6, Senator Reed was defeated by Joseph F. Guffey, who became the first Democratic Senator elected fro in 60 years. 1? Hearings on H. Res. 217 Before Special Committee to Investigate Tax-Exempt Foundations and Comparable Organizations, House of Representatives, 83d Cong, 2d Sess. part 1, 433 (1954) (statement of Assistant Commissicner (Technical) Norman A. Sugarman) and G.C.M. 34289 (May 8, 1970). Slec?s purpose formulation still resonates in IRC 501(c)(3). Rev. Rul. 80-278, 1980-2 CB. 175, holds that an organization that institutes and maintains environmental litigation as a party plaintiff operates exclusively for charitable purposes within the meaning of IRC 501(c)(3). In reaching this conclusion, Rev. Rul. 80?278 states: In determining whether an organization meets the operational test, the issue is whether the particular activity undertaken by the organization is appropriately in furtherance of the organization ?s exempt purpose, not whether that particular activity in and of itself would be considered charitable. I Therefore, in making the determination of whether an organization's activities are consistent with exemption under section 501(c)(3) of the Code, the Service will rely on a three-part test. The organization?s activities will be considered permissible under section 501(c)(3) (I) The purpose of the organization is charitable; (2) the activities are not illegal, contrary to a clearly de?ned and established public policy, or 'n con?ict with express statutory restrictions; and (3) the activities are in furtherance of the organization ?3 exempt purpose and are reasonably related to the accomplishment of that purpose. 266 I This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues written after the enactment of the lobbying restriction did not Reg. 86.1 proposed (24 FR 5:11i7 (June 26, 1959)). provide a discussed exception may not in Part 5. In announce of IRC 5 the Prese received conservat about Cc engaged concerns Decembe substanti their ?101 de?ned carrying As part of the Tax Reform Act of 1976, Congress enacted (as amended in 1935). The current ?action? 0 early in 1959 (24 FR 1420 (Feb. 26, 1959)), and adopted (3) Subsequent Statutory Developments second test for determining the amount of allowable 101: in Part 3 of this article. In addition, Congress enacted s,l that IRC 501(c)(3) organizations that lose exempt stat it any time thereafter be treated as IRC 501(c)(4) organiz 1987, House Ways and Means Oversight Subcom that he was initiating an investigation into the lobbying organizations. The particular focus of concern was ~vation of Liberty (NEPL), an IRC 501(c)(3) organization funds from the Iran-Contra arms sales and used th ive Congressional candidates in the 1986 campaign and ngressional incumbents who opposed aid to the Mom in a considerable amount of grass roots lobbying to gai I he hearings resulted in the enactment of several statute the lobbying activities of nonelecting public charities. 22, 1987, certain organizations whose IRC 501(c)(3) a1 lobbying activities are subject to a ?ve percent excise ibying expenditures,? for the year of loss of the exemptii n' IRC 4912(d)(l) as any amount paid or incurred by on propaganda or otherwise attempting to in?uence legi .. Vi its purpose purpose such cases the sanction of revocation 0ftax-exempt status should lhat distinguishes lobbying activity from litigation activity, therefor is expressly restricted by statute, whereas litigation activity is tested 'the activity is in furtherance of the particular organization?s IRC 5 a history of the 1987 legislation, see Chisholm, supra, n. 2, at 203 i. Rep. No. 100?391, 100th Cong, Sess. 1631 (1987) explains he committee concluded that revocation of exempt status may be inle haritable organizations as a penalty or as a deterrent to engaging alibying activities, particularly if the organization ceases operations zit-deductible contributions and exempt income to improper purpc udited and any income tax liability has been assessed. Accordingly, just as under present law excise taxes apply where a public ch This document was obtained and uploaded by the Center for Res elaborate upon the statute. rganization regulations were later that year by TD. 6391 501(h) and IRC 4911 to bying. These provisions are 3 504 to provide, with certain us due to excessive lobbying ations. IRC 504 is discussed ittee Chairman J.J. Pickle and electioneering activities the National Endowment for The organization reportedly proceeds both to ?nance 0 run negative advertisements aguan Contras. NEPL also ?ner support for Contra aid.12 One of these, IRC 4912, For years beginning after status is revoked because of tax imposed by IRC 4912 on S. 3n. "Lobbying expenditure? is a charitable organization in lation.13 is lobbying activity, regardless of on the basis of whether the particular 01(c)(3) purposes. -204. ie reason for the provision: fective in the case of certain in more than insubstantial after it has diverted all its ses but before it has been the committee believes that supplemented by an excise arity electing under section 267 ponsive Politics (OpenSecrets.org) Lobbuin :1 Issues IRC 4912 also imposes a similar tax at the same rate on any manager of the organization who will?illy and without reasonable cause consented to maki the lobbying expenditures knowing the expenditures would likely result in the organization?s no longer qualifying under IRC 501(c)(3). There is no limit on the amount of this tax that may be imposed against either the organzation or its managers. This docume lobbying lobbying IRC 4912(c)(2)(C) excepts private foundations from the I expenditures are already subject to the tax imposed by IRC 4912 taxes are not imposed on any organization that has limitations of IRC 501(h) (IRC 4912(c)(2)(A)) or on RC 4912 taxes because their IRC 4945. In addition, the elected to be subject to the churches and church-related organizations that are not eligible to make the IRC 501(h) election (IRC addressec constituti US. 864 on lobby freedom The Constitutional Issue (4) In Regan v. Taxation with Representation of Washington, 4 the question of whether the IRC 501(c)(3) restrilc anal guarantees. (1973), where the Tenth Circuit dismissed a claim that ing and political activities was an unconstitutional rest of speech. In so doing, the court stated: section 501(c)(3) withholding corporations do not deprive Christian Echoes of its in all such activities without restraint, subjecr withholding of the exemption, or, in the alternativ may refrain from such activities and obtain tl exemption. . . . The congressional purposes evidenc and 1954 amendments are clearly constitutiona keeping with the separation and neutrality princip applicable in this case and, more the pi government shall not subsidize, directly or ir organizations whose substantial activities are dire accomplishment of legislative goals or the electi: particular candidates. 470 F.2d at 857. 5 268 01(h) exceeds the permitted lobbying expenditures or where a privat political lobbying activities. In light of the fact that tax exemption is a privileg grace rather than right, we hold that the limitations contained in exemption fr guaranteed right of freedom of speech. The taxpay 61 US. 540 (1983), the Court tion on lobbying violates egan v. Taxation with Representation of Washington was foreshadowed by Christian Echoes National Ministry, Inc. v. United States, 470 F.2d 849 (10th Cir. 1972); cert. denied 414 the IRC 501(c)(3) prohibition riction on the organization?s ge, a matter of om nonpro?t constitutionally er may engage however, to e, the taxpayer te privilege of :ed by the 1934 lly justified in les particularly 'inciple that the directly, those :ted toward the or defeat of 2 foundation engages in any nt was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbuinq Issues Taxation With Representation of Washington (TWR) attacked the IRC 501(c)(3) lobbying restrictior not only on the ground that it violated the freedom of speech guarantee of the First Amendment, but also on the ground that it violated the equal protection language of the Fifth Amendment?s Due Process Clause. The latter argument was base on the contention that those veterans arganizations which qualify for exempt status under IRC 501(c)(19) and for deductible contributilons under IRC 170(c)(3) are permitted to lobby; therefore, organizations qualifying for exemption under IRC 501(c)(3) and for deductible contributions under IRC 170(c)(2) should be permitted to lobby as well. The Supreme Court unanimously held that the IRC 501(c)(3) restriction on lobbying activities violates neither the freedom of speech guarantee of the Amendment nor the equal protection doctrine of the Fifth Amendment. Concerning the First Amendment issue, the Court stated that this aspect of the case was controlled by its decision in Cammarano v. United States, 358 US. 498 (1959). In Cammarano (which is discussed in Part 6, below), the Court upheld a Treasuryl Regulation (antecedent to the passage of IRC 162(e)), that denied business expense deductions for lobbying activities. As to equal protection claim, the Court stated that the general rule of statutory classi?cations is that such classi?cations are valid if they bear a rational relation to a legitimate governmental purpose, and that ?[1]egislatures have especially broad latitude in creating classi?cations and distinctions in tax statutes.? 461 US. at 547. The Court noted that while statutes are subject to a higher level of scrutiny if they inte'fere with the exercise of a fundame itial right, such as freedom of speech, the IRC 501(c)(3) legislative restriction does not infringe upon freedom of speech; therefore, the statutory distinction in treatment of IRC 501(c)(3) and IRC 501(c)(19) organizations need only have a rational basis. The Court found such a basis by concluding: It is not irrational for Congress to decide that tax exempt charities such as TWR should not further bene?t at the expense of taxpayers at large by obtaining a subsidy for lobbying. It is also not irrational for Congress to decide that even though it will not subsidize substantial lobbying by charities generally it will subsidize lobbying by veterans organizations. . . . Our country has a long standing policy of compensating veterans for their past contributions by providing them with numerous advantages. This policy has ?always been deemed to be legitimate. Personnel Administrator v. Feenev, 442 US. 256, 279 n. 25 (1979). id. at 550-551. 269 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues B. Speci?c Issues (1) The Meaning of ?Legislation? Reg. provides that 1. hat is the general meaning the term ?legislati includes ?action by the of the term ?legislation?? Congress, by any ate legislature, by any local i council or similar governing body, or by the public in a referen um, initiative, constitutional amendment, or simi ar procedure.? Reg. 1.501( does not 2. hat is the meaning of elaborate on the ecise meaning of the word ction? as used in the phrase ?action.? In this si ation, however, one should it ction by the Congress?? consider the meani of the phrase ?action by the Congress? for purposes of IRC In IRC 4911(e), the phrase ?action . . . by the Congress? is used 11 the definition of the term ?legislaticn and the term ?legislation? is 'used to delineate the extent to which certain organizations described in IRC 501(c)(3) may conduct certain types of lobbying activities. '13 IRC 491 provides that, for purposes of IRC 4911, "[1]he term ?legislation' includes action With respect to Acts, bills, resolutions, or similar items by the Congress, any State legislature,? any local council, or similar governing body, or by the public in a referendum, initiative, constitutional amendment or similar procedure.? In IRC 491 Congress limited the meaning of the term ?action,? as that term is used in IRC 4911, to the "introduction, amendment, enactment, defeat, or repeal of Acts, bills, resolutions, or similar items.? G.C.M. 39694 (Jan. 21, 1988) notes that it is unclear whether the phrase ?action by the Congress? as used in the regulations implementing the lobbying restriction of IRC 501(c)(3) for nonelecting public charities is also limited to the introduction, amendment, enactment, defeat, or repeal of Acts, bills, resolutions, or similar items. Nevertheless, G.C.M. 39694 concludes that the admi istration of, and compliance with, IRC 501(c)(3), IRC 501(h), IRC 4911, and IRC 4945 would be best effectuated by the application of a single de?nition of ?action by the Congress? as a phrase referring to the introduction, amendment, enactment, defeat, or repeal of Acts, bills, resolutions, or similar items. The common denominator among Acts, bills, and resolutiops is the fact that all are items that are voted upon by a legislative body. Resolutions differ from Acts in that they are a formal expression of opinion by a legislative body that has only a temp Lirary effect or no effect at all as a legal matter. G.C.M. 39694, discussing 77 C.J.S. ?Resolution? 1 (1952); Black?s Law ?4 Prior to amendment in 1990, the regulations under IRC 4945 also referred to "action by the Congress? in de?ning legislation. Reg. now expressly adopts the of legislation in the IRC 4911 regulations. 270 This document was obtained and uploaded by the Center for Resaonsive Politics (OpenSecrets.org) Lobbtmiq Issues determining factor ?similar matter? is action, but whether legislative body. hat is meant by ?resolutions oi' similar matters?? I i the category of a item voted upon discussed above. It Ioes the term ?legislation? clude the Senate?s vote on xecutive Branch nominees? force and effect. federal IRC 491 requestin and IRC 4945(d)). ?e _al_sg Reg. Reg. 1.501(c 5. Does the term ?legislation? de?nition 0f legiSIa ilnclude actions by administrative bodies? COHStitutlonal amen that actions by at constitute legislati< regulations under 1] Reg. provides that legislation does not 1 judicial, 3r administrative bodies. Reg. provides bodies? includes school boards, housing authorities, sewer and wat other si1 ilar Federal, State, or local special purpose bodies, Accordiriigly, an organization would not be in?uencing legislation it proposed to a Park Authority that it purchase a particular tract though such an attempt would necessarily require the Park A appropriations to support a new park.15 lS Re legislation submissio g. nevertheless concludes that, in such a case, the if it provided the Park Authority with a proposed budget to be submi ?1 is described by one of the exceptions to in?uencing legislation. Yes. The co I is stronger than a Dictiona? 1178 (5th ed. 1979). Therefore, the in whether an action is a not the legal effect of the It is an item voted upon by a n?rmation vote comes within similar item? since it is an by a legislative body as is similar to a resolution, but esolution since it has a ?nal atice 88-76, 1988-2 CB. 392 (lobbying on con?rmation vote on nominee for geship constitutes attempting to in?uence legislation for purposes of IRC 501(c)(3), Example (6) (mailing recipients to write to Senators on the Senate Committee that will consider a nominati for a cabinet level post is a grass roots lobbying communication). limits the tion to actions by legislatures rough referendum, initiative, dment, etc. The implication iministrative bodies do not )n is made explicit in the 4911. nclude actions by executive, that the term ?administrative er districts, zoning boards, and nether elective or appointive. for purposes of IRC 4911, if of land for a new park, even Authority eventually to seek organization would be in?uencing tted to a legislative body, unless such 271 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbtu'n a Issues The consider ation of zoning matters varies 6. Does the term ?legislation? from jurisdiction to jurisdiction. As noted above, i' elude zoning matters? zoning boards may be considered administrative bodies whose actions will not constitute ?legislation? within the meaning of under the is within holds tha may not substantia with resp IRC 501(c)(3). However, where zoning issues are jurisdiction of legislators, who express their will in the form of an Act, etc., the matter the purview of the term ?legislation.? See Rev. Rul. 67?6, 1967-1 CB. 135, which a historical preservation association engaged primarily in reviewing zoning variances qualify for recognition of exemption under IRC 501(c)(3) ?since the association as a ll part of its activities is engaged in attempts to in?uence local legislative representatives ect to the association?s programs.? (Emphasis added.) No. Although the regulations refer 7. is the term ?legislation? specifically to Federal, state and local legislative limited to actions by Federal, bodies, the term ?legislation? contemplates tate, and local legislatures? foreign as well as domestic laws. Rev. Rul. 73-440, 1973?2 CB. 177. As with domestic governments, the critical issue here is whether there is a legislative body involved. Furthermore, legislative actions by Indian tribal governments also may be considered legislation since these governments are treated as State governments pursuant to IRC 7E 71. I For purposes of IRC 501(c)(3), there is no 8. IS there a distinction between distinction between ?good? legislation and ?bad? igood? legislation and ?bad? legislation. For example, Rev. Rul. 67-293, 1967?2 CB. 185, holds that an organization legislation? . substantially engag protect or otherwis under IRC 501(c)( ed in promoting legislation to 3 bene?t animals is not exempt 3) even though the legislation it advoc tes may be bene?cial to the community. See also Rev Rul. 67-6, m. This is in accord ith a dictum of the Supreme Court to the effect that the statutory restriction on attempts to in?u nce legislation simply ?made explicit? a longstanding judicial principle that ?political agitatio as such is outside the statute, however innocent the aim.? Cammarano v. United States, 358 US 498, 512 (1959), citing M, m. For a direct holding, see Kuper v. Commissioner, 332 F2 .562 (3rd Cir. 1964), cert. denied 379 US. 920 (1964). In Kuper, the Third Circuit stated that ?it is immaterial . . . that the legislation advocated from time to time was intended to prom ate sound government and was for the bene?t of all citizens rather than in the interests of a lim ted or sel?sh group.? 31. at 563. Likewise, in Haswell V. United States, 500 F.2d 1133 (Ct. C1. 1974), cert. denied 419 US. 1107 (1975), the Court of Claims concluded: An organization that engages in substantial activity aimed at in?uencing legislation is disqualified from a tax exemption, whatever the motivation. The applicability of the in?uencing legislation clause is not a?ected by the sel?sh and unselfish motives and interests of the organization, and 't applies to all 272 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues See a interests of the public. E. at 1142. [so League of Women Voters of the United States v. Un organizations whether they represent private interests or the [ted States, 180 F. Supp. 379 (Ct. c1. 1 whether basis of 6 facts and circumstances surrounding the communication in question. Both direct and grass ro substanti 960), cert. denied 364 U.S. 822 (1960). Attempts to In?uence Legislation (2) What activities are ?attempts tit in?uence legislation?? public ("grass roo attempts to in?ue communication constitutes an attempt to in?uence leg ts lobbying are nonexempt activities subject to the 1 legislative action.16 Reg. Attempts to limited to direct communications to members of the legislature ("direct? lobbying). communications in?uence legislation are not Indirect ough the electorate or general ts? lobbying) also constitute nce legislation. Of course, islation is determined on the IRC 501(c)(3) limitation on g. also provides that, more generally, advocating the adoption or reject on of legislation constitutes an attempt to in?uence legislation for purposes of the IRC 501 lobbying restriction. This provision was tested in National 864 (19 Christian Echoes National Ministry published arti televisio broadcasts that urged recipients to become involved in tives in Congress to urge that they support prayer in pub represen aid. The were ac legislation was not pending. 2. hat is an ?action an organization iS organization?? exempt purposes if I Ministry, Inc. v. United States, 470 F.2d 849 (10th Cir. organization argued that attempts to in?uence legislation ally pending. The Tenth Circuit concluded that the regu statute, and that the organization was engaged in attempting to ?6 For charities and for in in?uence 17 in Season direct app IRC 501(c)(3) purposes, the distinction between direct and indirect lc raking the IRC 501(h) lobbying election. As discussed in Part 3, there direct lobbying. In addition, certain communications made to men legislation, while other communications to members are considered a regulation, with its speci?c inclusion of grass roots lobbying, make: good v. Commissioner, 227 F.2d 907 (6th Cir. 1955), that limited "a eals to the legislature is not re?ective of the statute. Reg. organizations to de the case of Christian Echoes 1972); cert. denied 414 U.S. cles and produced radio and politics and to write to their lic schools and oppose foreign would occur only if legislation lation properly interpreted the in?uence legislation, even if regulations provide that not operated exclusively for it is an ?action? organization. uses the term ?action? scribe both organizations that bbying becomes important for public are separate limits for total lobbying ibers are not considered attempts to lobbying. . clear that the portion of the decision ttempting to in?uence legislation? to 273 This document was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbuin :1 Issues attempt tc in?uence legislation and organizations that intervene in political campaigns. cr'purposes of the lobbying restriction, an organization is. an ?action? organization on either of two distinct grounds. The first occurs if a substantial part of the organization?s activities involves attempting to in?uence legislation. Reg. states that an organization will be regarded as attempting to in?uence legislation if it does the following: (A) Contacts, or urges the public to contact, members of a legislative body for the purpose of proposing, supporting, or opposing legislation, or (B) Advocates the adoption or rejection of legislation. The second ground is found in Reg. which provides that an organizat on is an ?action? organization if it has the following two characteristics: (A) Its main or primary objective or objectives (as distinguished from its incidental or secondary objectives) may be attained only by legislation or a defeat of proposed legislation; and (B) It advocates, or campaigns for, the attainment of such main or primary objective or objectives as distinguished from engaging in nonpartisan analysis, study, or research and making the results thereof available to the public. Ir determining whether an organization has these two characteristics, all of the surroundng facts and circumstances, including the articles and all activities of the organization, are to be considered. Under IRC 501(c)(3), there are certain 3. 0W is nonpartisan analysis circumstances where nonpartisan analysis, study, Estinguished from attempts to or research of ma:ters pertaining to legislation in?uence legislation? may be educational and will not constitute i attempts to influence legislation.18 This occurs where the material is available to the public, governmental bodies, officials, and employees, and where the organization does not advocate the adoption or rejection of legislation. Reg. Several revenue rulings discuss this issue. 18 In Haswell v. U.S., 500 F.2d 1133, 1144 (Ct. C1. 1974), cert. denied, 419 US. 1107 (1975), the Court of Claims explained what ?nonpartisan? means as follows: I ?Nonpartisan,? as used in the statute and regulations, need not refer to organized political parties. Nonpartisan analysis, study, or research is oriented to issues and requires a fair exposition of both sides of the ssue involved. 274 This document was obtained and uploaded by the Center for Resoonsive Politics (OpenSecrets.org) Lobbuinq Issues In Rev. Rul. 64-195, 1964-2 CB. 138, an IRC 501(c)(3) organization that conducted educational activities relating to the law, legal education, and lawyers became interested in the question of court reform in the particular state in which it was organized. A constitutional amendment requiring revision of the state?s court system was agreed to by the state legislature and submitted to the public for approval. The organization embarked upon a program of study, research, and assembly of the materials necessary to make an evaluation of the legislation. Experts were assembled and employed to conduct an extensive analysis of all materials relating to court reform in the United States and a detailed study and analysis of the pertinent existing case and siatutory law of the state. The organization did not expend any funds or otherwise participate in any campaign to present the bills or persuade the public to vote for the amendment. The reve ue ruling finds that the organization clearly did not expend funds or participate in any way in presentation of any proposed bills to the State legislature or advocate either approval or disap roval of the proposed constitutional amendment by the electorate. Instead, the organizat on?s involvement with court reform consisted of the study, research, and assembling of mater als on a nonpartisan basis and the dissemination of such materials to the public. Accordi 1y, the revenue ruling concludes that the organization is not an ?action? organization as that term is defined in Reg. Therefore, this activity does not affect its IRC 501(c)(3) status. Ir contrast, the IRC 501(c)(4) organization described in Rev. Rul. 68?656, 1968-2 CB. 216, drafted legislation and presented petitions supporting such legislation. These activities placed the organization beyond the purview of engagement in nonpartisan analysis, study, or research of matters pertaining to legislation; it had crossed over into attempting to in?uence legislation.19 llil Rev. Rul. 70?79, 1970-1 CB. 127, an organization was created to assist local governments of a metropolitan region by studying and recommending regional policies directed at the solution of mutual problems. Although some of the plans and policies formulated by the organiza:ion could only be carried out through legislative enactir ents, the organization did not direct its efforts or expend funds in making any legislative recommendations, preparing prOSpect vie legislation, or contacting legislators for the purpose 0 in?uencing legislation. Rev. Rul. 70- 79 holds that the organization quali?es for IRC 501(c)(3) status because of the educational nature of its activities and because it abstained from advocating the adoption of any legislation or legislative action to implement its ?ndings. ?9 The facts described in Rev. Rul. 64-195 and Rev. Rul 68-656 bear a dist resemblance to the facts litigated in Dulles v. Johnson, 273 F. 2d 362 (2d Cir. 1959). In Dulles, the Second Circuit found that bequests to various Bar Associations were deductible from the taxable estate under the predecessor statute to IRC 2055, in part because "the legislative recommendations of the Associations . . . are designed to improve court procedure and or to clarify some tecl nical matter of substantive law. They are not intended for the economic aggrandizement of a particular group or .0 promote some larger principle of governmental policy.? lg. at 3157. Rev. Rul. 64-195 also reaches a favorable conclusion, but on the basis of the absence of advocacy. By implication, therefore, it rejects the Dulles basis -- thelnature of the legislation. Rev. Rul. 64-195, accordingly, is yet another repudiation of the "good/bad? or "sel?sh/unsel?sh? analysis. 275 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues The organization described in Rev. Rul. 70-79 can be distinguished from the organization discussed in Rev. Rul. 62?71, 1962-1 CB. 85. The latter organization is a corporation formed for the purpose of supporting an educational program with regard to a particular doctrine or theory. It was the announced policy of the organization to promote its philosophy by educational methods as well as by the encouragement of political action. Most of the publications disseminated by the organization, together with a substantial part of its other activities, dealt with the theory advocated. This theory or doctrine can be put into effect only by legislative action. Rev. Rul. 62-71 concludes that while the portion of the organization?s activities that consisted of engaging in nonpartisan analysis, study and research and making the results thereof available to the public, when considered alone, may be classi?ed as educational within the meaning of IRC 501(c)(3), the organization was primarily engaged in not only teaching but advocating the adoption of a particular doctrine or theory that can become effective only by the enactment of legislation. Since the primary objective of the organization can be attained only by legislative action, a step that the organization encouraged or advocated as a part of its announce dpolicy, as opposed to merely engaging in nonpartisan analysis, study and research and making the results thereof available to the public, it is an ?action? organization as that term is defined in Reg. of the regulations. Accordingly, the organization does not qualify for IRC 501(c)(3) exempt status. In addition, it should be noted that activities which appear by themselves to be educational in nature may, in fact, be part of a broader purpose to in?uence speci?c legislative action. For example, in the case of Roberts Dairy Companvv. Commissioner, 195 F.2d 948 (8th Cir. 1952), cert. den El, 344 US. 865 (1952), the organization prepared and Iistributed materials to inform its meml: ers and the public of certain tax disparities between busi ess organizations. The court, apparent looking beyond the actual material distributed, held that since the ultimate objective was the revision of the tax laws, the organization was attempting to in?uence legislation. Generally, if an organization appears 4. May appearances before before a legislative committee to discuss iegislative committees legislation, that aztion will be an attempt to onstitute attempts to in?uence legislation. However, attempting to IInfluence legislation? in?uence legislation does not include such appearances when the organization appears before legislative committees in response to of?cial requests for testimony. The Service has ruled that a uriversity?s exemption would not be jeopardized when, in response to an of?cial request, it sent representatives who could advise a Congressional committee on the possible effects of speci?c legislation. SQ Rev. Rul. 70-449, 1970?2 CB. 111, where the Service concludes that to in?uence legislation as described in the regulations imply an af?rmative act and require something more than a mere passive response to a Commttee invitation.? While stating that the legislative history is silent on this point, the Service concludes that ?it is unlikely that 276 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Congress, technical in framing the language of this provision, intended to deny itself access to the best expertise available on any matter with which it concerns itself.?20 As noted include actions by Lbove, legislation does not executive bodies. Therefore, requesting executive bodies to take some action would generally not constitute attempting to in?uence legislation. This is not the case where the organization rec uests the executive bodies to support or oppose legislation. Requesting 5. Dilay requests to executive odies constitute attempts to i ?uence legislation? 1 executive bodies to support or oppose legislation is included in the purview of ?attempting to in?uence legislation.? 'Rev. Rul. 67-293, 1967-2 CB. 185; Roberts Dairy Company v. Commissi_o_n_eL 195 F.2d 948 (8th Cir. 1952), cert. denied 344 US. 865 (1952); American Hardware and Equipment Company v. Commissioner, 202 F.2d 126 (4th Cir. 1953), cert. denied 346 US. 8514 (1953). Where an IRC 501(c)(3) organization is 6. May lobbying activities of involved, it is frequently necessary to determine whether a lobbying organization or me The Service has de? a number of situe lobbying activity, activity is attributable to the rely the act of an individual. ve10ped attribution rules to fit ttions. Questions involving olitical campaign activity, and be attributable to liRC 501(c)(3) organizations? illegal ac attributio A of agenc in G.C.N. in consic tivity have provided a body of administrative law that me n. is noted in G.C.M. 34631 (Oct. 4, 1971) and G.C.M. 39? 51 law apply to this determination. A further discussion 1 1. 34523 (June 11, 1971), which addresses actions attributa ering their exempt status: Only actions by the exempt organization can dis 5 01(c)(3 status. Since organizations act through i necessary to distinguish those activities of individ: official capacity from those that are not. Only o?i attributed to the organization. Provision is made 1' organization by which a school is created, by its other valid and proper means, for delegating 20 Pu second rat and self-c legislation position,l alication of Rev. Rul. 70-449 was approved in G.C.M. 34289 (May ionale, E, the 1969 enactment of IRC 4945, with the exceptions for efense, was intended to restate, rather than revise, the existing . The same conclusion is expressed in G.C.M. 36127 (Jan. 2, 1975). owever; instead, as noted above, the revenue ruling states that the leg Ly be used to address issues of 114 (Feb. 29, 1984), principles of the standards used is found ble to colleges and universities qualify it from ndividuals, it is ials done in an cial acts can be the articles of bylaws, and by authority and 3, 1970). G.C.M. 34289 furnished a onpartisan analysis, technical advice, e?nition of attempting to influence Rev. Rul. 70?449 did not adopt this islative history is silent on this point. :ther the self-defense exception applies to nonelecting public charities, the Service has not published a a1 document adopting the favorable conclusion of G.C.M. 34289. As to wh precedent 277 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuiru 1 Issues organizat attributec members that the working organiza of?cials organiza student i that the newspap newspap editorial determir on the not of editors 278 tion and made no effort to prevent the members? politics On the other hand, in Rev. Rul. 72-513, 1972-2 CB. 246 ie'wspaper did not jeopardize the exemption of the sponso university provided of?ce space and ?nancial support for Lre not attributable to the university despite the universit newspaper. school?s quali?cation for 501(c) (3) status. impliedly ratifies the act. GM. 34631, in considering the effect of possibly illega ion, makes the following observation: We caution, however, that actions of [the organizati and officers do not always re?ect on the organ (1 acts by [the organization o?icials under actu authority to act for the organization, (2) acts by organization within their authority to act, or (3) act. organization, should be considered as activities of tl he activities of individuals who are not of?cials of to an organization. In G.C.M. 39414, the political can were attributed to an IRC 501(c)(3) organization. The or organization would be sending members to work on 1 on political campaigns identi?ed themselves as repre :ion paid some of the costs incurred by members workir of the organization knew about the members? politic er and made available several professors to serve as adv er provided training for students in various aspects of ne? university. The revenue ruling concludes that the legi Actions by a person in excess of his official author as a rule, be considered those of the school. If the such usurpation of authority to go unchallenged, however, it responsibility for operating the school to various people; trustees, administrators, faculty members, student leaders, etc. assigned various tasks. The school is responsible for their acts in discharging these assigned duties. Their personal activities (those not associated with o?icial duties) are not attributable to the school, and are, therefore, not relevant to an investigation of the Each are ity should not, school allows 1 activities by members of an on members ization. Only al or purported agents of the ratified by the 6 organization. 3e organization may also be apaign activities of individual ganization?s publication stated )olitical campaigns, members senting the organization, the on political campaigns, and 11 activities on behalf of the L1 activities. the legislative activities of a ring university, despite the fact the publication of the student isors to the staff. The student wspaper publication (including policy) and was distributed primarily to students of the uiniversity. Editorial policy was red by the student editors and not by the university or the ditorial page clearly indicated that the views expressed faculty advisors. A statement were those of the students and slative activities of the student y?s provision of support to the This document was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) This docume Lobbuinq Issues (3) Limits on Attempts to In?uence Legislation hen are influence attempts to legislation nsidered substantial? case on the subject, A determination of whether attempts to in?uence legislatiqn constitute a ?substantial? portion of an organization?s total activities is a factual one and there is no simple rule as to what amount of activities is substantial. An often cited Seasongood v. Commissioner, 227 F.2d 907 (6th Cir. 1955), is of limited help. Seasongo? held that attempts to in?uence legislation that constituted ?ve percent of total activities what set Moreovei activities Echoes 1\ US. 864 activities substanti objective denied, 4 determin organizat total exp is only percentai with cha does not were substantial, stating that percentage test to dete Ell obscures the complexity of balancing the organizatior and circumstances.? In Haswell v. United States, 500 1 L19 US. 1107 (1975), the Court of Claims cited percer ation that an organization?s lobbying activities were sul: ion?s expenditures for lobbying activities ranged from 1 enditures during the four years at issue.) While the cou ane measure of substantiality (and not, by itself, dete ges were a strong indication that the organization?s purpc r1ty. I.C.M. 36148 (Jan. 28, 1975) characterized the substantie lend itself to ready numerical boundaries.? The G.C.M activity is only one type of evidence of substantial the amount of volunteer time devoted to the activitj publicity the organization assigns to the acr continuous or intermittent nature of the organizatic it. All such factors have a bearing on the relativ the activity, and should be given due consideratior whether its conduct is reconcilable with the req operate exclusively for exempt purposes. We therefore think that the Service should not adc of total expenditures test for the substantialitj activities conducted by exempt organizations. We ten percent would be unjustifiabe high, even if a were not substantial. The case presents limited guidanc of activities were to be measured is no longer supported by the weight of precedent. it is not clear how the court arrived at the ?ve percent because the court?s view of gure. Mo'st cases have either tended to avoid any attempt at percentage measurement of or, at least, have stated that a percentage test is not cc lational Ministry, Inc. v. United States, 470 F.2d 849 (10t (1974), the Tenth Circuit rejected the use of a percentage test to determine whether inclusive. Thus, in Christian Cir. 1972), cert. denied 414 mine whether activities were 1?s activities in relation to its 3.2d 1133 (Ct. C1. 1974), Lrt. Ltage ?gures in support of its istantial. (The amount of the 6.6 percent to 20.5 percent of it stated that a percentage test rminative), it held that these >ses were no longer consistent tlity issue as a ?problem [that] then stated: Moreover, the percentage of the budget dedicated to a given ity. Others are 2, the amount of ivity, and the ?s attention to importance of i in determining tirement that it pt a percentage of nonexempt 2 also think that percentage test 279 nt was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbui Issues more intensive leration to the he. were merely adopted for use as a threshold for auditing in which the Service can give due consic relative importance of volunteer services and the li evertheless, while neither the Service nor the courts have Whether a substantial part of an organization?s activit guidance can be derived from Seasongood and Haswell. Under gzasongood, a ?ve percent safe harbor 5 been frequently applied as a general rule of thumb regarding what is Substantial. Similarly lobbying activities that exceed the roughly 16 to 20 percent range of total activities found in aswell are generally considered substantial. (Compare these percentages to the sliding scale of percentage of expenditures allowed to organizations that elect to be governed by IRC 501 h) as discussed below.) adopted a percentage test for ies consist of lobbying, some In determin ing whether an organization 2. in}, supporting activities also has engaged in attempts to in?uence legislation as ?o considered attempts to a substantial activity, it is sometimes dif?cult to iin?uence legislation? determine what 5 porting activities should be included with the oscribed attempts to in?uence legislation. This 3 often a problem where an organization has some activities that are admittedly educational. Frequently, much effort is devoted to re earch, discussion, and similar activities. The problem is how much of these back-up activities 8 ould be considered part of the attempts to in?uence legislation. In League of Women Voters the United States v. United States, 180 F. Supp, 379 (Ct. C1. 1960), cert. denied 364 US. 82 (1960), the time spent in discussir public issues, formulating and agreeing upon positions, nd studying them preparatory to adOpting a position was taken into account and compare with the other activities in determining the substantiality of the attempts to in?uence legisl ion. Attempting to in?uence legislaticn does not necessarily begin at the moment the organiza ion first addresses itself to the public 01 to the legislature. See also Kuper v. Commissioner, 33 F.2d 562 (3d Cir. 1964), in. denied, 379 US. 920 (1964). Furthermore, all facts and circu tances must be considered in determining whether the lobbying activities of an IRC 501(c)(3) ganization are substantial, not just the amount of expenditures made. 3. Lobbying Activities of IRC 501(c)(3) Electing Public Charities A. Legislative and Regulatory History (1) Enactment of the Statutes During the period from 1934 to 1976, the lobbying limitation was subject to increasing public criticism. The passage of IRC 162(e) in 1962, permitting a business expense deduction for direct lobbying expenses, led to the argument that equal treatment should be given to charitable organizations. Meanwhile, the courts were having it dif?cult time measuring the ?substantiality? of these activities. 280 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues Congress enacted IRC 501(h) and IRC 4911 as part of the Tax Reform Act of 1976.21 These provisions were intended to remedy some of the problems :hat had arisen under existing law by setting speci?c permissible expenditure limits. The Joint Committee on Taxation, in its General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 419-420, explains the reasons 3r enactment of these statutes: The language of the lobbying provision was ?rst enacted in 1934. Since that time neither Treasury regulations nor court decisions gave enough detailed meaning to the statutory language to permit most charitable organizations to know approximately where the limits were between what was permitted by the statute and what was forbidden by it. The vagueness was, in large part, a function of the uncertainty in the meaning of the terms ?substantial part? and ?activities. Many believed that the standards as to the permissible level of activities under prior law were too vague and thereby tended to encourage subjective and selective enforcement. Except in the case of private foundations, the only sanctions available under prior law with respect to an organization which exceeded the limits on permitted lobbying were loss of exempt status under section 501(c)(3) and loss of quali?cation to receive 1 charitable contributions. Some organizations (particularly organizations which had already built substantial endowments) could split up their activities between a lobbying organization and a charitable organization. For such organizations, these sanctions may have had little e?ect, and the lack of effect rray have tended to discourage enforcement effort. For other organizations which could not split up their activities 5 between a lobbying organization and a charitable organization and which had to continue to rely on the receip? of deductible contributions to carry on their exempt purposes, loss of section 501(c)(3) status could not be so easily compensated for and constituted a severe blow to the organization. The Act is designed to set relatively specific expenditure limits to replace the uncertain standards of prior law, to provide a more rational relationship between the sanctions and the violation of standards, and to make it more practical to pr0perly enforce the 2? For an account of the progress of the legislation until its enactment, see Bruce R. HOpkins, The Law of Tax-Exempt Organizations, 310-312 (4th ed. 1993). For another history, written just before passage of the legislation, see Pepper, Hamilton Sheetz, "Legislative Activities of Charitable Organizations Other Than Private Foundations,? in 5 Commission on Private Philanthropy and Public Needs, Rese arch Papers, 2917, 2926-2928 (1975). 281 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuin qusues A of the Act. The new rules also do not apply to foundations; prior law continues to apply to these the expenditures exceed the permissible level. exemption is reserved for those cases where unreasonably great over a period of time. law. However, these new rules replace prior law only as to charitable organizations which elect to come under the Standards churches and organizations a?iliated with churches, nor do they apply to private organizations. The Act provides for a tax of 25 percent of the atrount by which Revocation of the excess is the same time, Congress enacted IRC 504.22 This provision provided, with certain exceptiors, that IRC 501(c)(3) organizations that lose exempt status due to excessive lobbying may not in Part 5 IRC 5011 subject t< above. I Nontaxal deemed nor revc expendiu lobbying amount, generally IRC 501 cause re? percent whether not be engaged (2) Overview of the Statutes ligible public charities (listed in IRC 501(h)(4)) may substantiality test. 3 the ordinary facts and circumstances substantiality test 501(h) establishes a sliding scale of permissible ?lo ale amounts are computed for both total and grass roots insubstantial, and expenditures under the nontaxable amt cation. Expenditures in excess of the nontaxable a1 ares.? An excise tax under IRC 4911 is imposed on exc expenditures exceed both the permitted total lobbying the IRC 4911 tax is imposed on whichever excess is gre i are treated as a single organization for purposes of corr applies for taxable years beginning after December 3 or IRC 501(c)(3) organizations that elect to be covered vocation of exempt status only if the amounts spent on 10 of either of the nontaxable amounts over a four year an organization is an ?action? organization, set forth in sed to determine whether an organization that has mad in substantial lobbying activities. 22 was repez foundatio 282 DS. or to 1969, IRC 504 had provided a rule against unreasonable accun led as part of the Tax Reform Act of 1969 and replaced with IRC This document was obtained and uploaded by the Center for Res Non-electing organizations (whe at any time thereafter be treated as IRC 501(c)(4) organizations. IRC 504 is discussed elect to be governed by the :ther eligible or not) will be of IRC 501(c)(3) as discussed bbying nontaxable amounts.? lobbying. These amounts are Junts will result in neither tax nounts are ?excess lobbying ess lobbying expenditures. If amount and the grass roots er. ?Af?liated? organizations puting lobbying expenditures. 1, 1976. by IRC 501(h), lobbying may bbying ?normally? exceed 150 eriod. Therefore, the tests of eg. should the IRC 501(h) election has iulations by charities. This provision 4942, which applies only to private ponsive Politics (OpenSecrets.org) Lobbuinq Issues History of the Regulations (3) In and IRC concern 1986, proposed regulations were published to implement the provisions of IRC 501(h) 4911. 51 FR 40211 (Nov. 5, 1986). Controversy ensued. The particular areas of vere the de?nition of grass roots lobbying and the allocation rules. A re gulati01 Revised 1 (hereinaf the individuals who had primary responsibility for 18', James J. McGovern, Paul G. Accetura, and Jerome P. drafting the 1988 proposed Walsh Skelly, observe in ?The sobbying Regulations, A Difficult Balance,? 41 Tax Note 1426, 1428 (Dec. 26, 1988) ter ?McGovern 1988?): ?The nonpro?t community was effectively mobilized by a number cf umbrella groups and their constituent members.? The Service and Congress received more th ten thousand letters from charities and their members requesting withdrawal of the propose regulations. These comments were generated by concerns that the regulations were overly strictive and would have a ?chilling effect? on charities? involvement in the policy making rocess.23 embers of the Senate Finance posed regulations. The letter )iguity about what activities "estrict lobbying in ways not thdrawal of Proposed Regs on 87). House Ways and Means the proposal regulations be lvisory group comprised of zed, however, that he would settled legislatively by the embers of Congress also expressed concern. Sixteen Commit wrote a letter asking the Service to withdraw the pro stated at the proposed regulations ?appear to introduce aml lobbying by such groups, and we believe that may 1 intended by the 1976 Act.? ?Congressional Tax Writers Seek Wi Lobbyin by Tax?Exempt Groups,? 34 Tax Notes 929 (Mar. 2, 19 Commit ee Chairman Dan Rostenkowski also requested that withdrawn, suggesting that the Service consult with an ac representatives of the public and private sector. He emphasi ?strongly resist any suggestion that the pending controversy Congress.? Se_e ?McGovern 1988? at 1428. While the Service did not withdraw the 1986 proposed re an information release, (April 9, 1987), that it would regulatic Two days of public hearings were held in 1987. gulations, it publicly stated in reconsider key portions of the In June 1987, the Service ns. announc been sug February Advisor ed the establishment of a Commissioner?s Exempt Organi: ggested by Mr. Rostenkowski). At public meetings helc 26, 1988, possible revisions to the 1986 proposed regul: Group. Substantial revisions to the regulations were 1 23 F0 the rules Cause," I organizat asked rea of Congr: regulatior Proposal, briefings to force 1 example, approximately 200 organizations signed an Independent be permanently withdrawn. ?Opposition to IRS Lobbying Rules )ain Tax Report (BNA) No. 29, at G-5 (Feb. 13, 1987). on formed to monitor activities of the Office of Management and ders to contact Congress to tell the Service to withdraw these regula :ss resolution, an appropriations rider denying funds to the IRS for 1S, or any other method Congress thinks best.? "Congressional Suppo Daily Tax Report (BNA) No. 15, at G-l (Jan. 23, 1987). In ad throughout the country ?to educate people about the proposed rules 2 RS to withdraw them.? Q. :ations Advisory Group (as had 1 on September 17, 1987, and itions were discussed with this Jublished in proposed form in Sector position statement asking that Solidi?es: Senate Tax Writers Join Similarly, OMB Watch, an IRC 501(c)(4) 3udget and other executive agencies, tions "through passing a bill, a sense any work on or enforcement of these rt Sought for Protest of IRS Lobbying :lition, OMB Watch held community 1nd encourage a grass roots campaign 283 This documient was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbuin :1 Issues 1988. 53 FR 51826 (Dec. 23, 1988). Messrs. McGovern, Acce Final Lobbying Regulations: A Challenge for Both the IRS and 1306 (Sept.l 3, 1990); 3 EOTR 766, 767 (Sept. 1990) (hereinafter the appro In 1988 pro almost 1. Commiss 1989, an publisher were the 1988 proposed regulations as follows: ful?ll its statutory mandate. to be clear examples of lobbying. iniformly favorable. ioner?s Exempt Organizations Advisory Group at a publi a formal public hearing was held on April 3, 1989. an election under IRC 501(h)? have those provisii organization must I and it must not be a disquali?ed organization des organizations described in IRC 501(h)(4) are as ft Educational institutions as described in IRC 170(1: 1) 24 Form 576 1996, is 2 legislatio 284 Service?s records indicate that, as of April 1996, 6,087 organizati 8 over the past five years. The IRC 501(c)(3) population eligible Lpproximately 452,000 organizations. contrast, during that same time period, 2,407 organizations checke 1? question (Question 1, Part of Schedule A, Form 990), but did contrast to the reception accorded the 1986 proposed reg] posed regulations resulted in less than 100 written corr The 1988 pr0posed regulation 1 in 1990 and contained few technical changes from the 19 de effective as of the date of publication. TD. 8308, 55 Speci?c Issues (1) The IRC 501(h) Election IRC 501(h) hat organizations may make 0f IRC 501(h) IRC 501(c)(3) org make the IRC 5011 ra, and Walsh Skelly, ?The librities,? 48 Tax Notes 1305, McGovern 1990?), explained The 1988 proposed regulations were an attempt to address charities? legitimate concerns without eliminating limits and thus Opening the Service up to charge To accomplish thi crafted a number of bright?line objective rules. Like objective rules, these rules are imperfect: in certain 1 will inevitably permit expenditures to be treated even though the public would probably consider tho. the statutory offailing to s, the Service all bright?line :ases, the rules is Mlobbying ?e expenditures ilations, the publication of the ments. The comments were 3 were discussed with the a meeting held on January 10, The final regulations were 88 proposed regulations. They FR 35579 (Aug. 31, 1990). (3) provides that the provisions vill apply to any eligible anization that has elected to ans apply.24 To be eligible to election, the IRC 501(c)(3) 3e an organization described in cribed in IRC 501(h)(5). The >llows: ons have made the election by filing to make the election, as of March 1, :1 "yes" to the "attempted to in?uence not ?le Form 5768. This document was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Lobbuinq Issues Hospitals and medical research organizations as described in IRC (3) Organizations that support government schools as described in IRC (4) Organizations publicly supported by charitable contributions as described in IRC (5) Organizations publicly supported by admissions, sa es, etc. related to their exempt purpose as described in IRC 509(a) and (6) Organizations that are public charities because they are a supporting organization described in IRC 509(a)(3) of an IRC 501(c)(3) organization that is described in IRC 509(a)(l) or 509(a)(2). IRC 501(c)(3) organizations may not elect 2. Yhat organizations may not to be covered by the provisions of IRC 501(h) if Ise the IRC 501(h) election? they are not described under IRC 501(h)(4) or if they are disquali?ed under IRC 501(h)(5). The organizations that are ineligible to make an IRC 501(h) election are as follows: (1) Churches or conventions or associations of churches as described in IRC Integrated auxiliaries of a church or convention or association of churches (IRC 508(c) and IRC 6033); (.5) Organizations described in IRC 501(c)(3) and af?liated with at least one church or convention or association of churches or an integrated auxiliary (an ?af?liated group? within the meaning of IRC 491 (4) Organizations that are public charities because they are a supporting organization described in IRC 509(a)(3) of certain organizations exempt under IRC 501(c)(4), IRC 501(c)(5), or IRC 501(c)(6); (5) Organizations engaged in testing for public safety and thus described in IRC 509(a)(4); and 285 This documlant was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues (6) Private foundations. Churches, along with church-related 3. Why are churches precluded organizations, were precluded from making an am making an election election under IRC 501(h) at their own request. ?1nd? IRC 501(h)? The Joint Committee on Taxation, in its General Explanation of the Tax Reform Act of 1976, 1976?3 C.B. (Vol. 2.) 415?416, notes that church groups expressed concern that any restriction on their lobbying activities might violate their rights under the First Amendment. More particularly, the church groups were concerned that including them among the class of organizations eligible to elect might imply Congressional rati?cation of the decision in Christian Echoes National Ministry, Inc. V. United States, 470 F.2d 849 (10th Cir. 1972), denied 414 US. 864 (1973), which held that the limitations on lobbying were constitutionally valid and that First Amendment rights in :he face of such limitations were not absolute. By disqualifying churches and church?related organizations from making the election, Congress sought to remain neutral on the constitutional issue; in fact the Joint Committee on Taxation?s Explanation explicitly states: ?So that unwarranted inferences may not be drawn from the enactment of this Act, the Congress states that its actions are not to be regarded in any way as an apt roval or disapproval of the decision [in Christian Echoes), or of the reasoning in any of the opinions leading to that decision.? id. at 420. An eligible IRC 501(c)(3) organization 4. ?ow is an election under may make an IRC 501(h) election for any taxable 5010]) made? year of the organization beginning after December 31, 1976, other than the first taxable year for which a voluntary revocation of the election is effective. Voluntary revocations are discussed below. The election is made by filing a completed Form 5768, iection/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to In?uence Legislation, with the appropriate Internal Revenue Service Center. Under IRC 501(h)(6), the election when is an election under effective With the beginning of the taxable year 1n 501(h) effective? which the Form 5768 is filed. For example, an eligible organization with the calendar year as its taxable year files Form 5768 making the IRC 501(h) election on December 31, 1996. The organiz ion?s IRC 501(h) election is effective for its taxable year beginning January 1, 1996. Once th IRC 501(h) election is made, it is effective (without again ?ling Form 5768) for each succeed' taxable year for which the organization is an eligible organization and which begins before a notice of revocation is ?led. Reg. A newly created organization may submit Form 5768 to elect the expenditure test under IRC 501 at the time it submits its Form 1023, Application for Recognition of Exemption under 286 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues 6. ;hen may a newly created election its IRC 1 Form 5' election effect fc its elect to the 0 year for 8. Reg. 1. Section 501(c)(3) Code.25 If the org eligible under IRC effective with the which the Form 5 organization is det be eligible to mak will not be effective and the substantial part test will a; 501(c)(3) classification. Reg. organization make an election under IRC 501(h)? An organiz How may an organization voluntarily revoke its' voluntary IRC 501(h) election? appropriate Serv1c voluntary revoca beginning of the 3or example, an eligible organization with the calendar V68 revoking its IRC 501(h) election on May 31, 1996. remains in effect for its taxable year beginning Januar if its taxable year beginning January 1, 1997. When an 0 on, the substantial part test of IRC 501(c)(3) (as discussec rganization?s activities in attempting to in?uence legislat which the voluntary revocation is effective. Reg. 1.501 An organi: its election unde IRC 501(h) expe However, the new May an organization that voluntarily revoked its election make the election again? taxable year for i . furnishes the following example: X, an organization whose taxable year is the cale to voluntarily revoke its expenditure test e1 beginning with its taxable year 1985. must voluntary revocation on Form 5768 after Decemb before January 1, 1985. If ?les a notice of volu on December 31, 1984, the revocation is effectiv its taxable year 1985. The organization may 25 for recog he organization may submit its Form 5768 to the appropriate key nition of IRC 501(c)(3) exemption is being considered by that of?c expenditure test :2 taxable year in wh of the Internal Revenue ganization is determined to be 3501(h), the election will be reginning of the taxable year in 768 is filed. However, if the ermined by the Service not to an IRC 501(h) election, the >p1y from the effective date of ation may voluntarily revoke an lection by filing a notice of tion (Form 5768) with the a Center. IRC a tion is effective with the first taxable year after the ich the notice is ?led. year as its taxable year files The organization?s IRC 501(h) 1, 1996, but is no longer in rganization voluntarily revokes 1 above) will apply with respect ion beginning with the taxable zation that voluntarily revokes IRC 501(h) may make the nditure test election again. 1 election may be effective no earlier than the taxable year following the first hich the voluntary revocation is Reg. ndar year, plans 1' ection e??ective file its notice of er 31, 1983, and ntary revocation 2 beginning with again elect the strict of?ce as long as its application e. 287 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues expenditure test by filing Form 5 768. Under Reg. 1 the election may not be made for taxable year 1985. Under Reg. 1 .5 01 a new expenditure test election will be effective for taxable years beginning with taxable year 1986, if the Form 5768 is ?led after December 3 1, 1985, and before January 1, 1987. If, while an election under IRC 501(h) by 9. ay an IRC 501(h) election an eligible organization is in effect, the - involuntarily revoked? organization ceases to qualify as an eligible I organization, its election is automatically revoked. The revocation is effective with the beginning of the ?rst full taxable year for which it is determined that the organization is not an eligible organization. If an organization?s expenditure test eleztion is involuntarily revoked but the organization continues to be described in IRC 501(c)(3), the substantial part test of IRC 501(c)(3) will apply with respect to the organization?s activities in attempting to in?uence legislation beginning with the ?rst taxable year for which the involuntary revocation is effective.26 Reg. 1.501(h (2) Limits on Lobbying Expenditures 1. What are ?excess lobbying under IRC 4911(21)(1) on the excess lobbying expenditures?? expenditures of public charities that have elected to be covered by IRC 501(h). The tax imposed is equal to 25 percent of the amount of the organization?s excess lobbying expenditures for the taxable year. IRC 4911(a)(2) provides that, for purposes of IRC 4911, the term ?excess lobbying expenditures? for a taxable year means the greater of the following amounts: 1A) The amount by which the lobbying expenditures made by the organization during the taxable year exceed the lobbying nontaxable amount for such organization during such taxable year, or The amount by which the grass roots expenditures made by the organization during the taxable year exceed the grass roots nontaxable amount for such organization for such taxable year. 4911(c)(2) provides that the nontaxable amount of lobbying expenditures is the lesser of $1,000,000 or an amount determined under a sliding sca e, set forth in the statute, of percentage of exempt purpose expenditures. The nontaxable amount of grassroots lobbying 2? The situations contemplated here include, for example, an IRC 501(c)(3) public charity that becomes a private foundation or a public charity that continues to be described in IRC 501(c)(3) but becomes a supporting organization of an IRC 501(c)(4), IRC 501(c)(5), or IRC 501(c)(6) entity. 288 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues expenditures is 215 percent of the nontaxable 2. hat are the nontaxable amount of lobbying expenditures. amounts? IRC 491 The following table sets forth the nontaxable amounts: Fun- Purpose Expenditures Total Nontaxable Grass Roots Nontaxable Up to $500,000 20% 5% $100,000 15% of $25,000 3.75% of 5500'000 to excess over $500,000 excess over $500,000 $175,000 10% of $43,750 2.5% of to 51'500'000 excess over $1,000,000 excess over $1,000,000 $225,000 5% of $55,250 1.25% of 51'500'000 to $17'000'000 excess over $1,500,000 excess over $1,500,000 Over $17,000,000 $1,000,000 $250,000 An IRC 5Cl(c)(3) organization that has i . 3' What are the lobbying and made the election to be covered by IRC 501(h) Frags mots ceiling amounts? will not be denied exemption due to substantial lobbying activities unless it normally makes lobbying or grass roots expenditures in excess of the applicable ceiling amounts. The applicable ceiling amounts for lobbying expenditures is 150 percent of the lobbying nontaxable amount for the base gyears (IRC and for grass roots expenditures is 150 percent of the grassroots lobbying nontaxable amount for the base years (IRC general, the term ?base years? means the determination year and the three taxable years immedi tely preceding the determination year.27 The base years, however, do not include any taxable ear preceding the taxable year for which the organization is ?rst treated as described in IRC 50 Reg. eg. however, provides a special exception for an organization?s first election Under this exception, for the ?rst, second, or third consecutive determination year for which organization?s ?rst expenditure test election is in effect, the organization will not be denied exemption from tax by reason of IRC 501(h) if, taking into account as base years only those years for which the expenditure test election is in effect the following conditions are met: (A) The sum of the organization?s lobbying expenditu es. for such base years does not exceed 150 percent of the sum of its lobbying taxable amounts for the same base years; and 27 A taxable year is a "determination year? if it is a year for which the expenditure test election is in effect, other thin the taxable year for which the organization is ?rst treated as described in IRC 501(c)(3). Reg. 289 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbu: nq Issues it will occasior electing activitie Thus, the mere fact that an organization pays tax under I On the cor base years. its exemption under IRC 501(c)(3). determination Dlne example involves an orgamzation whose taxable ye The sum of the organization?s grass roots expend not exceed 150 percent of the sum of its grass roots nontaxable amounts for such expenditures are by IRC 4911(a)(1 public charity is denied exempt status under IRC 501 iture for those base years does RC 4911 does not indicate that 1trary, using the election and paying the tax, if necessary, was designed to allow that leeway. Reg. provides a number of How are these rules applied? examples illustrating how excess lobbying alculated, how the tax imposed is calculated, and how the made concerning whether the because of its lobbying ar is the calendar year that has been recognized as an IRC 501(c)(3) organization for a number of years prior to making the expenditure test election under IRC 501(h) effective for taxable year 1979. The organization has not revoked the election. The following table contains information used in this example. Exempt: Lobbying . Grass roots purpose nontaxable I exLz??t?ges nontaxable Grass roots Year expenditures Calculation amount (LE) amount (25% expenditures (EPE) (LNTA) (dollarm of LNTA) (dollars) (dollars) (dollars) (dollars) 1979 700, 000 (125?: Goff 5 130,000 120, 00 32,500 30,000 1990 800,000 145,000 100,00> 36,250 60,000 1931 800,000 145,000 100,001 35,250 65,000 1982 900,000 160,000 150.00) 40,000 65,000 Total 3,200,000 580,000 470,001 145,000 220,000 1981,a in each nontaxz 25 pen $7,187 organiz year 19 grass 11 year 1 IRC 5C Reg. 1 290 In this example, the organization is liable for the tax imp n! 1982 because its grass roots expenditures exceeded it: of those years, even though its total lobbying expenditu ilile amount. The tax imposed by IRC 4911(a) for 1980 :dnt of $13,750 (the difference between $60,000 and 5p and for 1982, the tax is $6,250. For the tax yea ation meets the special exception under Reg. the total grass roots expenditures for the base years )oits ceiling amount of $217,500 (150 percent of $145,000 983, the organization is denied tax exemption as The organization must again apply for recogr for taxable years after 1983. Reg. 1.50101)- osed under IRC 4911 for 1980, grass roots nontaxable amount res did not exceed the lobbying is $5,937.50 which is equal to 36,250). For 1981, the tax is us 1979, 1980, and 1981, the However, for the taxable 1979 through 1982) exceeds the Consequently, for the taxable an organization described in iition of exemption pursuant to Example (2). This documeni was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Another example concerns an organization, whose taxable year is the calendar year, that made its IRC 501(h) election effective for its taxable year 1977, the first year it was treated as an organization described in IRC 501(c)(3). The organization has not revoked the election. The following table contains information used in this example. Exempt Lobbying Lobb in Grass roots Taxable purpose nontaxable ex endgtugaa nontaxable Grass roots Yea expenditures Calculation amount (LE) amount (25% expenditures (EPE) (LNTA) (dollars - of LNTA) (dollars) (dollars) (dollars) (dollars) (20% of $500,000 1977 700,000 15% of $200,000 130,000 182,000 32,500 30,000 (20% of $500,000 1978 800,000 15% of $300,000 145,000 224,750 36,250 35,000 Subtotal 1,500,000 275,000 406,750 68,750 65,000 (20% of $500,000 1979 900,000 15% of $400,000 160,000 264,000 40,000 50,000 Totals 2,400,000 435,000 670,750 108,750 115,000 In this example, the organization is liable for the tax imposed under IRC 4911 in 1977, 1978, andl 1979 because its total lobbying expenditures exceed its lobbying nontaxable amount in each of those years. Although its grass roots lobbying expenditures exceeded its grass roots lobbying nontaxable amount in 1979, the tax is calculated based on the excess lobbying expendituTres 1n all three years since that amount is greater. The tax for 1977 is 25 percent of the difference between $182,000 and $130,000 The tax for 1978 is $19,937.50 and the tax foir 1979 is $26,000. Pursuant to Reg. the organization is not required to dete n'ne if it continues to qualify for IRC 501(c)(3) exempt status for 1977 since that is its ?rst year as an IRC 501(c)(3) organization. For 1978, the total lobbying expenditures and grass roots expenditures for the organization?s base years (1977 and 1978) do not exceed 150 percent of its 10 obying nontaxable amount or its grass roots nontaxable amount. However, for 1979, the total lobbying expenditures of the organization for its base years [1977 through 1979) do exceed $652,500 (150 percent of $435,000). As a result, for the taxable year 1980, the organization is denied tax exemption as an organization described in IRC 501(c)(3). The organization must again apply for recognition of exemption pursuant to Reg. for taxable years after 1980. Reg. Example (3). 291 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbui rid Issues Exempt Purpose Expenditures (3) Reg. 56.49ll1-4 provides rules under The 1. hat are ?exempt purpose IRC 4911(6) for determining an electing public xpenditures?? charity?s ?exempt purpose expenditures.? regulation also provides that, in determining exempt purpose expenditures, no expenditure shall be counted twice by an organization. Under Reg. amounts paid or incurred by an organization that are exempt purpose expenditures include the following: (A) Amounts paid or incurred to accomplish a purpose enumerated in IRC 170(c)(2)(B) including certain transfers made by the organization; (B) Amounts paid or incurred as current or deferred compensation for an . employee?s services in connection with an IRC 170(c)(2)(B) purpose; (C) The allocable portion of administrative overhead and other general expenditures attributed to accomplishing IRC 170(c)(2)(B) purposes; (D) All lobbying expenditures; (E) Amounts paid or incurred for activities that are not considered lobbying because they are described in Reg. Egg, nonpartisan analysis, study, and research, or member communications described in Reg. 56.4911-5 that are not lobbying expenditures; (F) A reasonable allowance for exhaustion, wear and tear, obsolescence or amortization, of assets to the extent used for one or more of the above purposes computed on a straight-line basis;28 and (G) Certain fundraising expenditures (but see IRC 4911(e)(l)(C) and Reg. and Reg. Under Reg expenditures do me expenditures: What are not ?exempt purpose expenditures?? Am that (A) 28 would sa 292 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) tisfy IRC 321(k)(3)(A) as in effect on January 1, 1985. Reg ounts paid or incurred are not described in . 56.491 exempt purpose include the following types of >r this purpose, an allowance for depreciation will be treated as reasonable if based on a useful life that Lobbuinq Issues The amounts of any transfer described in Reg. Amounts paid to or incurred for a ?separate fu organization or of an af?liated organization;29 ndraising unit? of the Amounts paid to or incurred for any person not organization not an af?liated organization, if paid 0 fundraising, but only if such person or organization fundraising counselling or the provision of similar an employee, or any incurred primarily for engages in fundraising, advice or services; Amounts paid or incurred chargeable to a capital accordance with the principles that apply under I with respect to an unrelated trade or business; account, determined in RC 263 or IRC 263A, ised in connection with purpose, such 11(a); and Amounts paid or incurred for a tax that is not impc the organization?s efforts to accomplish an IRC 170 as taxes imposed under IRC 511(a)(1) and IRC 4S Amounts paid or incurred for the production of income.30 There are be treated as an The first is a trar described in IRC transferor?s exen earmarked for a] iin IRC Therefore, a payment of dues by wo types of transfers that will exempt purpose expenditure. isfer made to an organization 501(c)(3) in furtherance of the ipt purposes that is not 1y purpose other than one a local or state organization to, RC 501(c)(3) is considered an is not otherwise earmarked. hen are transfers exempt. urpose expenditures? aising unit of any organization must '1 fundraising for the organization, or ing. Furthermore, for this purpose, incurred for the creation, production, Init?s communication. (For example, it the cost of postage for a separate gh, under the electing public charity?s separate fundraising unit.) either two or more individuals a majority of whose time is spent or iuction of income if they are paid or need of the organization for income formance by the organization of its its exemption under IRC 501. For neurred for the production of income ire not, for purposes of this section, determination of whether fundraising 4911(e)(1)(C), Reg. example, the costs of managing an endowment are amounts that are paid or i and are us not exempt purpose expenditures. Fundraising expenditures . . . amounts that are paid or incurred for the production of income. Instead, the costs are exempt purpose expenditures must be made with reference to IRC Reg. 56.4 9111-4330), and Reg. 293 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuu i 10 Issues I Reg. 56. amounts if paid 0 consider af?liated Reg. 56. amount that this those ex consider expendit conduct found in whether or attem I not de Reg. 56. The second type is a ?controlled grant,? that are paid or incurred by the transferee that would be incurred by the transferor.? Reg. group (as de?ned in Reg. of which he second type is a transfer that the Commissioner dete the transferor?s or transferee?s exempt purpose expendi determination generally will be made if a substantial pur =?npt purpose expenditures. When this determination is ad an exempt purpose expenditure of the transferor; rathei urie of the transferee to the extent that the transferee exp of its charitable activities or attempts to in?uence legislati Reg. (relating to operating foundations) the transferee has expended amounts in the ?active cond to influence legislation. Reg. lie third type is a transfer that is not a ?controlled grant? scribed in IRC 501(c)(3) that does not 491 Reg. 56.49] the other hand, Reg. provides that three 3d exempt purpose expenditures. The ?rst type is a tram attemp but only to the extent of the exempt purpose expenditures types of transfers cannot be sfer made to a member of any the transferor is a member. rmines arti?cially in?ates the tures. The regulation provides pose of a transfer is to in?ate made, the transfer will not be it will be an exempt purpose ends the transfer in the active on. Standards similar to those may be applied in determining not? of its charitable activities and is made to an organization to in?uence legislation. iv l-4(g) illustrates the provisions 4. (W are exempt purpose relating to the determination of exempt purpose 'Xpenditures determined? expenditures by discussing the example of an organization that is an exempt organization described in IRC 501(c)(3) organized for the purpose of rehabilitating alcoholics. The organization elected to be subject to the provisions of IRC 501(h) in 1981. For 1981, the organization had expenditures as indicated in the following chart. Those expenditures are included its exempt purpose expenditures to the extent indicated. 3' Rt de?nes a "controlled grant? as a grant made by an organization eligible to elect the expenditure test to an organization not described in IRC 501(c)(3) that meets the following requirements: The donor limits the grant to a speci?c project of die recipient that is in furtherance of the donor?s (nonlobbying) exempt purposes; and I (ii) The donor maintains records to establish that the grant is used in furtherance of the donor?s (nonlobbying) exempt purposes. 294 This documeni was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Total Includible Description I i (dollars) (dollars) Cost of real estate purchased for use as half?way house for alcohol cs, attributable to the following: nand 30,000 duilding 200,000 depreciation (based on 40?year useful life) 5,000 Expenses bf operating its half-way house 170,000 170,000 Adminis.rhtive expenses of the organization allocated to the operation 95 000 95 000 of its malf-way house Depreciathon and allowances for equipment 10,000 10,000 Expenses related to attempts to influence legislation (lobbyiigiexpenditures) 40.000 40,000 Amounts paid to by the Organization for fundraising 35,000 i Total 580,000 320,000 Thus, for 1981, the organization?s exempt purpose expenditures total $320,000. This amount includes both the direct costs of operating the half?way house as well as the administrative costs allocable to its operation. It also includes all lobbying expenses in full. Only depreciation computed on a straight-line basis is included in exempt purpose expenditures. The cost bf capital expenditures (the land and building) is not included in exempt purpose expendituries. In addition, the $35,000 paid by the organization for fundraising is not included in the exeinpt purpose expenditures total. (4) Direct Lobbying and Grass Roots Lobbyiniy For public charities that elect to be covered by IRC 501(h), lobbying expenditures are expenditures made for the purpose of in?uencing legislation (as de?ned in IRC 4911(d)). IRC An electing public charity?s I lobbying expenditures for a year are the sum of its expenditures during that year for direct lobbying communications (?direct lobbying expendituies?) plus its expenditures during that year for grass roots lobbying communications rass roots ex enditures?). I ?Direct? lobbying involves attempts to 2. hat is the distinction in?uence legislation through communication with etween ?direct? and ?grass any member or employee of a legislative body. Dots? lobbying? It also involves attempts to in?uence legislation through communication with any government of?cial or employee (other than a member or employee of a legislative body) who may participate in the formulation of the legislation, but only if the principal purpose of the 295 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues communication is to in?uence legislation.32 IRC 4911(d)(1)(B); Reg. uGrass roots? lobbying involves attempts to in?uence legislation through an attempt to affect the opinions of the general public or any segment of the public. IRC 49ll(d)(l)(A); Reg. Reg. provides that 3. What is ?legislation?? ?legislation? includes action by the Congress, any state legislature, any local council, or similar legislative body, or by the public in a referendum, ballot initiative, constitutional amendment, or similar procedure. (See the discussion regarding the meaning of "action of the Congress? for purposes of the lobbying restriction for nonelecting charities.) ?Legislation? includes a proposed treaty required to be submitted by the President to the Senate for its advice and consent from the time the President?s representative begins to negotiate its position with the prospective parties to the prop used treaty. Under Reg ?speci?c 4. What is ?speci?c legislation?? legislation? includes both legislation that has 1 already been introduced in a legislative body and speci?c legislative proposals that the organization either support or oppose. In the case of a referendum, ballot initiative, constitutional amendment, or other measure that is placed on the ballot byipetitions signed by a required number or percentage of voters, an item becomes ?specific legislation? when the petition is ?rst circulated among voters for signature. Prior to amendment in 1990, the regulations under IRC 4945 provided that ?attempts to in?uence legislation? included communications "with respect to legislation being considered by, or to be submitted imminently to, a legislative body.? Reg. (1990). When the regulations under IRC 4911 were ?nalized, the standard "to be submitted imminently? was not used in Reg. and it was deleted from the IRC 4945 regulations. As the Preamble to the regulations explains, a temporal standard is inapprOpriate and underinclusive given the nature of the legislative process. For example, long before many speci?c legislative proposals are formally introduced as a bill, they are subject to intensive scrutiny, debate, and controversy. Moreover, effective lobbying could prevent a bill from ever being introduced. Consequently, reference to legislation proposed or adopted in one state that urges its adoption in anotl er state constitutes a speci?c legislative proposal in the other state even though no such bill has been introduced there. Reg. Example (2). Legislation may be identi?ed either by its formal name or by a term that has been widely used in connection with speci?c pending legislation, Egg ?the President?s plan for a drug-free America.? Reg. Example (1). Legislation may also be identi?ed merely by its content and effect. Reg. Examp (1). 32 In this regard, Reg. Example (4), notes that a letter sent to an administrative agency proposing standards for regulations implementing recently enacted legislation is not a lobbying communication. 296 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues A communication with a legislator or 5_ \that is a direct lobbying government of?cial will not be treated as a direct cl mmunication? lobbying communi cation in accordance with Reg. unless it both refers to ?speci?c legislation? and re?ects a View on such legislation. Reg. Therefore, a position letter on a pending bill prepared by an organization?s employee and distributed to members of Congress or personal contacts by the employee with members of Congress or their staffs to seek support for the organization?s position on the bill would constitute direct lobbying. Reg. Example (1). In contrast, a letter sent to a member of Congress requesting that she write an administrative agency regarding proposed regulations recently publishec by that agency and also requesting that she state her support for a particular type of permit granted by the agency is not a direct lobbying communication. Reg. Example (2). Similarly, sending a paper to a state legislator on a particular state?s environmental problems that does not re?ect a View on any speci?c legislatiOi that the organization either supports or opposes likewise is not a direct lobbying communication. Reg. Example (3). 6, of an organization printed a safety co :gulations furnish an example that researched, prepared, and de for electrical wiring. The organization sold code to the public and it was widely use by professionals in the installation of ele trical wiring. A number of states have codi?e all, or part, of the code of standards as man atory safety standards. On the organization lobbied state legislators for passage of code of standards for safety Because the primary purpose of preparing the code of andards was the promotion of fety and the standards were specifically used in a profes ion for that purpose, separate legislative requirement, the research, preparation, printin and public distribution of the standards is not an expenditure for a direct (or grass ro ts) lobbying communication. costs, such as transportation, photocopying, and other similar expenses, incurred in lobbying state legislators for passage of the code of standards into law are expenditures for direct lobbying communications. Reg. Example (5) May some, but not all, of the xpenses associated with a ?ltudy be treated as direct Wobbying expenditures? occasion reasons. public sa from any code of Howevei 7. I In some si ations, the news media may report that an or anization has communicated I ?Will news media reports ?convert a communication from with the legislatu in support or opposition to direct to grass roots lobbying? particular legislati n. The mere fact that the i organization?s pos' ion on the legislation has been reported in the news media, and therefore communicated to the general public, does not it into a grass?roots lobbying communication. The communication remains a direct communication. Reg. Example (6). convert lobbying 297 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues i Yes, such liday indirect communications Reg with a legislator that express a View on legislation not bnstitute direct lobbying? direct lo bying communication because the newsletter is sent rather than her capacity as a legislator.33 contained an editor re?ected a View on the newsletter?s 10, a legislator. three?part test communications hat is a- ?grass roots? 1 bbying communication? i 1 three of the following requirements: with respect to such legislation. is comm means is commen of civiliz that no matter how clearly an organization identi?e ts on the merits of that legislation (for example, ?passage 33 The example notes, however, that the editorial column may be a grass encourag recipients to take action with respect to the pending bills it refers further ca tionary note is set forth in Reg. Example (8), whi staff me ers sees the editorial and requests additional information, and the or refers to nd re?ects a view on Speci?c legislation, the letter would be a dire is within ne of the exceptions (such as the exception for nonpartisan analysis, not be wi hin the scope of the exception for technical advice or assistance be a written equest from a legislative body or committee.) 298 Th newsletter copy se Reg. 56.491 (A) The communication refers to specific legislation; (B) The communication re?ects a view on such legisla (C) The communication encourages the recipient of the ation as we know it?) when it communicates with the gen further statement that encourages the recipient to take action woulc a situation is set forth Example (7). in In the example, an organization newsletter a1 column that referred to and speci?c pending bills. One of 000 nonmember subscribers is editorial column in the at to the legislator is not a to her in her capacity as a i sets forth a for determining whether ith the general public will be treated as grass roots lobbying communications. 11 will be considered a grass roots lobbying communication only if it meets all tion; and communication to take action he third element (requiring the communication to encourage the recipient to take action) only referred to as the ?call to action? requirement. Esse :ntially, what this requirement the specific legislation and of S. 549 would mean the end eral public, the absence of any I mean that the communication I roots lobbying communication if it and on which it re?ects a view. A ch states that if one of the legislator?s ganization responds with a letter that ct lobbying communication unless it study or research). (The letter would cause the letter is not in response to This docum nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues could not be considered a grass roots lobbying communication. The lack of such a requirement was one of the major complaints directed at the 1986 proposed regulations.34 '10. not beag As noted ab re all communications to the With the general eneral public ?grass roots?? that does meet all grass roots lobbying communication. Reg. 3? The The 1986 1 regulations ?nalized.) requiremer (E broad and were treat They also on the has A Service, regulation under IRC should be regulation difference policy iss whereas the First February regulatior IRC 62( requiring )roposed de?nition of grass roots lobbying was patterned after a te published in 1980. 45 FR 78167, 78169 (Nov. 25, 1980). (Those ts: L) The communication pertains to legislation being considered by or opposes legislation; this purpose, a communication that pertains to legislation but on the legislation shall be deemed to re?ect a view on legisl is selectively disseminated to persons reasonably expected to legislation); and The communication is communicated in a form and distributet of the general public, that is, as voters or constituents, as 01: designed for academic, scienti?c, or similar purposes. A cor test even if it reaches the public only indirectly, as in a ne\ media. 51 FR 40211, 40222 (Nov. 5, 1986). 501(c)(3) public charities strenuously contended that the de?nitio included many communications that were not lobbying. In particular :d as grass roots lobbying even where the communications did not i contended that the de?nition arbitrarily concluded that a discussion is; of its dissemination. the second meeting of the Commissioner?s Exempt Organizations Shief Counsel, and Treasury representatives stated they were cor that would include a "call to action? requirement and would otherv 162(e). All of the Group?s members that spoke on the subject state adopted. As to the issue of severing the IRC 4911 and 4945 pro; 5 under IRC 162(e), three of the Group?s eighteen members diSSent in treatment. The remainder of the Group felt that a reading of the res are different, as are the ?scal issues -- the consideration under 1 1e exempt organization provisions regulate a segment of society that Amendment than businesses. "Minutes [of] Commissioner?s Exen 25-26, 1988,? EOTR, Jan. 1989, 7, 12-15. The 1988 propo s, thus accommodated the concerns of charities by (1) creating ru 3), (2) removing the ?dissemination? criterion, (3) adding a de?nit a "call to action.? This document was obtained and uploaded by the Center for Res de?nition of grass roots lobbying was by far the most controversial pa ove, unless a communication ublic meets all three of the Reg. requirements, it will not be a grass roots Furthermore, in certain cases, a communication lobbying communication. hree of the requirements may provides that, solely for lI't of the 1986 proposed regulations. ;t set forth in proposed IRC 162(e) proposed regulations have not been Under the 1986 de?nition, grass roots lobbying included any communication that met the following a legislative body, or seeks The communication re?ects a view with respect to the desirability of the legislation (for expresses no explicit view ation if the communication hare a common view of the to individuals as members posed to a communication nmunication may meet this vs release submitted to the of grass roots lobbying was overly they objected that communications nclude some sort of "call to action.? of legislation reflected a view solely Advisory Group, February 26, 1988, tsidering revisions to the proposed rise create rules different from those :d that a "call to action? requirement aosed regulations from the proposed ed, stating they saw no reason for a egislative histories discloses that the RC 162(e) is to police the tax base, is entitled to more protection under ipt Organization?s Advisory Group, sed regulations, as well as the ?nal es different from those proposed in on of "speci?c legislation,? and (4) 299 oonsive Politics (OpenSecrets.org) Lobbui Issues purposes of IRC 4911, where a communication refers to and re?ects a view on a measure that is the suyject of a referendum, ballot initiative or similar procedure, the general public in the State or ocality where the vote will take place constitutes the legislative body, and individual members of the general public are considered legislators. Accordingly, if such a communication is made to one or more members of the general public in that state or locality, the commumEation is a direct lobbying communication (unless it cc mes under the exception for nonpartis analysis, study or research (discussed below)).35 Reg. provides a 11. Whatis meant bytiencourages definition of enco raging a recipient to take we recipient to take action?? action with respect to legislation. To be i considered a ?call to action,? a communication must do any one of the following: (A) The communication states that the recipient should contact an individual described in Reg. (B) The communication states the address, telephone number, or similar information of a legislator or an employee of a legislative body; (C) The communication provides a petition, tear-off postcard or similar material for the recipient to communicate with any individual described in Reg. or (D) The communication specifically identifies one or more legislators who will vote on the legislation as: opposing the organizat'on?s view with respect to the legislation; being undecided with respect to tile legislation; being the recipient?s representative in the legislature; or being a member of the legislative committee or subcommittee that will consider the legislation. Merely naming the main sponsor(s) of the legislation for purposes of identifying the legislation will not constitute encouraging the recipient to take action. 35 "McGovem 1990? Tax Notes at 1311; EOTR at 771, discusses the rather tangled considerations that were brought to bear on this issue: One factor that doubtless motivated the Service to carefully consider the issue in developing the final regulations was concern that the lobbying restriction not become a prohibition on in?uencing legislation, including legislation subject to defeat or approval at the ballot box. Because of the more restrictive limit on grass roots lobbying, and because of the inherently high costs of reaching voters {particularly in large states such as California), treating such lobbying as grass roots lobbying could amount to an e?ective prohibition, rath 2r than the intended limitation. Accordingly, given the slight ambiguity in the statute, the final regulations treat such lobbying as direct lobbying. 300 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues example affect the exhortatic Therefore, adding an exhortation such as ?oppose S. 549? (?passage of S. 549 would mean the end of civilization analysis. The statement still would not constitute gras >n does not reach the level of speci?city set forth in the a comm not ?dire legislator legislatio action with respect to legislation but that do not directly encourag with reSp and thus also as Reg. 56.4 from Sta ?mo not ident 12. I treated as lobbying costs? - it encour not reiml in carryi organiza IRC 170 of traini. copying, in the dc voluntee charity n; Reg. Communications that en ect to legislation may be within the exception for nonparti sumes importance in the rules egislators may be identi?ed by name or by speci?c refer Reg. Example (6). Howe? st; of the Senators from the Farm Belt states are inexplical Reg. 56.491 discusses an organi go door-to-door to be sent to legislatc When the organiz 5 contact others and 1 ages those volunteers to take action in favor of the specil nurse the volunteers for their time and expenses. Any cc on this activity are not lobbying or exempt purpo Lion. Furthermore, the volunteers may not deduct their or However, the organization?s costs of soliciting the the volunteers are grass roots expenditures. In adc distributing, etc., the petitions (and any other materials on or?to?door signature gathering effort) are grass roots exp ust volunteer activity costs levertheless, as noted in Reg. Example (5), rs' conduct lobbying activities with no reimbursement rthermore, there is a distinction to be observed here. paragrap s; (A) through (C) not only ?encourage,? but also ?direct take acti with respect to legislation. Communications describe do not irectly encourage? the recipient to take action with resp ication would ?encourage? the recipient to take action ctly encourage? such action, if the communication dc Who will vote on the legislation as opposing the organiza not be grass roots lobbying communications. Reg. 56.49] regarding me lfy a legislator. Reg. Example (7 . to the previously discussed as we know it?) would not 3 roots lobbying because the above paragraphs. 30mmunications described in ly encourage? the recipient to in paragraph (D), however, ect to legislation. Therefore, vith respect to legislation, but DCS no more than identify a tion?s view with reSpect to the :ourage the recipient to take ;e the recipient to take action san analysis, study or research The distinction :mbership communications. 1 ence, ?the junior Senator ver, a more general reference, ?y in favor of the bill,? would Example (8), zation that trains volunteers to seek signatures for petitions to DIS in favor of a speci?c bill. ation asks the volunteers to 1rge them to sign the petitions, ic bill. The organization does ists incurred by the volunteers se expenditures made by the Lt-of-pocket expenditures. volunteers? help and its costs lition, the costs of preparing, the same specific subject used renditures. the fact that numerous unpaid behalf of an electing public tion has engaged in substantial will not be considered in determining whether the organiza for purposes of its exemption under IRC 501(c)(3). I rarities where such activities would be considered, the .on expenditures. Jnlike the test for nonelecting 3st under IRC 501(h) is solely lobbying public cl based up 301 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues (5) Exceptions i. Nonpartisan Analysis Pursuant to IRC 4911(d)(2)(A) and 1. Vii/hat is the exception for Reg- engaging in nonpartisan nonpartisan analysis? analysis, study, or research and making the results i of such work availaible to the general public, or a segment or members thereof, or to governmental bodies, of?cials, or employees will not constitute a direct lobbying communication under Reg. or a grass roots lobbying communication under Reg. i Reg. provides that 2. hat is ?nonpartisan analysis, ?nonpartisan analysis, study, or research? means tudy? or research?? an independent and objective exposition of a particular subject matter, including any activity that is ?educational? within the meaning of Reg. Thus, ?nonpartisan analysis, study, or research? may advocate a particular position cr VieWpoint so long as there is a suf? :iently full and fair exposition of the pertinent facts to enable the public or an individual to form an independent Opinion or conclusion, as opposed to the mere presentation of unsupported Opinion. Reg. provides that a 3_ May a communication that communication that re?ects a view on speci?c ?omains a ?can to action? legislation is not within the nonpartisan analysis, ?ome within the exception? study, or research exception if the communication directly encourages the recipient to take action with respect to such legislation. As set forth above, directly encouraging a recipient to take action with respect to legislation means that the communication: (A) States that the recipient should contact legislators; (B) States a legislator?s address, telephone number, etc; or (C) Provides a petition, tear-off postcard or similar material for the recipient to communicate with a legislator. Jote, however, that a communication would encourage the recipient to take action with respect legislation, but not directly encourage such action, if the communication does no more than speci?cally identify one or more legislators who will vote on the legislation as: (1) oppc sing the organization?s view with respect to the legisla:ion; (2) being undecided with respect 0 the legislation; (3) being the recipient?s representative in the legislature; or (4) being a member of the legislative committee or subcommittee that will consider the legislation. 302 This document was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Lobbuinq Issues Reg. Examples (8) and (9), provide illustrations of the difference between ?encouraging? and ?directly encouraging.? In Example (8), an analysis of a pending bill study names certain undecided Senators on the Senate committee considering the bill. Although the study meets the three part test for determining whether a communication is a grass roots lobbying commun because ation, the study is within the exception for nonpartisan analysis, study or research, does not directly encourage recipients of the commun cation to urge a legislator to oppose bill. In Example (9), the facts are identical except that the study concludes: ?You should ite to the undecided committee members to support this crucial bill.? The study is not within th exception for nonpartisan analysis, study or research because it directly encourages the recip ents to urge a legislator to support a speci?c piece of le How may nonpartisan analysis results be distributed? 1 includes distributi Reg. 56.491 organization may distribute the result study, or research, including oral or written presentations, with or without charge. gislation. provides that an hoose any suitable means to .s of its nonpartisan analysis, This on of reprints of speeches, articles and reports; presentation of information through conferences, meetings and discussions; and dissemination to the news media, including radio, television public forums. persons who are interested solely in one side of a particular issue 5. Ebert happens when results standard direct or by itself, meet the standards for "nonpartisan analysis, study, or research.? presentat each par period 0 Reg. 56. 1? designec specific study, 0 the case Examplt months for the legislati opposes However, such communications may not be 1im Normally, study, or research? are distributed in a series? presentation. of Reg. then any individual present grass roots lobbying communication even though such in fsix consecutive months will ordinarily be eligible to be Jevertheless, if an electing organization times or channels to in?uence the general public or the action of a legi legislative proposal, the expenses of preparing and distrib research will be expenditures for a direct or grass roots may be. An example of such an circumstance is set fort (7). In the example, an organization presented withi a two-program television series relating to a pesticide iss an, to be televised at 8:00pm on a Thursday. It arranges broadcast qualifie presented as a serie organization and the series as a whole meets the such legislation, to be televised at 7:00am on a Sunday. and newspapers, and to other ed to, or be directed toward, whether a publication or as ?nonpartisan analysis, is determined based upon each Dwever, if the results are 5 prepared or supported by the ation within the series is not a dividual presentation does not, Whether a ion is considered part of a series will depend upon all the facts and circumstances of :icular situation. However, with respect to broadcast activ ities, all broadcasts within any considered as part of a series. a part of a series in a manner slative body with respect to a uting such part of the analysis, lobbying communications, as in Reg. a period of six consecutive ue. The organization arranges ?rst program, which contains information, arguments, and conclusions favoring for the second program, which The example concludes that 303 This docume nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuiniq Issues the orgar research, of the le conveniei ization?s presentation is not within the exception for nonpartisan analysis, study, or since the organization disseminated its information in a manner prejudicial to one side gi'slative controversy since the program favoring the legislation was aired at a more 11: Viewing time than the second program. i What is the rule concerning ?subsequent use?? i Reg. 56.491 provides that even though an activity is initially within the exception for nonpartisan analysis, study, or research, subsequent grass roots lobbying use may cause it to be treated as a grass roots lobbying communication thalLis not within this exception. Howeve subsequent use will never cause any analysis, study, 0 research to be considered a direct lo bying communication. ccording to Reg. certain communicat are initi lly not grass roots lobbying communications under the treated a such due to subsequent use of the materials for grass occurs 0 1y if the materials are considered ?advocacy communica Ions or research materials that three-part de?nition may be oots lobbying. However, this tions or research materials.? ?Advocacy communications or research materials? are corqmunications or materials that both refer to and re?ect a view on speci?c legislation but that do not, in their initial format, contain a direct encouragement for recipients to take action with respect to the speci?c legislation. Reg. Therefore, the :nt use rules do not embrace such items as assemblages of raw data. What are ?advocacy communications or research inaterials?? i subseque An example of an ?advocacy communication? is descril Example (8). That example discusses an organization that distri pending bill is an appropriate remedy for problems discussed in senators who are undecided with regard to the bill. As communication encourages the recipient to take action with respec directly encourage such action. Since the study does refer to and >ed in Reg. butes a study that indicates a he study and identifies certain discussed above, while this :t to the legislation, it does not eflect a view on the legislation without commur would a newsle newslett 1 directly encouraging action with respect to that 1e at be considered an advocacy communication. In that exai tter that contains notices and impartial summaries of prop er refers to speci?c legislation, it does not re?ect a view \dvocacy communications or research materials may be commu recipie to take action with respect to legislation. Reg. 56 Example (8), were subsequently distribu ications when they are subsequently accompanied by For exarr Lication. However, the communication discussed in Reg. 5 gislation, it is an advocacy Example (4), nple, an organization publishes osed legislation. Although the on that legislation. treated as grass roots lobbying a direct encouragement for iple, if the study discussed in ited with a letter stating ?You should rite to the undecided committee members to support this crucial bill,? the study itself could treated as a grass roots lobbying communication. However, the advocacy 304 This docum nt was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Lobbuinq Issues 8. jrass roots lobbying? preparing and distributing the advocacy communications or researt grass 1'00 9. ow is the primary purpose jetermined? organizat research communications or hen will ?advocacy will not be treat communications? become communications or purpose ts expenditures. Reg. safe harbor for det not be considered ion makes a substantial nonlobbying distribution of the communications un purpose in undertakng or preparing the advocacy use in lobbying. If is shown Reg. 56.491 research materials themselves ed as grass roots lobbying $3 the organization?s primary research materials was not for no such primary nonlobbying to exist, all expenses of :h materials will be treated as sets forth a ermining the primary purpose of an organization when it undertakes or prepares advocacy communi It states that the activity?s primary purpose will cations or research materials. 0 be for use in lobbying if the advocacy communications or materials (without the direct encouragement to action) prior to or contemporaneously with the use of those materials with the direct encouragement to action. In determining whether a distribt normal organizat Ii advocacy provides organizai was for nonlobb) comparei particula research an unrelz organiza cooperat primary stribution pattern of similar nonpartisan analyses, studies, 36 ions. that all of the facts and circumstances must be weigh ion?s primary purpose in preparing the advocacy commu1 se in lobbying. One factor that is particularly relevant is ring distribution of the advocacy communications or rese :l to the extent of their distribution with the direct encor rly relevant factor is whether the lobbying use of the materials is by the organization that prepared the docum Lted organization. Where the subsequent lobbying distril: :ion, clear and convincing evidence (which must inc on or collusion between the two organizations) will be purpose for preparing the communication for use in lobb tion is substantial, all of the facts and circumstances wil the organization does not meet the safe harbor because t] communications or research materials is not substantia 'es. Under the ?subsequent use? rule, the characterization I be considered, including the or research by that and similar 16 nonlobbying distribution of 1, Reg. ed to determine whether the iications or research materials he extent of the organization?s ch materials, especially when tragement to action. Another advocacy communications or ent, a related organization, or ution is made by an unrelated lude evidence demonstrating required to establish that the ying. of expenditures as grass roots 1d less than six months before als are used with a direct The six month lobbying expenditures regulation applies only to expenditures pa the ?rst time advocacy communications or research materi encouragement to action with respect to legislation. Reg. 56.4911 36 Reg. provides a Special rule for ?partisan analys case of advocacy communications or research materials that are not nonpart nonlobbyi as the lob is, study or research,? that is, in the 15am analysis, study or research, the rig distribution thereof will not be considered ?substantial? unless that distribution is at least as extensive Dying distribution thereof. 305 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues rule eliminates the possibility of years of research 10. Is there a time limit on the costs being retroactively characterized as lobbying ?subsequent use? rule? ii. Other Exceptions The exception for examinations and 1. hat is the exception for discussions of broad social, economic, and similar aminations and discussions problems in Reg. is implicit in broad social problems? the de?nitions of direct lobbying and grass roots lobbying communications. The regulation provides that such discussions are neither direct lobbying communications nor grass roots lobbying communications even if the problems are of the type with which government would be expected to deal ultimately. In describing the scope of this exception, the regulation provides that com unications regarding a subject that is also the subject of legislation before a legislative body wil not be considered lobbying communications so long as the discussion does not address itself to to take a tion with respect to legislation. Both direct and grass rc must re would failito qualify as either a direct or grass roots lobbying co. provides problems Congress and various State legislatures, but only where the discu the spec commun or employee who may participate in the formulation of legislation. fail to qualify as grass roots lobbying under the three?part test of they do not re?ect a View on the speci?c legislation.37 merits of a speci?c legislative proposal and does not ct a view on speci?c legislation so any communication that this exception excludes from grass roots lobbying an such as environmental pollution or population growth i?c legislation being considered and do not directly cation to contact a legislator, an employee of a legislative 37 PI. for discussion of broad social problems. This exception was inch directly encourage recipients ots lobbying communications coming within this exception mmunication. The regulation organization?s discussions of that are being considered by ssions do not directly address encourage recipients of the body, or a government of?cial Such discussions would also Reg. since or to the adoption of the ?nal regulations under IRC 4911, the IRC 4945 regulations had included an ided in the IRC 4911 regulations to er, the exception seems super?uous. exception provide irity with the IRC 4945 regulations. However, as a substantive matt 306 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues i Reg. provides that a 2. What is the exception for communication will not be considered a direct requests for technical advice? lobbying communication when it consists of i providing technical advice or assistance to a governmental body, a governmental committee, or a subdivision of either in response to a written request by that body, committee, or subdivision, as set forth in Reg. Requests made by individual members of a governmental bc dy, committee, or subdivision of either will not qualify under this exception since Reg. requires that the request for assistance or advice must be made in the name of the committee or subdivision. Likewise, the response to such reque member re gulatior for techn response be consic of the requesting body, committee or subdivision to qu is provide an example of a written response submitted tc ical assistance in the name of a congressional commit is for the use of all the members of the committee. In th :questing governmental body, st must be available to every alify for the exception. The the person making a request tee, making it clear that the at situation, the response will lered available to every member of the requesting com 'ttee if the response is. Oral or written presentation of technical assistance or advi does not need to qualify as nonpartisan analysis, study or researc . recommendations will ordinarily qualify under this exceptio only if such opinions or recommendations are speci?cally requested by the governmental body, committee or subdivision or are di'ectly related to the materials so requested. Reg. The regulations illustrate these rules with the example of a Congressional committee that is studying the feasibility of legislation to provide funds for scholarships to US. students attending schools abroad. The committee made a written request to an organization that has engaged in a private scholarship program of this type to describe the manner in which it selects candidates for its program. If the organization?s response not only included a descr ption of its own grant-making procedures, but also its views regarding the wisdom of adopting such a program, the technical advice or assistance exception would still apply (because such views are directly related to the subject matter of the request for technical advice or assistance). Similarly, the exception would still apply if the organization was requested, in addition, to give any views it considered relevant and the arganization?s response included a discussion of alternative scholarship programs and their relative merits. Reg. Examples (1), and (3). coming under this exception The offering of opinions or Under the ?self-defense? exception of 3. iWhat is the exception for Reg. a communication is not a itse1f_defense?? direct lobbying communication if the communication is an appearance before, or communication With, any legislative body with respect to a action by the body that might affect the existence of the electing public charity, its powers and duties, its tax-exempt status, or the deductibility of contributions to the organization, as set forth in Reg. Reg. also contains special rules for membership commurications, as well as communications among an affiliated group. group and a limited affiliated 307 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Under this exception, a charity may communicate with an entire legislative body, with committees or subcommittees of a legislative body, with individual legislators, with legislative staff members, or with representatives of the executive branch who are involved with the legislative process, so long as such communication is limited to the prescribed subjects. Similarly under the self-defense exception, a charity may make expenditures in order to initiate legislation if such legislation concerns only matters which might affect the existence of the charity, its powers and duties, its tax-exempt status, or the deductibility of contributions to such charity. Therefore, if a bill would cause an organization to lose its exemption from taxation if it engages certain transactions, expenditures paid or incurred with respect to the organization?s submissi ns on the bill do not constitute taxable expenditures since they are made with respect to a pos ible decision of Congress which might affect the existence of the organization, its powers a duties, its tax?exempt status, or the deduction of contributions to such foundation. Reg. 53. Example (1). However, the exception would not apply to expenditures incurred an organization that appeared before an appropriationycommittee in order to attempt to persu the committee of the advisability of continuing a co tract research program whose disconti ance would affect the organization ?nancially. Expe ditures paid or incurred with respect such appearance are not made with respect to possible decisions of the legislature that might af ct the existence of the organization, its powers and duties, its tax-exempt status, or the deductio of contributions to such foundation, but rather merely affect the scope of the organization?s future activities. Reg. Example (4). (6) Special Rules for Mass Media Advertising Reg. contains a special 1. hat are the rules concerning rule for certain mass media advertisements. mass media advertising? Under this rule, a mass media advertisement that does not qualify as a grass roots lobbying communication under the three-part de?nition (as discussed above) may nevertheless be considered a grass roots lobbying communication. This special rule generally applies only to a limited type of paid advertisements that appear in the mass media. Reg. contains a presumption regarding certain paid mass media advertisements about highly publicized legislation. Under this presumption, if an organization?s paid advertisement appears in the mass media within two weeks before a vote by a legislative body, or a committee (but not a subcommittee) of such body, on a highly publicized piece of legislation, the paid advertisement will be considered to be a grass roots lobbying communication if the pa advertisement both reflects a view on the general subject of such legislation and either refers to the highly publicized legislation or encourages the public to communicate with legislators on the general subject of such legislation. This presumption can be rebutted by demonstrating that the paid advertisement is a type of mass media communication regularly made by the organization without regard to the timing of legislation (that is, a customary course of business exception) or that the timing of the paid advertisement was unrelated to the upcoming 308 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues legislative is made 1 lobbying weeks. vote on advertisin no vote i communi communication under this rule, even if it is presented sever taken, none of the advertisements will be consi cation under this rule. Reg. Examp For purpose \that is ?mass media?? action.? A mass media communication that otherwis nore than two weeks before a legislative vote will not eg. Examples (2) and (4). Furthermc 1e legislation for this rule to apply. If, because of public pressure resulting from an g5 campaign opposing a bill that would meet the presumpt meets the presumption but be considered a grass roots only one day more than two ire, there must be a legislative ion, the bill is withdrawn and tiered a grass roots lobbying le (5). of this special rule, the term 2. ?mass media? means television, radio, billboards and general circulation newspapers and 1 magazines. Newspapers or magazines that are has made magazine fewer th Reg. 56.4 mass met or broadc that are a an one-half of the recipients are members of the asts are treated as paid advertisements in the mass media, dyertisements paid for by another person. Reg. 56.4911 Reg. 56.491 legislation is ?high this special rule coverage on televis hat is ?highly publicized?? the vote by the legislative body or committee. In the ca hly publicized? when it receives frequent coverage in local jurisdiction in question. Even where legislation re niblicized? only if the pendency of the legislation or tl or effect are known to a significant segment of the gen interest groups directly affected) in the area in ment appears. preceding it is ?big State or ?highly I purpose, particula- advertise 38 HO grass root the genera wfever, even if the organization successfully rebuts the presumptior i lobbying communication if the communication would be a grass 1 rules of the three-part test. published by an IR tan IRC 501(h) election will not be considered gener iunless the total circulation of the newspaper or magazir 911-56)). Reg. Where an elec lia publisher or broadcaster, all portions of that organizati 501(c)(3) organization that al circulation newspapers or ie is greater than 100,000 and organization (as defined in :ting public charity is itself a on?s mass media publications except those specific portions provides that ly publicized? for purpose of when it receives frequent ion and radio, and in general circulation newspapers, during the two weeks se of state or local legislation, he mass media that serve the :eives frequent coverage, it is ie legislation?s general terms, eral public (as opposed to the vhich the paid mass media a mass media communication is a oots lobbying communication under 309 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuiniq Issues (7) Earmarking What are the rules relating to transfers bylelecting charities? and gras roots lobbying purposes, the transfer is treated as a transferr were expended for direct lobbying purposes, in which transferr is a direct lobbying expenditure by the Reg. 56. When an electing public charity makes a transfer that is earm purposes, the transfer is a grass roots expenditure. Reg. When an electing public charity makes a tr direct lobbying purposes or for direct lobbying arked for grass roots lobbying ansfer that is earmarked for tass roots expenditure in full the extent the electing public charity demonstrates that all or part of the amounts case that part of the amounts electing public charity.39 transfer for less than fair market value by an electing public charity to any organization (other th those described in IRC 501(0)) that makes lobbying expenditures is not an exempt purpose xpenditure unless the public charity makes the bene?t generally available at less than fair mar et value in the course of an activity that is substantially related to accomplishing the exempt rpose of the charity.40 Reg. Transfers to relate or unrelated organizations, are not covered by this rule 6 amount by which the cost or fair market value (which exceeds he value given to the electing public charity in return subject 0 this rule. Reg. This amoun expendi re to the extent of the transferee?s grass roots expenditu exceeds the transferee?s grass roots expenditures, the excess is expendi re to the extent of the transferee?s direct lobbying expenc both gra roots and direct lobbying expenditures by the transfere a lobby' expenditure. Reg. Reg. 56.49 for fair market value, whether ever is greater) of the transfer for the transfer is the amount is treated as a grass roots res. If the transferred amount treated as a direct lobbying litures. If the transfer exceeds the excess is not treated as illustrates this prov131o by the following example: Organization C, an electing public charity, shares employee with N, a noncharity that makes lobbying expenditures. N?s grass roots expenditures are $5,000 and its direct lobbying expenditures are $25,000. Each organization pays one?half of the $100,000 in direct and overhead costs associated with E. devotes one?quarter of his time to and three-quarters of his time to N. In substance, this arrangement is a transfer (for less than fair market value) from to in the amount of $25,000 (one-quarter of the $100, 000 of direct and overhead costs associated with ?s work). 39 These rules do not apply to transfers that are not exempt purpose exp anditures because they are described in Reg. 4? This rule also does not apply to controlled grants or to transfers that are not exempt purpose expenditures because they are described in Reg. 31 This document was obtained and uploaded by the Center for Resl aonsive Politics (OpenSecrets.org) Lobbuinq Issues Accordingly, is treated as having made a $5,000 grass roots expenditure (the lesser of ?s grass roots expenditures ($5,000) or the amount of the transfer is also treated as having made a $20,000 direct lobbying expenditure (the lesser of ?s direct lobbying expenditures ($25,000) or the remaining amount of the transfer To be treated as a lobbying expenditure in 2. \lt?hen is a transfer earmarked accordance With Reg- 564911-3000) or for a speci?c purpose? Reg. a transfer must be ?earmarked? for direct or grass roots lobbying purposes pursuant to Reg. This regulation provides that a transfer, including a grant or I ayment of dues, is ?earmarked? for direct or grass roots lobbying purposes to the extent the transfer meets either one of the following requirements: (A) The transferor directs the transferee to add the amount transferred to a fund established to accomplish the direct or grass roots lobbying purpose, or (B) The amount transferred or, if less, the amount agreed upon to the expended to accomplish the purpose, if there exists an agreement, oral or written, whereby the transferor may cause the transferee to expend amounts to accomplish the direct or grass roots lobbying purpose or whereby the transferee agrees to expend an amount to accomplish the direct or grass roots lobbying purpose. (8) Allocation Rules Reg. 56.49] 1-3 contains allocation rules 1_ What are the principles of the for determining what portion of the costs of a llocation rules? lobbying communication is a direct lobbying expenditure, what portion is a grass roots lobbying expenditure, and what portion is not a lobbying The general principle involved is that all costs of preparing a direct or grass roots lobbyi communication are included as expenditures for direct or grass roots lobbying (?lobbying expenditures?), including both direct and indi ?ect costs. Therefore, lobbying expenditures include amounts paid or incurred as current or deferred compensation for an employee?s services as well as the allocable portion of administrative, overhead, and other general expenditures attributable to the direct or grass roots lobbying communication. For example, as a general rule, all expenditures for researching, drafting reviewing, copying, publishing and mailing a direct or grass roots lobbying communication, as well as an allocable share of overhead expenses, are included as expenditures for director grass roots lobbying. Reg. 311 This document was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Lobbuinq Issues 2. When an electing public charity makes a lobbying communication that is not sent only or primarily to members and that also has a bona ?de nonlobbying purpose, the allocable lobbying expenditures must include all costs that are attributable to those parts of the communication on the same speci?c subject as the lobbying message. Reg. All costs attributable to those parts of the communication that are not on the same speci?c subject as the lobbying message are not included as lobbying I I-iow are expenditures for onmember communications at located? 1 expenditures for allocation purposes. Whether or not a portion cf a communication is on the same speci?c subject as the lobbying message will depend on the surrounding facts and circumsta nces.? 3. hen are portions of a ommunication ?on the same 5; ecific subject?? I A portion of a communication will be ?on the same speci?c subject? as the lobbying message if that portion discusses an activity or speci?c issue that would be directly affected by the speci?c legislation that is the subject of the lobbying message. Moreover, discussion of the background or consequences of the speci?c legislatio affected 1 lobbying the exam ?rst two programs work or n, or discussion of the background or consequences of 3y the speci?c legislation, is also considered to be on th communication. Reg. eg. Examples (8) and (9), illustrate the ples, a nonmembership organization prepared and mailer and include statistics on the number of children living 11 homes with a single parent. The two pages also make an activity or speci?c issue 3 same speci?c subject as the me speci?c subject? rule. In 1 a four page document. The pages, titled ?The Need for Child Care,? support the need for additional child care in homes where both parents note of the inadequacy of the The third page, titled iding in the US. House of for $10,000,000 in additional mg for lower income children. lards regulating the quality of that recipients contact their ge does not refer to the general providers. Instead, the fourth its existing statutory authority, tive child care. The examples )f day care providers to meet the needs of these parents ates the organization?s support of HR. 1, a bill pe lt?thCS. The document states that HR. 1 will provide to child care providers, primarily for those providers car The thir page also notes that HR. 1 includes new federal stanc child cafe providers. The document ends with T?s request Congressional representative in support of HR. 1. The fourth pag need for child care or the speci?c need for additional child care page adx ocates that a particular federal agency commence, under licensing of day care providers in order to promote safe and effec number 1 indic Represer subsidies 4 that create treated as 40222-3 a "same 5 communic th the exception of the de?nition of grass roots lobbying, the provis the biggest stir was the proposed rule that all expenditures for a grass roots lobbying if any part of the communication also consists \lov. 5, 1986). The 1988 proposed regulations revised this allocation peci?c subject? rule for nonmember communications and a reason :ations. The 1990 regulations also adopted these rules. on of the 1986 proposed regulations undraising communication would be Fgrass roots lobbying. 51 FR 40211, rule by providing two different rules: able allocation rule for membership 312 This document was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Lobbuinq Issues conclude all expen expendi on the sa speci?c subject. es. However, the cost of the fourth page is not a lobby that the ?rst three pages of the document are on the same speci?c subject; therefore, ditures of preparing and distributing those three pag as are grass roots lobbying iing expenditure since it is not Reg. provides that in 4. 0w are expenditures for the case of lobbying expenditures for a member communications communication that also has a bona ?de located? nonlobbying purpose and that is sent only or primarily to members, an electing public charity must make a reasonable allocation between the amount expended for the lobbying purpose and the amou it expended for the nonlobbying purpose. For the purpose of applying this rule, if more than half of the recipients of a lobbying communication are members of the organization within the mean _ng of Reg. 4911-5, then the communication is considered to be sent only or primarily to members. (See the discussion below for the rules regarding cor The regulation further provides that an electing public charity nmunications with members.) that includes as a lobbying expenditure only the amount expended for the speci?c sentence or sentences that encourage the recipient Reg. 56.4 that prep: refers to should cc i9l Examples (10) and (11), illustrate these princi ired and mailed a document primarily to members that dis and re?ects a view on speci?c legislation concerning chil ntact the legislature regarding the speci?c legislation. Th to take action with respect to legislation has not made a reasonable allocation. ales. A member organization cusses the need for child care, (1 care, and states that readers organization determines that members about the need for half of the preparation and the document has a bona ?de nonlobbying purpose, educating its child caie. In Example (10), the organization allocates one- distribution costs to lobbying, which the regulation concludes is reasonable. However, in Example (11), the regulations conclude that an allocation of only one percent of the costs to lobbying based upon the fact that only two lines out of 200 state that the recipient should contact the legislature was not reasonable. 1 Generally, a communication (to which the 5. How are mixed lobbying membership rules of Reg. 56.4911?5 does not expenditures allocated? 31313139 that is bOth a dire? IObbying 5 communication and a grass roots lobbying lobbying communi trig public charity demonstrates that the communication purposes, the organization may make a reasonable alloca >ts lobbying purposes served by the communication. Re 11 be treated as a grass roots :ation. However, to the extent was made primarily for direct tion between the direct and the g. the elect lobbying grass roc 42 Under the proposed 1986 regulations, the organization had to demonstr solely for direct lobbying purposes. 51 FR 40211, 40223 (Nov. 5, 1986). ate that the expenditure was incurred 313 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuiriq Issues 110111116111 nominal (9) Reg. 56.491 for certain organization and \Ik?hat are the rules concerning membership communications? 1 i purposes of communications to ers. Under Reg. iNho is a ?member?? (either an individua amount, makes a amount of time, or is one of a limited number of ?honc ?ecial Rules for Membership Communicat corr certain membership communication expenditures are though ose expenditures would be lobbying expenditures if In other cases, expenditures that would be gra commun cation were to nonmembers are direct lobbying expendit makes a contributi 1-5 provides that expenditures [munications between an its members ("membership communications?) are treated more leniently for IRC 4911 than are similar nonmembers. Pursuant to the )t lobbying expenditures even the communication were to ss roots expenditures if the ures when made to members. a person is a member of an electing public charity if the person i or organization) pays dues or on of more than a nominal contribution of more than a irary? or ?life? members who 'e than a nominal connection with the electing public charity and who have been chosen have mo: id reason (such as length of service to the or involvement in activities for a val forming charity? 5 A person electing for its 1r requirerr. example and 100: the basis of the electing public charity?s exemption) un dissemination of information to its members. . person may be treated as a member of an electing pu oes not qualify as a member under the tests set forth public charity demonstrates to the satisfaction of the Serv embership requirements not meeting the above requiren ents do not operate to permit an abuse of these rules. 1 in PLR 93-32?042 (May 19, 1993), in which members (3 coordin 11 organizations were treated as members of a natio ed activities and payment of a share of dues to the natic Pursuant irelated to the electing public blic charity even though that in Reg. if the ice that there is a good reason 1ents and that its membership ?his rule has been applied, for separately incorporated state nal organization based upon )nal organization. to Reg. 3. kynen are expenditures fei- expenditures for a communication that refers to, . ember communications net and re?ects a view on, specific legislation will iobbying expenditures? not be considered lobbying expenditures if the communication satis?es the following four requirements: (A) The communication is directed only to members cf the organization; (B) The speci?c legislation the communication refers to, and re?ects a view on, is of direct interest to the organization and its members; 314 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues (C) The communication does not directly encourage the member to engage in direct lobbying (whether individually or through the organization); and (E) The communication does not directly encourage the member to engage in grass roots lobbying (whether individually or through the organization). A communication that otherwise meets the 4_ vjvnat happens when 3 requirements set forth in Reg. but ember communication does not come within that rule because it directly 6 couragos direct lobbying? encourages the members to engage in direct lobbying will be treated as a direct lobbying communication. IRC 4911(d)(3)(A); Reg. Reg. provides that a member communication directly encourages a recipient to engage in direct lobbying, whether individually or through the organization, if the communication does any of the following: (A) The communication states the recipient should contact an individual described in Reg. (B) The communication states the address, telephone number, or similar information of a legislator or an employee of a legislative body; or (C) The communication provides a petition, tear?off postcard or similar material for the recipient to communicate his or her views to an individual described in Reg. 5_ not happens when member requirements of Leg. that it be iommunications encourage directed only to members and refer to and re?ect grass rooi;s lobbying? a View on speci?c legislation of direct interest and concern to the organization and its members, but does not qualify under that rule because it directly encourages the members to urge persons other thain members to engage in direct or grass roots lobbying is treated as grass roots lobbying. IRC 491 Reg. Reg. provides that a communication directly encourages recipients to engage individually or collectively (whether through the organization or otherwise) in grass roots lobbying if the communication does any of the following: (A) The communication states the member should encourage nonmembers to contact an individual described in Reg. (B) The communication states the recipient should provide to nonmembers the address, telephone number, or similar information of a legislator or an employee of a legislative body; or 315 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues (C) The communication provides (or requests the recipient provide to nonmembers) a petition, tear?off postcard or similar material for the recipient (or nonmember) to use to ask nonmembers to communicate views to an individual described in Reg. For example, a petition that has an entire page of preprinted signature blocks is considered to be provided to the member to ask nonmembers to communicate Views. Similarly, where a communication is distributed to a single member and provides several tear-off postcards addressed to a legislator, the postcards are presumed to be provided for the member to use to ask nonmembers to communicate with the legislator. 6. 1' there a ?self.defense? by an electing public charity on behalf of its exception for members? members will come within the ?self-defense? exception. Reg. 56.491 provides that the exception applies to an electing public charity when more than 755 percent of its members are other organizations that are described in IRC 501(c)(3). Appearances before, or communications with, any legislative body with respect to a possible action by the body which might affect the existence of one or more of the IRC 501(c)(3) member organizations, their powers, duties, or tax?exempt status, or the deductibility (under IRC 170) of contributions to one or more of the IRC 501(c)(3) member organizations are covered by this except on. However, the exception applies cnly if the principal purpose of the appearance or communication is to defend the IRC 5011c)(3) member organizations. It does not apply if the principle purpose is to defend any member organizations that are not described in IRC 501(c)(3). In addition, Reg. provides an exception for communications with members. A communication that directly encourages a member to engage in direct lobbying activities that would not be attempts to in?uence legislation because of the ?self?defense? exceptio if engaged in directly by the organization is treated as a communication that does not directly ncourage a member to engage in direct lobbying. While not treated quite as leniently as 7_ hat happens when written communications directed only to members of an .ommunications are not organization, writ en communications that are Eirected solely to members? designed primaril for the members but are not directed only to in mbers also qualify for special treatment. Under g. expenditures for such written co munications that refer to, and re?ect a view on, specific legislation of direct interest to the org nization and its members, are treated as expenditures for direct or grass roots lobbying depending upon the type of lobbying encouraged. For purposes of Reg. a communication is designed primarily for members of an organization if more than half of the recipierts of the communication are members of the organization. 316 This docum? nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues 8. a, hat are the allocation rules rules for a writte such communications that encourage direct lobbying but liot grass roots lobbying? i 1 I directly encourage engage in grass ro Reg. 56.491 the cost of prep ation is allocated between direct lobbying and grass root regulatio cross references the rules concerning computation of ad provides allocation communication distributed primarily to members (as described above) that recipients (individually or through the organization) to engage in direct lobbying but does not directly encourage them to (its lobbying. In those cases, aring and distributing the lobbying expenditures. The vertising income contained in Reg. 1.5 and indicates that the portion of the cost to be allocated includes all costs of prepa ng all the material with respect to which readers are urge plus the amount to be allocated as determined above is then ?nonme ber subscribers percentage? and the ?all other distributior in Reg. to determine the amount allocable as a gr: ($01er for purposes of this particulz for the to engage in direct lobbying echanical and distribution costs attributable to the lineage devoted to this material. ommunication.43 multiplied by the sum of the 1 percentage,? both as de?ned roots lobbying expenditure tr allocation, the nonmember subscrib rs percentage is treated as zero unless it is greater than 15 percent of total distribution.) The gras roots lobbying expenditure is subtracted from the amount to be allocated to determine lobbying expenditure. treated a direct lo grass roc all the grass me to this What are the allocation rules ior such communications that ncourage grass roots lobbying? lobbying (either lobbying expendit a grass roots lobbying communication even if it also e1 bbying. As with the amount to be allocated between diI )ts lobbying expenditures as discussed above, grass roots osts of preparing all the material with respect to which its lobbying plus the mechanical and distribution costs atti iaterial. S?Reg. 43 communi expressly receive t] Vith respect to the term ?subscriber,? Reg. prov cation is a person that either (1) is a member of the publishing or include the right to receive the written communication, or (2) ha [6 written communication and has paid more than a nominal amoun This document was obtained and uploaded by the Center for Res If a primarily for, but I) organization, as de encourages recipie organization or ot] the communication are treated as a grass roots 1 communication is directed ot only to, the members of the scribed above, and it directly to engage in grass roots individually or through the 1erwise), the expenditures for ure. The communication is icourages readers to engage in ect lobbying expenditures and obbying expenditures includes "eaders are urged to engage in 'ibutable to the lineage devoted des that a subscriber to a written ganization and the membership dues affirmatively expressed a desire to for the communication. 317 ponsive Politics (OpenSecrets.org) Lobb ina Issues (10) Affiliated Groups i. Affiliation Rules 1. ghat are the af?liation rules? contain a limited organizations. In avoiding the sliding lobbying expendi $1,000,0 0 cap on lobbying expenditures) through creation of numerous organizations. IRC 4911(0 (1) through IRC 4911(f)(3) anti-abuse rule for af?liated general, the rule prevents ?scale percentage limitation on es (as well as avoiding the 4? With one exce tion, this is accomplished by treating the members of an af?liated group as a single 45 group en if they are af?liated within the meaning of IRC organiza ion. hen are two organizations onsidered to be af?liated? organization is legislative issues because of interl because 44 F0 million. lobbying: $1 milliox incurring $100,000 example, a large organization, by dividing in two, would increase ecause of declining percentages at higher levels, creating a second org 'xpenditures for organizations whose exempt purpose expenditures ex 1 of exempt purpose expenditures is permitted to have $175,000 of :ax, but two organizations with $500,000 of exempt purpose expendit of total lobbying expenditures, for a total amount of $200,000. ?5 Tl?e single exception to the general rule relates to members of a "limii (organizations that are af?liated solely by reason of governing instrument prov respect to national legislation). IRC 49ll(f)(4) and Reg. 56.4911-10. 318 For purpos IRC 4911, two org of pro for purposes of measuring both lobbying expenditures and permitted lobbying xceeding the permitted limits. 1e permitted limits, then each ts and would pay tax on its \lote, however, that only those :lection are subject to the tax, t? test. Joint Committee on 976?3 C.B. Vol. 2 at 423. affiliated group includes only 31(h) election. Organizations for membership in an af?liated 3 4911(f)(2) with an eligible es of the regulations under anizations are af?liated if one able to control action on by the other organization ocking governing boards or visions in the governing its overall cap from $1 million to $2 anization allows additional permitted ceed $500,000. An organization with total lobbying expenditures without ures each would be permitted to have ed af?liated group of organizations" isions that extend control solely with This documdnt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues instruments Reg. 56.4 organizati such cont of the controlled organization (subject to The organizations are af?liated due to to control action on legislative issues by the control 01 is exercised. Reg. 1?5 I hat is ?action on legislative issues?? Reg. 56.491 a position in on legisla in the organization?s name. Reg. 56.491 4. What are ?interlocking gioverning boards?? governmg boards so that aggregating their votes, the representatives of the contr if under the governing documents of the controlled orga th term ?action on legis the legislation, authorizing any person to take a position on legislation in the organization?s name, and authorizing lob tive issues? does not include actions taken merely to corre controlling organiza of representatives on the governing board of the second organization limitation described in the ability of the controlling led organization, not because provides that the lative issues? includes taking organization?s name on I bying expenditures. ?Action ct unauthorized actions taken provides that, in general, two organizations have interlocking if one organization (the tion) has a suf?cient number (the controlled organization) olling organization can cause m. If two organizations have iout regard to how or whether ticular matter. er of representatives of the zation?s governing board will we issues by the controlled on the governing board, or acting on legislative issues. nization, it can be determined is necessary or Reg. 56. organization who are members of the controlled orga exceeds that number will be considered suf?cient tc legislative issues. Reg. Nevertheless, if the nut organiza1ion is less than 15 percent of the incumbents on the organization, the two organizations are not af?liated by reason of 46 in IRC 50 af?liated 1 exception provided in Reg. states that two organiz are af?liated only if there exists at least one organization with both organizations. mber of representatives of the 'zation?s governing board that cause or prevent action on nber of representatives of one governing board of a second nterlocking governing boards. ations, neither of which is described described in IRC 501(c)(3) that is 319 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbyiqu Issues Furthermore, there is no af?liation through interlocking boards where the board consists of repres :ntatives of unrelated organizations, none of which satis?es the control tests. Therefore, where ?ve unrelated organizations each appoint two members to the board of an organization, it is not af?liated with any of the five organizations due to interlocking governing boards. Reg. Example (2). This rule has been applied in situations involving national organizations that have boards consisting of delegates from separately incorporated state or regional associations. SEPLR 91-45-039 (Aug. 14, 1991) and PLR 93-32-042 (May 19, 1993). i There are three circumstances under which 5' 'nen are board members members of the goveming board of the controlled innsidered representatives of organization are considered representatives of the nnother organization? controlling organization. The ?rst occurs if the controlling organization has specifically designated that person to be a board member of the controlled organization. A board member of the cont lled organization is speci?cally designated by the organization if the board member is selected by virtue of the right of the controlling organization, under the governing instrum ts of the controlled organization, either to designate a person to be a member of the controll organization?s governing board, or to select a person for a position that entitles the holder lthat position to be a member of the controlled organization?s governing board. Reg. 56. The second occurs when a member of the governing board of one organiz ion serves on the governing board of a second organization. In this instance, the person is a repr sentative of the second organization. Reg. The third occurs when the boar member is an of?cer or paid executive staff member of the other organization. In that situatio the person is a representative of the other organization. Although titles are signi?cant in dete ining whether a person is a member of the executive staff of an organization, any employee of an organization who possesses authority commonly exercised by an executive is considered an executive staff member for these purposes. Reg. - Reg. provides that the 6. hat are the rules relating to controlling organization is af?liated with the Loverning instruments? controlled organization due to the governing instruments of the :ontrolled organization if those instruments limit the independent action of the controlled organization on legislative issues by requiring i it to be bound by decisions of the controlling organization on such issues. Organizations also are affiliated if the controlled organization?s governing instrument allows the controlling organization to veto positions on legislation that the controlled organization might take, even if the veto power is never exercised. Reg. Example (3). 47 A board member of one organization who is speci?cally designated by a second organization, a majority of the governing board of which is made up of representatives of a third organization, is a representative of the third organization as well as being a representative of the second organization pursuant to the rules of Reg. Reg. 320 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues To be af?liated under IRC 4911, two 7. ay board actions establish organizations must have interlocking boards or af?liation other than through one organization must be bound by the other Amendments to the governing organization on legislative issues by provisions in its governing instruments. Assuming the 4 organization does not have an interlocking board with another organization, actions by the organization?s board of directors that do not constitute amendments to its governing instrument will not establish af?liation under IRC 4911. This is discussed in Reg. Example (4), the governing board of an organization resolves to adopt positions taken on legislative issues by another organization. The two organiza1ions are eligible organizations and do not have interlocking governing boards. The governing instruments of the ?rst organization do not mention the other organization and do not indicate that the ?rst organization is to be bound by the decisions on legislation of any organiza:ion. The two organizations are not af?liated under IRC 4911. A determination that organizations are not 3. How are organizations that af?liated for purposes of IRC 4911 does not lle a group return treated? indicate that those organizations are not af?liated for purposes of filing a group return. In PLR 91-45-039, (Aug. 14, 1991) the Service concluded that ?affiliated? has a broader meaning as used in Reg. than it does under IRC 4911. Therefore, the mere fact that organiz ions ?le a group return does not indicate that the organizations are af?liated under IRC 49%. Furthermore, a group return may be ?led even if some of the organizations have made the IRC 501(h) election. However, pursuant to Reg. 56.4911-6, which sets out the record keeping requirements for electing organizations, the group return will include separate statements regarding each organization that has made the election. Furthermore, for purposes of determining the liab lity for tax under IRC 4911(a), a separate schedule on the group return must be completed for each organization (other than any that are part of an af?liated group under IRC 49ll(f)) that has made the IRC 501(h) election. Each schedule must show the lobbying expendi res, the lobbying nontaxable amount, the grass roots expenditures, and the grass roots nontaxa le amount for each electing organization. Computation of the IRC 4911 tax must be made fo each such organization on Form 4720, Return of Certain Excise Taxes on Charities and Other rsons Under Chapters 41 and 42 of the Internal Revenue Code. The computation must be base only upon the amounts applicable to the individual organization; it may not be based upon th Composite figures for the group. A separate Form 4720 must be filed for each electing organiz tion with IRC 4911(a) tax liability. Yes, organizations may be indirectly 9. lMay organizations be af?liated either because they are controlled by the iindirectly af?liated? same controlling organization or because the i controlling af?liated with one organization is a controlled organization af?liated with the other organization. When a controlling organization is af?liated with each of two or more controlled organizations, then the controlled 321 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbui 0 Issues organiza ons are af?liated with each other. Reg. organiza 'ons are controlled directly by the same controlling organization, they are af?liated with each ot er even if the method of control is different. Under the ?chain rule? of Reg. 56. if one organization is a controlling organization described in this section with res ect to a second organization and that second organization is a controlling organization with res ct to a third organization, then the ?rst organization is af?liated with the third. Again, 1 level of the chain for the 5), for an illustration of these .). Therefore, if two or more the met 0d of control does not need to be the same at eacl organiza 'ons to be af?liated. Reg. Example (4 rules. The same a the controlling org IRC 501(c)(3) sin indirectly affiliate f?liation rules would apply if anization is not described in ce organizations may be as noted above. This situation is discussed in Reg. Example (7). In :he example, an organization that is described in IRC 501(c)(4) is affiliated, as olling organization, with two organizations that are described in IRC 501(c)(3) and are 0 elect under IRC 501(h). The two IRC 501(c)(3) organizations are af?liated and will hat happens if a controlling rganization is not described 'n IRC 501(c)(3)? the contr eligible be an a IRC 501 member the mear are disc1. 1. Ehat is an ?af?liated group f?liated group if either makes an election under 1R4 organization is af?liated with the two IRC 501(c of that af?liated group of organizations because it is not . .ing of Reg. The rules regarding an a? sSed immediately below. ii. The Af?liated Group For purpos IRC 4911, Reg. 56 ?af?liated group 0 group of organiza following conditior organizations?? 3 501(h). Even though the organizations, it is not a an eligible organization within Eiliated group of organizations as of the anti-abuse rules of provides that an organizations? consists of a .tions that meet each of the 182 (A) Each of the organizations is af?liated with every other member for at least thirty days of the taxable year of the af?liated group (determined without regard to the election provided for in Reg. (B) Each of the organizations is eligible to elect the expenditure test; and (C) At least one of the organizations is an electing member organization. Each organization in a group of organizations that satis?es the above requirements is a member of the affiliated group of organizations for the taxable year of the af?liated group. 322 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) Lobbuinq Issues i 3. Yes, an org af?liated group me taxable year of th member of two 0 organizations. Reg May an organization be a Ignember of more than one af?liated group? i ?JWhat is an ?electing member prganization?? I the affiliated group these purposes, the apply to the organi anization may have multiple mberships. That is, for any organization, it may be a more af?liated groups of . An ?electing member organization? is an organization to whic applies on at least one day of the taxable year of the expenditure test election of which it is a member. For election is not considered to .zation on any day before the date on Reg. 1.5 which it ?les the Form 5768 making the IRC 501 Reg. Qh) election, notwithstanding 4. year. Reg. 56 provisio its own an elect every ot employe made no later than the due date of the ?rst annual return of any 6 year fo Reg. 56 except 1 5. respect the af? contributions to it. commu There are 1 apply here. The of an af?liated that is the taxable The second rule ap af?liated group do In that case, the taxable year of the af?liated A third rule applies when all the membe ns ofReg. Under Reg. taxable year as the taxable year of the af?liated group. ing member organization by attaching to its annual retu her member of the affiliated group that contains: the org identification number; and its signed consent to the i What is the taxable year of an pf?liated- group? i which the member is liable for tax under The election may not be made or revoked a lpOI?l such terms and conditions as the Commissioner ma? Yes, Reg. 5 the ?self-defense communication b? group of organize Reg. or communication to a possible action by the body that might affect the exi liated group, its powers and duties, its tax?exempt 5 Therefore, such communications will iIs there an exception for i i?self-defense?? nications. hree different rules that can rule is that if all members 1p have the same taxable year, year of the af?liated group. plies when the members of an not all have the same taxable group is the calendar year. :rs elect to be covered by the ach member organization treats The election may be made by rn a statement from itself and anization?s name, address, and ection. The election must be :lecting member for its taxable 34911(a), determined under fter the due date of the return prescribe. 6.491 provides that exception applies to a a member of an af?liated (within the meaning of that is an appearance before, with, a legislative body with stence of any other member of tatus, or the deductibility of not be considered lobbying 323 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues 6. is there a special membership communication rules of Reg. 56.4911?5, a person eommunieatien rule? who is a member of an organization that is a member of an af?liated group is treated as a member of each organization in the affiliated group. Reg. Excess Lobbying Expenditures . Under IRC 4911(f), an af?liated group of 1. 0w is an af?liated group organizations is treated as one organization for reated for purposes of the purposes 0f the tax. Thus, the FRC 4911tax? af?liated group?s direct lobbying expenditures, . grass roots lobbying expenditures, and exempt purpose expenditures are equal to the sum of such expenditures paid or incurred during the taxable year by :ach member of the af?liated group. Similarly, the lobbying and grass roots nontaxable amounts for the af?liated group are determined under the rules of IRC 4911(c)(2) and IRC 4911(c)(4) based on the sum of the group?s exempt purpose expenditures. The group?s lobbying and grass roots ceiling amounts are then calculated under the IRC 501(h) regulations. Reg. The tax under IRC 4911(a) is imposed on 2' {when is the IRC 4911 tax an af?liated group if the group has excess mpesed on an af?liated lobbying expenditures. Reg. .group? . provides that the affiliated group?s excess lobbying expenditures for any taxable year are the greater of the follc wing amounts: (A) The amount by which the group?s lobbying expenditures exceed the group?s lobbying nontaxable amount; or (B) The amount by which the group?s grass roots expenditures exceed the group?s grass roots nontaxable amount. Reg. provides three rules for 3_ 'What is the tax liability of an allocating the IRC 4911(a) tax between the electing member? electing member organizations of an af?liated group. Each electing member organization is liable for all or a portion of the tax, but no member of the affiliated group that has not made an IRC 501(h) election is liable for any portion of the tax with respect to the affiliated group, even if they made direct or grass roots lobbying expenditures. The ?rst rule applies when the affiliated group?s excess labbying expenditures equal the amount determined under Reg. and at least one electing member has made 324 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbying Issues lobbying to the an organizai group, a1 member group. the amOL grass roc expenditi electing member a fractio expendit member hat happens when a ember organization ceases to i a member of a group? I i member An organization to which this rule applies that is liable as if the tax were imposed for its taxable year in which ends th group of which it was formerly a member. discretic n, permit an organization to disregard this rule and to IRC 49] expenditures. Each electing member organization is liabl ion?s lobbying expenditures paid or incurred during the 1d the denominator of which is the sum of the lobbyin organizations in the group paid or incurred during the Leg. he second rule applies when the af?liated group?s exces int determined under Reg. and at least 0 ires? is substituted for ?lobbying expenditures.? Reg. 56 he third rule applies when the af?liated group has excess organization has made either lobbying or grass roots organization is liable for a portion of the tax equal to th 11, the numerator of which is the electing member 01 and the denominator of which is the exempt purpose organizations in the af?liated group. Reg. Pursuant electing member IRC 4911 tax of a the tax as if the ta: year with which 01 the affiliated group Bhen is an organization liable or the tax? When an or or more affiliated hat if an organization is a ount of the tax multiplied by a fraction, the numerator of ts expenditures. The same rule is applied as described a to Reg. for a portion of the tax equal which is the electing member taxable year of the af?liated expenditures of all electing taxable year of the af?liated lobbying expenditures equal ne electing member has made Lbove, except that ?grass roots lobbying expenditures, but no expenditures. Each electing amount of tax multiplied by ?ganization?s exempt purpose expenditures of all the electing an organization liable for the af?liated group is liable for were imposed for its taxable in which the taxable year of 1 ends. ganization is a member of two groups and is liable for the ember of two groups having IRC 4911 tax durir lobbying expenditl then the organizati tax. Reg. 56.4911 xcess lobbying expenditures? An electin ceases to be a me organizations that from its own, liability under Reg tax as if its taxable The Commissione 1(a) based upon its own taxable year. Reg. . 1g a taxable year for the excess ires of more than one group, an is liable only for the greater member organization that mber of an af?liated group of had a taxable year different iust thereafter determine its 56.4911?1 for the IRC 4911 2 year were the taxable year of the af?liated group of which it was formerly a for the IRC 4911 tax is liable taxable year of the af?liated may, at the Commissioner?s determine any liability under 325 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues iv. Application of IRC 501th) As with the calculation of IRC 4911 tax, 1_ hen might affiliated group af?liated groups are treated as one entity for embers lose exempt status? purposes of determining whether members are denied exemption as organizations described in IRC 501(c)(3) pursuant to IRC 501(h). If, for a taxable year of an af?liated group, it is determin that the sum of the affiliated group?s lobbying or grass roots expenditures for the group?s ase years exceeds 150 percent of the sum of the group?s nontaxable amounts for the base yea s, then each member that was an electing member organization at any time in the taxable ar shall be denied tax exemption beginning with its ?rst taxable year beginning after the end 0 the taxable year of the af?liated group. Thereafter, exemption shall be denied unless the orga ization reapplies and is recognized as exempt as ap organization described in IRC 501 For purposes of this section, the term ?base years generally means the taxable year of af?liated group for which a determination is made and the group?s three preceding taxable years. Base years, however, do not include any year preceding the ?rst year in which at least one member of the group was treated as described in IRC 501(c)(3). Reg. . An organization that is a member af?liated group of rganizations but that is not an onelec?ng member of an electing member organization remains subject to f?liated group? the ?substantial part test? described in IRC 501(c)(3) with respect to its activities involving attempts to in?uence legislation. Reg. The ?ling requirements for af?liated 3. What are the filing groups are set forth in Reg. and fequirements? apply to each member of the group for the i taxable year of the member in which ends the taxable year of the af?liated group. Each member of the group must provide to every other member, before the ?rst day of the second month following the close of the af?liated group?s taxable year, its name, identification number, and the information required under the reporting rules of Reg. for its expenditures during the group?s taxable year and for prior taxable years of the group that are base years. For groups that elect under Reg. to have each member ?le information with respect to the group based on its taxab year, each member shall provide the above information, treating each taxable year of any member of the group as a taxable year for the group. In addition to the information required by the reporting rules of Reg. each member of the group must provide on its annual information return the group?s taxable year and, if the election under Reg. is made, the name, identification number, and taxable year identifying the return with which its consent to the election was ?led. Fu tthermore, in addition to the i 326 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues information required above, each electing member organization must provide the following on its annua return: (A) The name and identi?cation number of each member of the group, and (E) The calculation of the group?s excess lobbying expenditures if the organization is liable for all or any portion of the IRC 4911 tax. Reg. provides an example 0W are these rules applied? illustrating the application of IRC 501(h) to an - af?liated group of organizations, M, N, and O. and ?led IRC 501(h) elections in 1979 and have not revoked them. did not make an IRC 501(h) election. M?s taxable year ends November 30, N?s tax able year ends January 31, and O?s taxai: 1e year ends June 30. Since the organizations have different taxable years, the calendar year is the taxable year of the group. The following tables summarize the group?s expenditures for the calendar years indicated. (None of the lobbying expenditures were for grass roots lobbying Table I. Group?s Expenditures Exempt purpose Lobbying nontaxable Lobbying Year expenditures (EPE) calculation amount (WA) expenditures (LE) 1979 $400,000 (20% of $400,000 $80,000 $100,000 1980 300,000 (20% of $300,000 60,00) 100,000 (20% of $500,000 1981 600,000 15% of $100,000 115,000 120,000 1982 500,000 (20% of $500,000 100,000 220,000 Total 1,800,000 355,000 540,000 Table II. Expenditures of and 0 Exempt purpose Lobbying nontaxable Lob Dying expenditures expenditures amount Year plus 0 I 0 0 1979 125,000 100,000 25,000 20,000 60 000 20,000 80,000 1980 100,000 50,000 20,000 10,000 40 000 40,000 80,000 1981 250,000 100,000 50,000 20,000 60 000 40,000 100,000 1982 200,000 100,000 40,000 20,000 160,000 40,000 200,000 The af?liated group had excess lobbying expenditures in each of the years shown and and are liable for the IRC 4911 tax. The tax is allocated between and 0 based on the ratio of their lobbying expenditures for the year to the total lobbying expenditures the two of them incurred is not liable for any tax under IRC 4911. For 1979, the tax due is $5,000 (25% of $20,000). is liable for $3,750 and is liable for $1,250. For 1980, the tax is $10,000 and each owe $5,000. For 1981, is liable for $750 and is liable for $500. For 1982, is liable 327 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuirq Issues for $24,000 and is liable for $6,000. In 1982, the sum of grou the base years (1979 through 1982) exceeded 150 percent of the nontaxablle amounts for those years Therefore, ar IRC 50140)(3) organizations for their taxable years beginning in 1983 for and July 1, 1983 for 0). Whether N?s lobbying exp exemption at any time after January 1, 1979, is determined und p?s lobbying expenditures for sum of the group?s lobbying id 0 are denied exemption as 1983 (beginning December 1, enditures disqualify it for tax er the substantial part test of IRC v. Limited Af?liated Groups IRC 4911(f)(4) provides for an exception 1. hat is a limited af?liated to the general rules applicable to af?liated groups roup of organizations? for certain limited af?liated groups of . organizations. Reg. provides that a limited af?liated group of organizations consists of two or more organizations that meet each of the following requirements: (A) Each organization is a member of an affiliated group of organizations; (13) No two members of the affiliated group are af?liated by reason of interlocking governing boards;48 and (C) No member of the af?liated group is, under its governing instrument, bound by decisions of one or more of the other such members on legislative issues other than national legislative issues. Each organization in an affiliated group of organizations that satis?es all three of these requirern are not within tl limited a ents is a member of the limited affiliated group. Howeve net, the organizations will not be a limited af?liated grou 1e group would meet all three requirements, those organi f?liated group if any organization within the group did if any of these requirements p. Even if some organizations zations would not constitute a ot meet all three requirements. Reg. Example (6), illustrates this rule. hat is a ?national legislative ssue?? Reg. provides that the term ?national legislative issue? means legislation, limited to action by the COngress of the United States or by the public in any national procedure. If an issue is both national and local, it is characterized as a national legislative issue if the lated legislation is Congressional legislation. contemp ?8 ?g Reg. Example (5). 328 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Example be amen Congress. This is a national legislative issue even though Congre law. Ho of a proposed amendment to the United States Constitution. This After apt ceases to eg. Examples (1) and (2) illustrate "na be a national legislative issue. I 3. What is ?controlling member organization? and ?controlled- inember organization?? ?controlling memb it is controlled controls a second organization shall be determined by whether the Reg. member of a limited affiliated group is a tional legislative issues.? In (1), a state has an income tax law that uses de?nitions contained in the Code as it may :led from time to time. Legislation to change a de?niti in the Code is pending in ssional action may affect state wever, in Example (2), an organization takes a position favoring approval by Congress is a national legislative issue. nroval by Congress and submission to the states for rati?cation, the proposed amendment provides that a 3r organization? if it controls one or more of the other members of the group. A member is a "controlled member organization? by one or more of the other members of the group. Whether an organization second organization is bound, under its governing instruments, by actions taken by the first organization on national legislative issues. organization that IRC 501(h) are det ow are expenditures etermined for ?controlling? land ?controlled? members? i Expenditure rules set forth in :s for a controlling member has made an election under ermined in accordance with the eg. even if the organization is also a controlled member organization. In determining a controlling member organization?s expenditures, no expendi re shall be counted twice. The direct lobbying expendi organiz tion that has made the IRC 501(h) election include the dir or incu ed with respect to national legislative issues during the tax that is member of the limited af?liated group and is controll organiz tion. Similarly, the grass roots lobbying expenditure organiz tion include the grass roots lobbying expenditures organiz tions. However, the controlling member organization?s e' not incl de the exempt purpose expenditures (other than lobbyin national legislative issues) of any organization that is a control respect ,0 it. A controlled member organization that has made an control any organization in the limited af?liated group determines on its owh expenditures without regarding the expenditures of ar af?liatei group. Reg. Reg. Example (3), illustrates these rule expenditures. The example concerns three organizations that cons all of whom have made the IRC 501(h) election. One of the cc tures of a controlling member ect lobbying expenditures paid .able year by each organization ed by the controlling member of the controlling member of the controlled member Kempt purpose expenditures do expenditures with respect to led member organization with 3 501(h) election but does not its lobbying expenditures based 1y other member of the limited :3 regarding determination of titute a limited affiliated group, vntrolled organizations engages 329 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues in direct obbying on a national legislative issue. This cost is included in the direct lobbying and the exempt purpose expenditures of both the controlling and that cc ntrolled organization, but will not be included in the lobbying or exempt purpose expenditures of the other controlled organization. The controlling organization also engages in direct lobbying on the same issue, but the cost of hiring the lobbyist is includible only in the controlling organization?s lobbying expenditures. Any lobbying expenditures incurred by either controlled organization on any issue that is not a national legislative issue will not be included in the controlling organization?s lobbying or exempt purpose expenditures. In addition to the information required by S. rhat information must be Reg- eaCh 00mm?ng onorted by a controlling member organization that has made an election ?nember organization? under IRC 501(h) must provide on its annual return the name and identi?cation number of each member of the limited af?liated group. Reg. Furthermore, each controlling member organization that has made the IRC 501(h) election must notify each member that it controls of its taxable year in order for the controlled organization to prepare the report required by Reg. 56.491 Such noti?cation must be made before the beginning of the second month after the close of each taxable year of the controlling member for which the election [8 in effect. Reg. Yes, Reg. provides that 6_ is there a ?self_defense? the ?self-defense? exception applies to a ?xcention? communication by an electing public charity that is a member of a limited af?liated group if it is an appearance befo e, or communication with, the Congress of the ULited States with respect to a possible action by the Congress that might affect the existence of any member of the limited af?liates group, its powers and duties, tax?exempt status, or the deductibility of contributions to 1t. Yes, Reg. 56.491 provides that a 7_ Is there a membership member of an organization that is a member of a ommunication rule? limited af?liated group are treated as members of each organization in the limited affiliated group, but only with reSpect to national legislative issues. 49 Reg. requires every controlled member organization (whether or not the expenditure test election is in effect with respect to it) to provide to each member of the limited af?liated group that controls it, before the ?rst day of the second month following the close of the taxable year of each such controlling organization, its name, identi?cation number, and both the lobbying expenditures and grass roots expenditures on national legislative issues incurred by the controlled member organization. 330 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues t?u' obbying Activities of IRC 501Lc)(3) Private Foundations I private private o?undations and on foundation managers who agree expendi ie. IRC 4945. A taxable expenditure includes any amou foundati to carry on propaganda, or otherwise to attempt, to it certain litical campaign expenditures and grants to individuals an Taxes 0 Ethese types of private foundation expenditures did not Commit ee on Ways and Means began its hearings on private 1 press release, which outlined the hearings? agenda, in Tax Reform 1969: Hearings Before the House Comm. on Chairrn activity. 1st Sess almost at the outset of the hearings raised the specter of private process generally (although nothing speci?c was allege< a?e?foundations), as well as raising concerns about various political of priv private Foundat following his assassination and its involvement in political car extreme and the Mayor To a of the for the inblusion of lobbying activity as a taxable expenditure, a A.I 1 foundatii Legislative and Regulatory History ?the Tax Reform Act of 1969, Congress created the ins and public charities and imposed a number of excise imdations. One of these provisions is an excise tax 0 3-11 (1969) (press release of Chairman Wilbur D. Mill oiindations. For example, the President of the Ford Four and often acrimonious discussion with various Comm dn?s granting ?Travel Study Awards? to members of controversial school decentralization experiment in Bro Foundation?s ?nancing of voter registration drives in Cl Carl B. Stokes.50 1d. at 354-431 (statement and testimo i$iderable extent, those incidents seem to have impelled The Staff of the Joint Committee on Internal Revenue Taxa ax Reform Act of 1969, 48 (1969), explained the reasons The Congress concluded that more e??ective limi placed on the extent to which tax-deductible and can be dispensed by private persons and that these involve more e?ective sanctions. Accordingly determined that a tax should be imposed upon private foundations for activities that should not 2 exempt organizations (such as lobbying, electionei roots? campaigning). The Congress also believ 50 A during 1V through Japanese though no activities that would be characterized as lobbying for IR Bundy?s testimony, there was some concern expressed regardir layment of their travel and other expenses, such as when the Ford I- Afmerican Assembly in Japan attended by several members of Cong distinction between private taxes on certain activities of the taxable expenditures of 3 the making of the taxable nt paid or incurred by a private i?uence legislation, as well as organizations. IRC 4945(d). seem likely when the House foundation activities since the ade no mention of this kind of Ways and Means, 9lst Cong, 3). However, testimony given foundation involvement in the 1 about the lobbying activities grants made to individuals by 1dation became embroiled in a .ittee members over both the .enator Robert Kennedy?s staff npaign activities including an oklyn that included an election eveland before the election of ny of Mr. McGeorge Bundy). enactment of IRC 4945(d). tion, in its General Explanation or enactment of IRC 4945, and 3 follows: rations must be ax-exempt funds limitations must the Congress expenditures by 7e carried on by aring and ?grass as that granting 501(c)(3) purposes were discussed ig in?uencing members of Congress 'oundation made a grant to sponsor a gress. 331 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues foundations should take substantial responsibility for the proper use of funds that they give away. In general, the Congress? decisions re?ect the concept that private foundations are stewards of public trusts and their assets are no longer in the same status as assets of individuals who may dispose of their own money in any lawful way they see Regulations implementing the provisions of IRC 4945(d)( l) were proposed in 1971 (36 FR 5357 (Mar. 20, 1971)) and adOpted the next year. TD. 7215, 37 FR 23161 (Oct. 31, 1972). The regulations were amended by TD. 8308, 55 FR 35579 (Aug 31, 1990). However, even though private foundations are subject to tax on their lobbying expenditures, they remain subject to the "no substantial part? test for determining whether they retain their exempt status. Staff of the Joint Committee on Inte 1 Revenue Taxation, General Explanation of the Tax Reform Act of 1969, 49 n. 21 (1969). B. Specific Issues Pursuant to IRC 4945(d)(1), any amount 1. What is the tax on lobbying paid or incurred by a private foundation to carry private foundations? on propaganda, cr otherwise to attempt, to in?uence legislation is a taxable expenditure. IRC 4945 imposes on the private foundation an initial tax equal to 10 percent of the taxable expendi re and an additional 100 percent tax on taxable expenditures that are not corrected within taxable period. In addition, an initial tax equal to 2% percent of the taxable expendi re is imposed on foundation managers who knowineg agreed to the making of the taxable xpenditure. Any foundation managers who refuse to agree to all or part of the correcti are subject to a tax equal to 50 percent of the taxable expenditure. Generally, the rules for determining what I hat is ?attempt to in?uence is an attempt to in?uence legislation for purposes Elegisiation? under IRC 4945? of IRC 4945 are the same rules as for electing i public charities, as are the exceptions. Where ?Fi_ there are different, or additional, rules for private foundations, these are noted below. 3. Is there a membership for electing public charities? communications with communication rule? their members, does not apply to private i foundations. Consequently, whether a private foundation?s communications with its members (assuming it has any) are lobbying communications is determined solely under the general rules enunciated under Reg. 56.4911-2. However, where a private foundation makes a grant to an electing public charity, the membership 332 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues rules apply to the electing public charity?s communications with in the limited context of determining whether a private foundatio ?3 grant to an electing public charity is a taxable expenditure, the membership rules apply. or example, a grant is not a taxable expenditure when it is specifically earmarked for a co munication from an electing public charity to its members that is a not considered lobbying be use of the membership rules. Reg. its own members. Therefore, Reg. 53.49 provides that a private foundation will not be treated as having made a taxable penditure merely because it makes a grant 0 ditional upon the recipient obtaining a matchi support appropriation from a governmental dy. Furthermore, a private will not be treated as making taxable expenditures fo carrying on discussions with of governmental bodies that meet the following require ents: hat are the rules relating to ointly funded projects? foundatic officials (A) The subject of the discussions is a program that is or may be jointly funded by the foundation and the government; (1 The discussions are undertaken for the purpose 0 information on the program?s subject matter; and exchanging data and The discussions are not undertaken in order to make any direct attempt to persuade governmental of?cials to take particular positions on specific legislative issues other than the program. Is lobbying by the recipient of program-related investment attributed to the foundation? 1 foundations often make investments? (investments described in IRC 4944(0) and Reg. Reg. provides that any amount paid or incurred by program-related investment recipients in conbection with an appearance before, or communication with, any legislative Private ?program?related body wi :h respect to legislation or proposed legislation of direct interest to the recipient shall not be attributed to the investing foundation, if the following conditions are met: (A) The foundation does not earmark its funds to be used for any activities that constitute attempting to in?uence legislation; and (B) A business expense deduction under IRC 162 is allowable to the recipient for such amount.? 5? I\ote, however, that IRC 162(6), as amended by OBRA 1993, now disallows most business expense deduction for amounts paid or incurred in connection with in?uencing legisl This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ation. 333 This docume Lobbuin :LIssues 6. what is the rule for general public ch where thi the grantor foundation that, as an insubstantial portion of its 8.0th the State not earm expendittre even if it is subsequently used by the public charit Reg. 53.4 Example (1). 7. 'Tj charity. project is the proje doubt th from the expendit allocatec Reg. 53. the priva A general foundation to a ?p Support grants? arity has made the IRC 501(h) election. Reg. 53.4945 3 rule applies is when a public charity that has received a support grant by a private ublic charity? (organizations described in IRC 5509(a)(l), IRC 509(a)(2), or IRC 509(a)(3)) is n( grant is not earmark in?uence legislation, regardless of whether the )t a taxable expenditure if the ed to be used in an attempt to One example of general support grant informs 'ities, it attempts to in?uence legislature with regard to changes in the mental health laws. The use of the grant is irked for the legislative activities of the public charity. The grant is not a taxable in its legislative activities. A grant by a Speci?c project of a expenditure, even it lobbying activities extent that each of met: private foundation to fund a public charity is not a taxable ?the public charity engages in as part of the project, to the be following requirements are \that is the rule for speci?c project grants? The grant is not earmarked to be used in an legislation; and attempt to in?uence The sum of all grants made by the private foundatit for the same year, does not exceed the amount but the grant, by the grantee organization for activities not attempts to in?uence legislation. for the same project igeted, for the year of of the project that are or example, a private foundation makes a speci?c project In requesting the grant, the public charity stated that . $200,000, of which $20,000 is allocated to attempts to in?uence legislation related to ct. The private foundation relied on the budget ?gures rovided and had no reason to air accuracy or reliability. The private foundation does not earmark any of the funds grant to be used for attempts to in?uence legislation, so the grant is not a taxable are under IRC 4945 because the amount of the gra does not exceed the amount to speci?c project activities that are not attem ts to in?uence legislation. Example (3). Even if the grant letter to 6 public charity provides that te foundation has the right to renegotiate the terms of th grant if there is a substantial grant of $150,000 to a public he total budgeted cost of the deviation from those terms, this additional fact would not make grant a taxable expenditure. Reg. 53. than $15 the arm project a has mad 334 Example (4). However, if the speci?c oject grant is $200,000, rather 0,000, part of the grant would be a taxable expenditure nder IRC 4945(d)(1) because int of the grant exceeds by $20,000 the amount the pub 'c charity allocated to speci?c ctivities that are not attempts to in?uence legislation. Therefore, the private foundation a taxable expenditure of $20,000. Reg. Example (5). nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues If the grant is for more than one year, the rule applies to each year of the grant with the amount of the grant measured by the amount actually disbursed by the private foundation in each year or dividec. equally between years, at the option of the private foundation. The same method of measuring the annual amount must be As with the rule for general su ort grants, this rule applies public charity has made the IRC 501(h) election. 8. hat is the rule for ulti?year speci?c project giants? . used in all years of a grant. regardless of whether the Reg. Reg. Example (11), discusses a private foundation makes a speci?c project g'a?nt of $300,000 to a public charity for a three-year speci?c project studying child care problems. The private charity provides budget material indicating that the speci?c project will expend 00,000 in each of three years, with lobbying expenditures of $10,000 in the ?rst year, $20,000 11 the second year and $100,000 in the third year. The private foundation pays $200,000 in the ?r year, $50,000 in the second year and $50,000 in the third year. The amount actually disburse by the private foundation in the ?rst year exceeds the nonlobbying expenditures of the public arity in that year. However, because the amount of the grant in each of the three years, when di ided equally among the three years is not more than the nonlobbying expenditures of the publ' charity on the speci?c project for any of the three years, none of the grant is treated as a tax 1e expenditure. less happy scenario is set forth in Reg. private faundation makes a $120,000 speci?c project grant to a 1 project. The private foundation intends to pay the grant in three public charity provides budget material indicating that the speci?c each year, of which the project?s lobbying expenditures will be private foundation pays the ?rst annual installment, but before i reliable information comes to its attention that the public char project?s $100,000 ?rst-year budget on lobbying expenditures, cal doubt the accuracy and reliability of the budget materials. The pays the second-year installment. In the project?s second year, spends $90,000 on lobbying expenditures. Because the private foundation doubts or reasonably should doubt the accuracy or reliability of the budget materials when it makes the second-year grant payment, it may not rely upon the budget documents at thai time. Accordingly, although Example (13), where a Jublic charity for a three-year qual annual installments. The project will expend $100,000 $50,000 each year. After the pays the second installment, ity has spent $90,000 of the ising the private foundation to rivate foundation nevertheless the public charity once again none of the first installment is a taxable expenditure, only $10 52 1{f grantee f0 budget do an author project, the accur g. provides that for purposes of determining th I speci?c project activities that are not attempts to in?uence legislati cuments or other suf?cient evidence supplied by the grantee organiz zed of?cer, director or trustee of such grantee organization) showing iless the private foundation doubts or, in light of all the facts and cir icy or reliability of the documents. ,000 of the second-year grant 2 amount budgeted by a prOSpective on, a private foundation may rely on ,ation (such as a signed statement by the proposed budget of the speci?c cumstances, reasonably should doubt 335 This document was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Lobbuinq Issues payment is not a taxable expenditure. The remaining $30,000 of the second installment is a taxable expenditure. Reg. provides that a 9. dvnat happens if the grantee grant to a public charity that subsequently ceases ubiic charity loses its exempt to be described in IRC 501(c)(3) due to its atns due to lobbying? attempts to in?uence legislation will not be considered a taxa?t 1e expenditure provided the following conditions are met: (A) The grant meets the requirements of the rules relating to general support grants and specific project grants; (B) The grantee had received a ruling or determinatio letter, or an advance ruling or determination letter, that it a public chari (C) Notice of a change in the grantee?s status has not en made to the public, and the private foundation has not acquired knowle ge that the Service has given notice to the grantee of a change in status; (1 (D) The grantee is not controlled by the private foundation.53 5. Lobbying and Tax-Exempt Organizations Not Described in IRC 501(c)( 3) Unlike IRC 501(c)(3) organizations, other hat restrictions are imposed organizations dessribed in IRC 501(c) may the amount of lobbying by engage in an unlimited amount of lobbying, RC 5010:) organizations? provided that such lobbying is related to the organization?s exempt purpose. The Service enunciated this principle in Rev. Rul. 61-177, 1961-2 CB. 117, which holds that a corporation that was organized and operated primarily for the purpose of promoting a common business interest is exempt under IRC 501(c)(6) even though its sole act vity is in?uencing legislation germane to such common business interest. Rev. Rul. 61?177 notes that there is no requirement, by statu or regulations, that a business league or chamber of commerce must refrain from lobbying activities to qualify for exemption. The rule set forth in Rev. Rul 61-177 applies to organizations described in the other subparagraphs of IRC 501(c). Outside of IRC 501(c)(3), there is no explicit statutory restriction on lobbying in IRC 501(c). As far as the regulations are concerned, the only mention of lobbying is positive. Reg. provides that a social welfare organization may 53 A grantee organization is controlled by a private foundation for this punpose if the private foundation and its disquali?ed persons (as de?ned in IRC 4946(a)(l)), by aggregating their vote; or positions of authority, can cause or preven. action on legislative issues by the grantee. Reg. 336 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues qualify u] also, Rev. Rul. 67-6, 1967-1 CB. 135; Rev. Rul. 67-293, 1967-2 1968-2 CB. 216; Rev. Rul. 71-530, 1970-2 CB. 237; Rev. Rul. G.C.M. 3 subparagi 2. Jhy must lobbying be related organizat primaril people i 'aphs of IRC 501(0), Slee lives. The exemp under IRC 501(0) activities are consis described in the under which it imposed under th IRC 501(0) differ 6 ion may continue to qualify for exemption under IR engaged in promoting in some way the common goo the community. Reg. Therefore, an IRC the organization?s exempt urposes? engage i At the 0 er extreme are IRC 501(c)(2) title holding companies, statute, therefro and turning over the proceeds? to another exempt orga IRC 501 organization, therefore, would defeat its exempt statt of the 10 since the IRC 501 v. Taxat lobbying organization was an important factor in th a substantial amount of lobbying on other matters withc limited to ?the exclusive purpose of holding title t( bying was to preserve the exempt status of such title 1101! IRC 501(c)(2) exemption has remained undisturbed sinc Yes, this is So long as the or (with appropriate reimbursement for activities of an IR not jeopardize organization?s exei IRC 501(c)(3) orga May an IRC 501(c)(3) ?rganization have a related IJRC 501(c)(4) lobbying prganization? on with Representation of Washington, 461 US. 540 Court up with Re IRC 501 of exem denied qualified particula in whicl: held the prohibition on substantial lobbying by IRC 5011 presentation of Washington was the successor to organization and a related IRC 501(c)(4) organizati ption from federal income tax as an organization descri as an IRC 501(c)(4) organization. rly in situations where the two organizations share staff, I I status. inization to establish a related 0 concurring opinion of Regan ecause it proposed to engage in substantial lobbying ac his structure does raise issues regarding whether the r: organization are used to subsidize lobbying activities of the the two organizations conduct joint activities requiring ider IRC 501(c)(4) even though its activities are described in the ?action organization? regulations, provided that it otherwise meets the IRC 501(c)(4) qu alification requirements. ?eg CB. 185; Rev. Rul. 68?656, 76-81, 1976-1 CB. 156; and 1864 (Aug. 21, 1961). In determining whether lobbying; is allowable under the other status of an organization depends upon whether its tent with the exempt purposes subparagraph of IRC 501(0) ualifies. The requirements 3 various subparagraphs of xtensively. For example, an 501(c)(4) so long as it is and general welfare of the 3 501(c)(4) organization could ut affecting its exempt status. which, under the terms of the property, collecting income nization. Any lobbying by an is, unless, perhaps, the purpose zlers. (An unlikely possibility, its enactment in 1916.) a rather common occurrence. ganizations are kept separate ecord keeping and fair market facilities and services), the 501(c)(4) organization will the related IRC 501(c)(3) The ability of an 1983), in which the Supreme organizations. Taxation two other organizations, an on, that applied for recognition bed in IRC 501(c)(3). It was tivity, although it would have :sources of the IRC 501(c)(3) IRC 501(c)(4) organization, facilities or other expenses or an allocation of income and 337 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues expenses. Any allocation of income or expenses between the two 0 ?ganizations must be carefully reviewed to ensure that the allocation method is appropriate and that an arms? length standard is utilizecf The determination of whether the method used is app opriate is based upon all the facts and circumstances. i IRC 504(a) precludes an organization that 4_ ay an organization that loses has lost its IRC 501(c)(3) status due to attempts I 501(c)(3) status due to to in?uence legislation from qualifying as an i bbying qualify as an IRC 501(c)(4) organization. In addition, an 501(c)(4) organization? organization prohibited from qualifying as an IRC 501(c)(4) organization by IRC 504 may not be treated as any IRC 501(c) organization, except for IRC 501(c)(3). Reg. 1.504-1. Therefore, the only rou that an organization revoked for excessive lobbying aFay take to return to exempt status is reapply for recognition of exempt status under IRC 50 The one exception to this rule is for churches and church-related organizations th are ineligible to make an IRC 501 h) election because they are described in IRC 501(h)(5) and Reg. IRC 504 Reg. 1.504-1. IRC 504(b) authorized the Secretary of the 5. 24a), an IRC 50 1 Treasury to prescribe regulations to prevent ganization that anticipates avoidance of this rule, including avoidance by SS of its Status convert to an transferring all or part of the assets of an RC 501(c)(4) organization? IRC 501(c)(3) organization to an organization that is controlled by the same persons who control the IRC 501(c)(3) organization. These regulations are set forth in Reg. 1.504-2. In determining whether an organization has attempted to avoid IRC 504 by transferring any of its assets, the term ?transfer? includes any use by, or for the bene?t of, the recipient, except transfers made for adequate and full consideration. Generally, a transfer that involves the following ?ve elements will cause loss of exemption to the recipient: (A) The transfer is from an IRC 501(c)(3) organization that is determined to be an ?action? organization or is denied exemption by IRC 501(h); (18) At the time of the transfer or at any time during the recipient?s next ten taxable years, the recipient is controlled (directly or indirectly) by the same persons ,who control the transferor;54 5? For these purposes, the transferor will be presumed to control any organization with which it is af?liated within the meaning of Reg. (or would be if both organizations Were described in IRC and the recipient will be treated as controlled (directly or indirectly) by the same persons who control the transferor if the recipient would be treated as controlled under the private foundation qualifying distribution rules (Reg. if the transferor were a private foundation. Reg. 338 This document was obtained and uploaded by the Center for Resaonsive Politics (OpenSecrets.org) Lobbuinq Issues (C) The transfer is made (1) after the date that is 24 months before the earliest of the effective date of the determination IRC 501(h) that the transferor is not exempt, the effective date of the Commissioner?s determination that the transferor is an ?action? organization, or the date on which the Commissioner proposes to treat it as no longer described in IRC 501(c)(3), and (2) before the transferor again is recognized as an organization described in IRC 501(c)(3); (E) The recipient is exempt from tax under IRC 501(a) but is neither an organization described in IRC 501(c)(3), nor a quali?ed pension plan described in IRC 401(a) to which the transfemr contributes as an employer; and (E) The amount of the transfer exceeds the lesser of 30 percent of the net fair market value of the transferor?s assets or 50 percent of the net fair market value of the recipient?s assets, computed immediately before the transfer.55 rthermore, even if the transferor and recipient are not commonly controlled, or the amount 0 the transfer is less than the amount set forth in the ?fth element above, or the recipient is eligibl to elect the expenditure test, the Commissioner may determine, based on all the facts and circ stances, that the transfer was made to avoid IRC 504( In that case, the recipient will cease to be exempt under IRC 501(a). One fact the Commiss oner may consider is whether the recip ent engages, or has engaged, in attempts to influence legislation. The Commissioner may als 3 consider any factors enumerated in the special exception described below. Reg. The Commissioner may determine, based 6' 5 there any exception to this on all the facts and circumstances, that a transfer ?ransfer rule? that does meet the ?ve elements set forth above 5 was not made to avoid IRC 504 and the recipient will not be denied exemption. Reg. In making this determination, the Commissioner may consider all relevant factors including the following: (A) Whether enforceable and effective conditions on the transfer preclude use of any of the transferred assets for any purpose that if it were a substantial part of an organization?s activities, would be inconsistent with exemption as an organization described in IRC 501(c)(3); 55 For these purposes, the amount of a transfer is the sum of the amounts transferred to any number of recipients in any number of transfers, all of which are described in the previous four elements, and the time of the transfer is the time ofthe ?rst transfer so taken into account. Reg. Fu ermore, the amount of a transfer to a recipien is the sum of the amounts transferred to the recipient in any mber of transfers, all of which are described in the previous four elements, and the time of the transfer is the ti of the first transfer so taken into account. Keg. 339 This documc?i nt was obtained and uploaded by the Center for Res onsive Politics (OpenSecrets.org) Lobbuinq Issues (E) In the absence of conditions described above, whether the transferred assets are used exclusively for purposes that are: consistent with the transferor?s exemption as an organization described in IRC 501(c)(3); (C) Whether the assets transferred would be described in the private foundation i minimum investment return rules (Reg. before and after the transfer if both the transferor and recipient were private foundations; (D) Whether the transfer would satisfy the private foundation termination rules requiring unencumbered transfers (Reg. and Reg. if the transferor were a private foundation; (E) Whether all of the transferred assets have been expended during a period when the recipient was not controlled (directly or indirectly) by the same persons who controlled the transferor; and Whether all of the transferred assets were transferred, before the close of the recipient?s taxable year following the taxable year in which the transferred assets were received, to one or more public charities described in IRC 507(b)(l)(A) none of which are controlled by the same persons who control either the original transferor or recipient. Expenditures to support or oppose initiatives, referenda, etc., generally are considered to be lobbying expenditures rather than political campaign activity. Consequently, a ballot measure committee cannot qualify as an IRC 501(c)(3) organization because it is an ?action? organization. Furthermore, it cannot qualify as a ?political organization? under IRC 527 since a political organization?s ?exempt function? involves, in gen =ral, in?uencing or attempting to in?ue ce the selection, nomination, election or appointment of an individual to a federal, state, or local public of?ce or office in a political organization. IRC 527(c)(2). Reg. uses the term the ?selection process? to encapsulate what is contemplated by ?exempt function.? Generally, expenditures to support or oppose a referendum or iri$iative measure are not for an hat is the tax status of a allot measure committee? exempt function activity, since this activity generally does not fu er the purpose of in?uencing or attem Jting to in?uence the selection process.56 However, a ballot measure committee may qualify for exempt status under other subparagraphs of IRC 501(c), such as IRC 501(c)(4), IRC 501(c)(5), or IRC 501(c)(6). 56 In addition to the statutory language (?individual?) and the regulatory language (the "selection process?), the legislative history treats ballot measure expenditures as outside the purview of exempt function activity. S. Rep. No. 93-1357, 93d Cong, 2d Sess. 27 (1974) reprinted in 1975-1 CB. 517, 532, (stating, in discussing the primary activities test, that "a quali?ed organization could support the enactment or defeat of a ballot proposition, as well as support or oppose a candidate, if the latter activity was not its primary activity?). 340 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues deducti01 57-5 8 Mills Set to deduc would er any diss therefore Inc. v. campaig proposal validity law? bec the regu I Departm specifics obbving and IRC 162(e) Legislative and RegulatorLHistorv (1) The Pre- Statutory Era ihe the restriction on lobbying by charities, the disallo? 1 for lobbying ?rst appeared as a Treasury regulation. 3 915). The validity of the regulation was ?rst addressed by :u'rig Corp. v. Commissioner, 314 US. 326 (1941). :expenses made on behalf of German textile interests table the interests to recover property seized during Wor :nt, concluded that the regulation did not contravene a upheld the denial of the deduction.? ommissioner, 358 US. 498 (1959). Both cases involved 3f the regulation, principally on the basis that the regulat ation. Cammarano, at 508-509. Allowance of the Lobbying Deduction (2) 1:1962, Congress ?nally addressed the issue. Over eht, it enacted IRC 162(e) as part of the Trade Expansion of prep expense are (1) in direct connection with appearances or commu or prop sied legislation of direct interest to the taxpayer, or informa 'dn communicated between the taxpayer and an organizat to legisl Howeve (by cont Ily provided a deduction for direct lobbying expenses (ir ihg testimony, and a portion of dues) paid in carrying ation or proposed legislation of direct interest to the 162(e)(2) provided that no deduction is allowed fc ribution, gift, or otherwise) for participation or interventic 57 Decembei 58 In Finance [sidif?cult to imagine that there was any public dissent either, sine 8, 1941, the day after the attack on Pearl Harbor. vdking the Slee principle, Secretary of the Treasury C. Douglas Di oinmittee, set forth the Treasury position as follows: I i We are not against lobbying. We think lobbying is ?ne, the rr because the representatives of the people know what the cow only saying that the Government should not pay for it. Hear Before the Senate Comm. on Finance, 87th Cong, 2d Sess. hi3 Supreme Court revisited the validity of the regulatior the comp anion cases of Cammarano v. United States, 358 US. 498 is by liquor distributors against prohibition or state i 3 Which would have destroyed the distributors? businesses ause Congress had repeatedly reenacted the business exper wance of a business expense ID. 2137, 17 Treas. Dec. 48, the Supreme Court in Textile tile Mills involved an attempt a pass special legislation that id War I. The Court, without ny Congressional policy and 1 almost two decades later, in (1959), and F. Strauss Son extensive grass roots lobbying :ontrol of liquor distribution . Again, the Court upheld the ion had ?acquired the force of ise deduction without rejecting he objection of the Treasury Act of 1962.58 IRC 162(e)(1) tcluding travel expenses, costs on a trade or business if such nications involving legislation (2) in direct connection with ion of which it is a member as axpayer and the organization. tr any amount paid or incurred in in any political campaign or the decision was handed down on llon, in testimony before the Senate tore of it the better, itry wants. We are rigs on HR. 10650 4,387 (1962). 341 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuirlq Issues in connection with any attempt to in?uence the general public with respect to legislative matters, elections, (in referenda. In explaining the reasons for the provisions, the House and Senate Reports stressed the dif?culties of separating lobbying costs from other business costs. Even more important, the Reports stated, was the policy consideration that emanated from the ?anomalous? proposition that permitted the deduction of expenses incurred from appearance with respect to executive or judicial matters, but not legislative ones.59 H.R. Rep. No. 1447, 87th Cong, 2d Sess. 17 (1962), reprintedi_n 1962-3 CB. 405, 421; Sen. Rep. No. 1881, 87th Cong, 2d Sess. 22 (1962), reprinted i_n 1962?: CB. 707, 728. (3) Disallowance of the Lobbying Deduction i Ir February 1993, the Treasury Department submitted a proposal to deny all business deductions for lobbying expenses. Page 45 of the Summary of the Administration?s Revenue Proposal; states, in pertinent part, as follows: Reasons for Change The deduction for lobbying expenses inappropriately bene?ts corporations and special interest groups for intervening in the legislative process. 60 Proposal Businesses would no longer be allowed to deduct their lobbying expenses. Lobbying expenditures for this purpose would be de?ned similarly to the de?nition of expenditures to in?uence legislation in section 4911(d) and would include attempts to in?uence legislation through communications with the executive branch as well as the legislative branch of government. The current restrictions on deductions for expenses of grassroots lobbying and I participation in political campaigns would remain. These rules would prevent charities from engaging in more than an insubstantial amount of lobbying. No deduction would be allowed for the part of membership dues that are used for lobbying, but as under current law, trade associations and similar organizations would not lose their exempt status for lobbying. Trade associations and similar organizations would be required to report to their members the portion of their dues used for lobbying activities. 59 Als Ewe have seen, however, this ?anomaly? persists for IRC 501(c)(3) organizations. 60 This position was spelled out, at much greater length, in the 1962 legislative history of IRC 162(e). Supplemental and Minority Views of Senators Paul Douglas and Albert Gore 1962-3 03. 1092, 1116-1120. 342 This document was obtained and uploaded by the Center for Resaonsive Politics (OpenSecrets.org) Lobbuinq Issues 1 May 4, 1993, House Ways and Means Chairman Rostenkowski introduced the Administi'ations?s bill, HR. 1960. The Committee Report on th bill that emerged from the House, HR. 2264, stated a different reason for change: ?The committee has determined that, in the cor text of de?cit reduction legislation, it is appropriate to limit the business deduction for lobbying 1993-3 B. 235. language with a new IRC 162(e) applicable to a for cont with certain federal of?cials. 'sallowed directly. bers. The trigger is contained in IRC 6033(e), which requirem ants on tax?exempt organizations incurring expenditures IRC 1621 denies a deduction for the dues (or other simi tax?exempt organizations to the extent that the organization, at the paid, noti?es the dues payer that the dues are allocable to nonded expenditures of the type deScribed in IRC An exempt organization subject to IRC 6033(e) has sevei notice to its members when they pay dues that contains a reaso allocable to lobbying expenditures. If it does not give noti?cation, highest rate imposed by IRC 11 (currently 35 percent) on its 10 amount dues and other similar payments received by the organiz In addition, if the organization does provide notices to its member: amount of lobbying expenditures, it is subject to the proxy expenditires paid during the applicable year that were not includec tax may be waived if the organization agrees to include the exces following year?s notices. 61 A grounds. constitutional challenge to the provisions of 13222 of OBRA 1! American Society of Association Executives v. Bentsen, 848 F. Sup 62 Payments that are similar to dues include voluntary payments or special a hat ?nally resulted was 13222 of OBRA 1993. It ameji Grass roots lobb} expendi res continue to be nondeductible. In addition, IRC 162 affecting dues paid to exempt organizations, so organ] expense.? HR. Rep. No. 103-111, 103d Cong, 1st Sess. 659 (1993) reprinted in ded IRC 162(e) by replacing ounts paid or incurred after j31, 1993.61 The new IRC 162(6) disallows the deductibility of direct legislative It also disallows deductions ling and political campaign includes pass-through .zations can not indirectly do in 1965, provided for the rganization is engaged in an ver, no mechanism existed at owance. Therefore, 13222 provide a system based on ensure that associations notify imposes reporting and notice to which IRC 162(6) applies. lar amounts) paid to certain time the dues are assessed or uctible lobbying and political a1 options. It may provide a nable estimate of the amount it must pay a proxy tax at the bying expenditures (up to the cation) during the taxable year. 3 but underestimates the actual tax on the excess lobbying in the notices. However, this lobbying expenditures in the 993 was dismissed on jurisdictional p. 245 (D.D.C. 1994). ssessments used to conduct lobbying. 343 This documc?i nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuin :1 Issues This mechanism allows a membership organization to elect not to provide its members with a disallowance notice in which case the organization will be required to pay the tax. If an organization elects the proxy tax option, no portion of any dues or other payments made by members of the organization will be deemed nondeductible as a result of the organization?s lobbying activities. (4) History of Regulations and Administrative Fronouncements Reg. 1.162?20, dealing with expenditures attributable to grass roots lobbying, political campaigns, and certain advertising, was published in 1965 (TD. 6819, 30 FR 5581 (Apr. 20, 1965)) and amended nearly four years later (TD. 6996, 34 FR 835 (Jan. 18, 1969)). In general, the regulation provides that if expenditures for lobbying purposes do not meet the requirements of IRC 162(c)(1), such expenditures are not deductible as ordinary and necessary business expenditt res. Reg. A5 a result of the OBRA 1993 legislation, the Service published ?nal regulations providing allocation rules and rules concerning the de?nition of in?uencing legislation in 1995. TD 8602, 60 FR 37568 (July 21, 1995). These new regulations also provide that to the extent the exist ng provisions of Reg. 1.162-20 are inconsistent with the new IRC 162, they are superseded. Reg. At the same time, the Service published Rev. Proc. 95-35, 1995-2 (1B. 391, to provide procedures for organizations to determine whether they were excepted from the reporting and notice requirements of IRC 6033(e) in accordance with IRC 60325(e)(3). B. Speci?c Issues (1) Organizations Excepted from the Reporting and Notice Requirements I 1. ivhat organizations are IRC 6033(e) notice requirements do not apply to cepted from IRC 6033(e)? IRC 501(c)(3) organizations. In addition, IRC 6033(e)(3) provides an exception for organizations that establish to the satisfaction of the Secretary that substantially all of the dues or similar amounts received by the organization are not deducted by its members as business expenses. Most IRC 501(0) organizations do not receive dues that are deducted by their members as business expenses under IRC 162. Therefore, the Service provides in Rev. Proc. 95-35, 4.01, at, pursuant to IRC 6033(e)(3), the requirements of IRC 6033(e) shall not apply to organizatlions recognized by the Service as exempt from taxation under IRC 501(a), other than (1) IRC 501(c)(4) social welfare organizations that are not veterans organizations, (2) agricultural and horti cultural organizations described in IRC 501(c)(5), and (3) IRC 501(c)(6) organizations. Organizations otherwise subject to IRC 6033(e) whose lobbying expenditures consist solely of 63 Proposed amendments to Reg. 1.162-20 were published in 1980 but have not been ?nalized. FR 78167 (Nov. 25, 1980) 344 This documd nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues in-house requirements. IRC 603 i . Which IRC 501(c)(4) and 2. 501(c)(5) organizations does Rev. Proc. 95-35 except? Proc- 95-35, . . meet a safe harbor 4.02, also will be excepted from IRC 6033(6). The safe organiza 'ons are not subject to IRC 6033(e) if more than 90 per received mm (1) members paying annual dues of $50 or less,64 (2) (3) state I local governments, (4) entities whose income is exemi (5) orga izations excepted by 4.01 of Rev. Proc. 95-35 as noted not meet the safe harbor may establish that they satisfy the requii maintain ng records establishing that at least 90 percent of the organiza ion are not deductible by its members (without regard to Service its Form 990, Return of Organization Exempt from In in IRC Rev. Proc. 95-35, 5.06. Generally, I subject to the hat organizations described IRC 501(c)(6) are excepted I Rev. Proc. 95-35? exception for IRC 90 percent of their governments, (3) em from tax under IRC 115, or (4) organizations excepted by 4.0] noted above. IRC 501(c)(6) organizations that do not meet this te satisfy the requirements of IRC 6033(e)(3) by maintaining recor: percent of the annual dues received by the organization are 11 (without regard to IRC 162(6)) in the same manner as IRC organizations and notifying the Service on its Form 990 that it is Rev. Prcc. 95-35, 5.06. 6? Th rounded $50 amount will be increased for years after 1995 by a cost-of- the next highest dollar. Rev. Proc. 95-35, 5.05. 65 The organization may also request a private letter ruling to this effect i forth in Rev. Proc. 96?4, 1996-1 I.R.B. 94. If an organization receives a favo will not contest its entitlement to exemption under IRC 6033(e)(3) for a subs of its membership is substantially similar to its membership at the time of the 66 IRC 501(c)(6) organizations may also request a private letter ruling as expenditures that do not exceed $2000 in a taxable year IRC 501(c)( IRC 501(c)(5) labor organizations are excepted by the Service from the: IRC 6033(e) requirements in However, Rev. (1) IRC 501(c)(3)? are also excepted from these 4) veterans? organizations and 4.01. Other IRC 501(c)(4) social welfare organizations and IRC 501(c)(5) agricultural and horticultural organizations that set forth in Rev. Proc. 95-35, harbor provides that these ?cent of their annual dues are IRC 501(c)(3) organizations, from tax under IRC 115, or above. Organizations that do ?ements of IRC 6033(e)(3) by annual dues received by the IRC l62(e)) and notifying the come Tax, that it is described RC 501(c)(6) organizations are IRC 6033(e) requirements. ic. 95-35, 4.03, provides an 501(c)(6) organizations if over annual dues are received from )rganizations, (2) state or local itities whose income is exempt of Rev. Proc. 95-35 4.01, as st may also establish that they is establishing that at least 90 3t deductible by its members 501(c)(4) and IRC 501(c)(5) described in IRC iving adjustment under IRC accordance with the procedures set able private letter ruling, the Service equent year so long as the character a ruling. discussed above. 345 This documd nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues i The term ?annual dues? means the amount 4_ What are ?annual dues? and an organization requires a person to pay to be "similar amounts?? recognized by the crganization as a member for i an annual period. ?Similar amounts? includes, I but is not limited to, voluntary payments made by persons, assessments made by the organization to cover basic operating costs, and special assessments imposed by the organization to conduct lobbying activities. Rev. Proc. 95?35, 5.01. ?Member? is used in its broadest sense and is not limited to persons with voting rights in the organization. Rev. Proc. 95-35, 5.02. If payment for a ?membership? is intended to provide more than one person with recognition by the organizat on as a member for an annual period, annual dues is the amount of payment request for that category of membership. 5_ How does Rev. Proc. 95-35 aggregation rule thattreats af?liated organizations t'reat af?liated organizations? a national trade association that has state and local chapters) as a single organization for purposes of IRC 6033(e). The rule provides that if more than one organization described in IRC 501(c)(4), IRC 501(c)(5), or IRC 501(c)(6) share a name, charter, historic af?liation, or similar characteristics, and coordinate their activities, organizations in the af?liate structure are treated as a single organization. In applying the tests set forth in the safe harbor, only dues paid by the ?Ultimate members,? whether paid to one level, which then remits the amounts to other levels in the structure, or paid separately to each level. Amounts paid by one organizational level to another are not considered, even if they are characterized as ?dues.? If the organization as a whole meets the requirements of IRC 6033(e)(3), more than 90 percent of the dues are received from persons paying $50 or less) all organizations in the af?liated structure meet the requirements.67 Rev. Proc. 95-35, 5.03. Rev. Proc. 95~35, 5.04, provides an example applying the af?liation rule. A group of national, state, and local IRC 501(c)(4) organizations share a common name and work jointly to promote their purpose. Individuals or families pay annual dues of $40 to the local organizations, entitling them to membership in the national and state organizations. The local organizations remit a portion of the dues to the state and national organizations. These remittances by the local organizations exceed $50. The total amount received by all local organizations is $950x. In addition, corporations pay dues of $500 to and become members of the national organization. The tota amount received from these members is $50x. Since the $950x exceeds 90 percent of the $1000x received from all members, all of the national, state, alild local organizations meet the requireir ents of IRC 6033(e)(3). The transfers from the local organization are not considered in this determination. 67 If rganizations within the af?liated structure are on different taxable years, the organizations may base their calculatio is of annual dues received on any single reasonable taxable year. 346 This documc?i nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) This docum Lobbuinq Issues 1. ghat is the meaning of n?uencing legislation?? This de? to IRC 4 activities (A) (r lobbying whether 2. or emplc followin; De?nitional Issues Regarding Lobbying (2) legislation? as i 11, as discussed above in Part 3. Any attempt to in?uence any legislation communication; and i) including deciding whether to make a lobbying co .he attempt is successful. Pursuant What is a pommunication?? i ?lobbying i legislative body or yee who may participate in the formulation of the legi 3.. D. legislation; or 3) The communication clarifies, ampli?es, modi?es, Th 607 (1992 otherwise action am "subpoena exception? follows the Conference Report (H.R. Rep. reprinted in 1993?3 CB. 485), which states that "any commur compelled by Federal or State law, does not constitute an ?attempt to therefore, is not subject to the general disallowance rule.? IRC l62(e)(4)(A) de?nes ?an? legislation through communication with any member or employee of a legislative body, or with any government of?cial or employee who may participate in the formulation of legislation.? ition is essentially identical (as it relates to direct, as opp provides that "in?uencing legislati All activities, such as research, preparation, plann eg. provides that an ?attempt to in?uen communication? is the act of making the lobbying ?lobbying commun (other than any 0 subpoena, or otherwise compelled by federal or state law)68 with ai The communication refers to speci?c legislation anc views reflected in a prior lobbying communication. ?in?uencing attempt to in?uence any osed to grass roots, lobbying) on? involves the following through a lobbying .ing and coordination, mmunication, engaged in for a purpose of making or supporting a lobbying communication. ce any legislation through a ommunication, regardless of to Reg. a ication? is a communication ommunication compelled by 1y member or employee of a any other government of?cial slation that does either of the 1 re?ects a view on that or provides support for No. 103-213, 103d Cong, Sess. iication compelled by subpoena, or in?uence' legislation or an of?cial?s 347 int was obtained and uploaded by the Center for Res pensive Politics (OpenSecrets.org) Lobbui Issues phrase ?re?ects a View? is of critical importance. After it appeared in the proposed regulatio 5, several commentators suggested it should be de?ned to mean an explicit statement of suppo ior Opposition to the legislation. Some commentators also suggested that presenting a balanced analysis of the merits and defects of speci?c legislation should not constitute re?ecting a view on legislation. However, neither recommendation was adopted in the ?nal regulations. TD. 8602, 60 FR 37568 (July 21, 1995). Therefore, an organization can re?ect a view on legislation without speci?cally stating it supports or opposes that legislation. Reg. Example 8, illustrates this with regard to an organization that writes a letter to a United States Senator discussing how a certain pesticide has bene?ted citrus fruit growers and disputing problems linked to its use. The letter discusses a bill pending in Congress and states in part: This bill would prohibit the use of pesticide 0.. If citrus growers are unable to use this pesticide, their crop yields will be severely reduced, leading to higher prices for consumers and lower pro?ts, even bankruptcy, for growers. Despite the fact that the organization does not explicitly state tha the exceptions under in 4911(d)(2) apply for urposes of IRC 162(e)? it opposes the bill, its views 1 are re?ected in the statement. Thus, the communication is a lobbying communication, rganization is attempting to in?uence legislation. No. A sign two statutes is that speci?c exception legislation,? IRC it this difference is under IRC 4911(d) no counterpart, and i?cant difference between the while IRC 4911(d) contains 5 to the term ?in?uencing 52(e) does not. An example of the ?self defense? exception IRC 162(e) contains the legislative history strongly suggests that no exception is to be inferred. Statements in footnote 49 of the Conference Report (H.R. Rep. No. 103-213, 103d Cong, Sess. 597 (1993), reprinted in 1993-3 CB. 475), HR. Rep. No 1447 (87th Cong, 2d Sess. 16?18 (1962), reprinted in 1962-3 CB. 405, 420-422) and S. Rep. \10. 1881 (87th Cong, 2d Sess. 21-24 (1962), reprinted ip 1962?3 CB. 707, 727?730) indicate that the holding of Cammarano v. United States, 358 .s. 498 (1959) (upholding the of regulations denying a deduction for lobbying even 1 legislation that affected the survival of the taxpayer?s bus lly contradicted by statute. Similarly, IRC 162(6) ng legislation and educating legislators, unlike the IRC 49 the results of nonpartisan analysis, study, or research and ance to a governmental body. S_ep H.R. Rep. No. 1 607 (19 3), reprinted in 1993-3 CB. 485, where the Conferenc contain in previous versions of the bill were not included in con IRC 16 disallows a deduction for some activities that wo lobbyin ?1 under IRC 4911. Accordingly, Reg. spec enuncia in the regulation have no bearing on IRC 4911 or IR when the expenses related to iness) remains good law unless raws no distinction between 11(d)(2) exceptions for making for providing technical advice 03-213, 103d Cong, Sess. Report notes that exceptions ference agreement. Therefore, uld not be considered ?direct i?cally provides that the rules 4945. validity proposec speci?ca in?uenm available or assist 348 This docum nt was obtained and uploaded by the Center for Resoonsive Politics (OpenSecrets.org) Lobbuinq Issues IRC 162(6) disallows the deduction for 4. \illhat is ?legislation?? amounts Spent or incurred to in?uence i ?legislation? considered by a ?legislative body.? IRC l62(e)(4)(B) provides that, for this purpose, ?legislation? has the same meaning as under IRC 491 (discussed in Part 2). Consequently, Reg. provides that ?legislati n? includes any action on Acts, bills, resolutions and Similar items by a ?legislative body.? egislation? includes a proposed treaty required to be submitted by the President to the Senate f0 and consent from the time the President?s representative begins to negotiate a position with the rospective parties to the treaty. I Under Reg. the term 5. What is ?speci?c legislation?? ?speci?c legislation? is not limited to acts, bills, etc., that have been formally introduced before a legislative body. Therefore, specific legislative proposals are incl ded as ?speci?c legislation? even if never introduced. Accordingly, reference to a bill enacted in another state constitutes reference to ?specific legislation? despite the fact that a similar bill has not been proposed in the state in qiestion. Reg. Example 7. However, merely identifying a problem and indicating that a legislative body should do something about the blem without specifying what the legislative body should do will not constitute a speci?c legislative proposal. For example, an organization provides to legislators a paper that it has prepared stating that the lack of new capital is hurting the economy. If the organization merely indica:es that increased savings and local investment will assist the economy and includes a cover letter stating, ?You must take action to improve the availability of new capital,? the organization has not referred to a speci?c legislative proposal. Reg. Example 5. However, if the organization indicates that lowering the capital gains rate would increase the availability of new capital and includes a cover letter stating, urge you to support a reduction in the capital gains tax rate,? then it has referred to a specific legislative proposal. Reg. Example 1 The term ?16 gislative bodies? is de?ned in 6. What are "legislative bodies?? Reg. The term includes Congress, 1 state legislatures, and other similar governing bodies. However, local councils and similar governing bodies are not "legislative bodies? for purposes of IRC 162(e). Executive, judicial, and administrative bodies are also not included. Administrative bodies includes school boards, housing authorities, sewer and water districts, zoning beards, and other similar federal, state, or local special purpose bodies, whether elective or appointive. Thus, communications with the administrative agency charged with writing regulations implementing a statute regarding recommendations concerning those regulations are not consider 3d lobbying communications because the regulations are not legislation considered by a ?legislative body.? Reg. Example 3. Furthermore, testifying at a congressional oversight hearing concerning proposed regulations to implement a particular statutory enactment will not :onstitute a lobbying communication since the issue is th: administrative action and not 349 This documc?i nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues speci?c lzgislation considered by a ?legislative body,? even tho the hearings are before a ?legislative body.? Reg. Example 2. As noted a ove, IRC 162(c)(2) provrdes 7. What is the exception for local an exception to the eneral disallowance rule for cipuncils and similar bodies? certain lobbying penditures related to local councils and milar governing bodies. IRC 162(c)(2) prov' es that two types of lobbying expenses are deduc 'ble. One is the ordinary and necessary expenses (including travel and preparation of testimony) in connection with appearances before, making statements to, or sending communications to the committees or individual members of a local council. The other is the expenses of communication with an organization of which the taxpayer is a member about local legislation or proposed legislation of direct interest to the taxpayer or the organization. The portion of the dues that are paid to an organization that are attributable to either of these activities is also not subject to the disallowance rule. However, grass roots lobbying on local government legislative actions is not covered :iy the exception. The legislative history indicates that the term ?local councils or similar governing bodies? includes any legislative body of a political subdivision of a state, such as a county or city council. H.R. Rep. No. 103-213, 103d Cong., Sess. 605 (1993), reprinted i_n 1993-3 CB. 483. For purposes of the IRC 162 lobbying rules, Indian tribal governments are treated a; ?local councils or similar governing bodies.? IRC 162(c)(7). disallows a deduction 8_ What is a "covered executive for expenditures any ?direct communication 'ranch Official?? with a covered executive branch of?cial in an attempt to influence the of?cial actions or positions of [the] official.? Pursuant to IRC 162(c)(6), a ?covered executive branch includes the President, the Vice President, any person serving in level I of the Schedule (Egg a Cabinet Of?cer) or any other person designated by the President as having abinet-level status and their immediate deputies, the two most senior-level of?cers of each ag cy within the Executive Of?ce of the President, and any other of?cial or employee of House Of?ce of the Executive Of?ce of the President. The legislative history indicates that all ritten or oral communication with covered executive branch of?cials are included. H.R. Rep. 103?213, 103d Cong, Sess. 605 n. 57 (1993), reminted in 1993-3 CB. 483. A 'cation with the covered executive branch official will be considered with that of?cial icial is intended as the primary recipient. IRC 162(c)(5)(B)(ii) excepts from the 9_ What is the exception for tie general disallowance rule organizations that are .minimis in_house lobbying? involved in a minimal amount of in?house lobbying. When an organization?s total amount of in-house lobbying expenses does not exceed $2,000 (computed without taking into account general overhead costs otherwise allocable to lobbying), this exception applies. For purposes of this rule, in-house expenses include labor and material costs. 350 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbyinq Issues Payments made to a third-party lobbyist and dues payme subject tio? the disallowance rules, regardless of whether or no expenses are exempted. In addition, the de minimis in-house ru incurred for political activity, grass roots lobbying or foreign lo disallowed under current law rules. :nts allocable to lobbying are the organization?s in-house le does not apply to expenses bbying which continue to be Lobbying Purpose (3). As noted above, Reg. provides that an ?attempt to in?uence legislation? includes not only a lobbying communication but also all research a other preparatory activities engaged in for a pipose of making or supporting a lobbying communication. Reg. sets I forth a purpose test, which considers the original iengaging in a particular activity in order determine whether a lobbying activity, in whole or in part, has occurred. The general rule, set forth in Reg. provides that the purp use or purposes for engaging in an activity are determined on the basis of all the facts and circumstances, including (but not limited to) the following factors: A) hen is an activity engaged in or the purpose of making a obbying communication? intent fo (. Whether the activity and the lobbying communic time; ation are proximate in B) Whether the activity and the lobbying communication relate to similar subject matter; Whether the activity is performed at the request of, or on behalf of a person making the lobbying com under the direction of, .munication; Whether the results of the activity are also us purpose; and ed for a nonlobbying Whether, at the time the organization engages i1 specific legislation to which the activity relates.69 E) i the activity, there is 69 The proposed regulations provided two presumptions concerning the purpose for engaging in an activity that is related to a lobby taxable non-lobby also enga tola lobbying communication. Speci?cally, Prop. Reg. irig communication is engaged in for a non-lobbying purpose prior :at in which the communication was made, the activity is presum irig purpose. The Commissioner could rebut this presumption in par geid in for a purpose other than the non-lobbying purpose. Converse provided that if an activity relating the ?rst taxable year preceding the ed to be engaged in solely for that by establishing that the activity was 1y, Prop. Reg. provided that if ar communi activity is organizati 59 FR 24 activity relating to a lobbying communication is engaged in (it :ation is made or the immediately preceding taxable year, and is not presumed to be engaged in for the sole purpose of making or suppo orli could rebut the presumption by establishing that the activity was er 992, 24996 (May 13, 1994). iring the same taxable year as the vithin the preceding presumption, the rting a lobbying communication. An [gaged in for a non-lobbying purpose. 351 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues The regulations provide several examples of how the fac applied. to an adm when no to propo legislatiOJ legislator comment pending. Example conducts the proje of the tes .ed legislation on the same subject, the organization Therefore, it engaged in the study for a nonlobbying 1. Similarly, an organization that has entered into a contr tests regarding the project, submits the test results to the :t speci?cations in compliance with the contract. It subs support in time were co solely fo organiza impact 0 fact that Reg. 1.1 activity other 0 capital legislato conference. since he refers to and re?ects a view on the pending bill. purpose Reg. 1.l Example (5), illustrates this with regard to a erson who travels to the state ):attend a two?day conference. While there, he spends rs to explain why his corporation opposes a pending bill unrelated to the subject of the results and revised speci?cations which it submits to leg propriations for the contract. The summary was prepai ,ithe lobbying communication and so was for a lobbying ucted and the speci?cations revised pursuant to contract a nonlobbying purpose. Reg. Exampl 'on that conducts a study at the request of its legislativ proposed legislation on its business does so solely for a he organization subsequently used the study for labor ne Example 2. Pursuant tc organization engag lobbying purpose purpose, it must tr partially for the lob hat if an activity is engaged for multiple purposes? 1 :ts and circumstances test is One example involves an organization that conducts a study and provides information inistrative agency regarding the impact of proposed regulations on its business at a time speci?c legislative proposal on a similar topic is pending. The next year, in response sends a letter opposing the 1 to a legislator along with a copy of the study. Although the communication with the is a lobbying communication, the organization conduc to the administrative agency at a time when no similar legislative proposal was ted the study and submitted urpose. Reg. act with a government agency ovemment agency and revises equently prepares a summary gislators to encourage them to "ed speci?cally for, and close purpose. However, the tests requirements and, thus, were 4. On the other hand, an affairs staff concerning the lobbying purpose, deSpite the gotiations with its employees. Reg. if an es in an activity both for a and for some nonlobbying eat the activity as engaged in bying purpose and partially for This division of the the nonlobbying ust result in a reasonable allocation of costs between no ts. (The allocation rules set forth in Reg. 1.1 Although his trip is partially for a nonlobbying urpose. deductible lobbying costs and -28 are discussed below.) third day meeting with state rpose, it also has a lobbying Thus, his corporation must reasonat 1y allocate his traveling expenses between these two purposes. Leg. provides that certain activities are not engaged in for the purpose of or supporting lobbying communications. These activities consist of those activities en to comply with the requirements of any law (for example, satisfying state or federal s'law ?ling requirements), reading any publications available to the general public or making underta1< securitie mplicated the purpose test. The ?nal icts and circumstances set forth in Commentators contended that these presumptions undermined and co regulatiors eliminate the presumptions, replacing them with the list of f: Reg. TD. 8602, 60 FR 37568 (July 21, 1995). 352 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) Lobbuinq Issues viewing or listen communications, ar attended speech. evidencing a purp ing to other mass media merely attending a widely In addition, if, prior to ose to in?uence particular legislation (or similar legislation), an organization determines the existence or procedural status of that legislation, determines the time, place, and tany hearing to be held by a legislative body with respect to that legislation, or prepares IS routine, brief summaries of the provisions of that legislation, the organization is sengaging in that activity with no purpose of making or supporting a lobbying cation. ay certain activities be eated as having no purpose in?uence legislation? subject 0 or reviev treated a communi organizat the orgar status of one of it preparati months a the deter after that his provision is illustrated by Reg. Exe iOn whose legislative affairs staff prepares a summary 0 lization?s business at the time it is proposed and contim the bill periodically. Two months after the bill was introd employees to prepare a position letter on the bill to be on of the original summary and the procedural status chec re not considered to be for a lobbying purpose. Howeve mination to make a lobbying communication, the procec time were for a lobbying purpose. imple 6, which discusses an legislation that would affect leg to con?rm the procedural uced, the organization assigns delivered to legislators. The ks on the bill for the first two r, once the organization made lural status checks on the bill associati legislatic the persc Reg. 1.162- hat if activities support organization engag? obbying communications by nother organization? by anOther Person, treated as in?uencii an organization or 1 otherwise) engages on in preparing its lobbying communication, the organizai 11 even though the lobbying communication is made by th mal activities an organization?s employee outside the sec 29(d) provides that when an :s in activities for a purpose of supporting a lobbying communication to be made he organization?s activities are 1g legislation. For example, if ts employee (as a volunteer or in an activity to assist a trade ion?s activities are influencing trade association. However, pe of employment will not be attribute i to the organization. In some inst activity to support they never make. organization deterr its return that it reasonably foresee communication, the activity is treated as if it had not and the organization need not treat any amount allocated :ances, organizations engage in lobbying communications that Under Reg. if the nines before the filing date of does not expect, under any able circumstances, to make a een engaged in for a lobbying to that activity for that year as 5. Khat happens if a lobbying li;ommunication is not made? lobbying purpose 353 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuiniq Issues an 31110111' respect tc IRC 162( to the act to which lobbying to activities provision Reg. 1.1 and metl to organ] behalf 0 purposes records i 2. uhat is a reasonable method administ Thus, the organization is effectively treated as IRC 6033(e) applies may treat such amounts as reduci costs. The organization may carry forward any amoun ubsequent years. there an anti?avoidance and the pertinent facts and circumstances. Cost Allocations ow must costs be allocated? another person.71 accordance with IRC 6001 and its regulations. use any reasonab pf allocation? lobbying activiti rative costs), and is consistent with the special rules reg 70 or the due 7' lR( activities to paymer 354 a ?ling date for this purpose is the earlier of the time the organizatii date of the timely return. 3 162(c)(5)(A) provides that organizations that are engaged in the trad in behalf of another person are not subject to the general disallowanc ts by such other person to the organization for conducting the lobb it to which IRC 162(c)(l)(A) applies.70 On the other ban the conclusion at any time after the ?ling date, then any amoun that activity is treated as an amount that is paid at th ivity in the later year in connection with a nonlobbying a: Yes, Reg. 1 organization, alone activities with a pr results that are purposes of Commissioner car for federal tax purposes to achieve tax results that are con As noted 21 engages in an actii and a nonlobbying cost of the activit reasonable methoc Reg. 1.162-28 describes costs that must be ods that may be used to allocate those costs. Reg. 1.162 zations that are engaged in the trade or business of con Reg. 1.162- between lobbying method is conside1 consistently, alloca d, if the organization reaches previously disallowed with at time that is not subject to it incurred the costs relating :tivity. Exempt organizations 1g (but not below zero) their not used to reduce lobbying I 162-29(f) provides that if an or with others, structures its incipal purpose of achieving nreasonable in light of the 62(e) and IRC 6033(e), the recast the organization?s sistent with the intent of these bove, when an organization Jity that has both a lobbying purpose, it must allocate the between the two using a l. Reg. and Lllocated to lobbying activities 2?28 does not apply, however, ducting lobbying activities on Furthermore, the regulation is not intended to be applied for of IRC 4911 and 4945 and the regulations thereunder. he organization must maintain 28(b) permits organizations to le method to allocate costs and nonlobbying activities. A 'ed reasonable if it is applied tes a proper amount of costs to es (including labor and arding labor hours outlined in in ?les its timely return for the year or business of conducting lobbying rules. However, the rules do apply ying activities. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues Reg. 1.1t considere Reg. 1.162-28 describes three different allocation methods that are IRC 263A and circ d, reasonable: a ratio method, a gross-up method, and an \Vprinciples. Whether any other allocation method is re stances of a particular case. The three Specified meth do not tablish a baseline allocation against which to compare another ost allocation method is not unreasonable simply becaus of costs to lobbying activities than any of the three spec allocation method that applies isonable depends on the facts ods, alone or in combination, 3 other methods. Therefore, it allocates a lower amount i?ed methods.? However, Reg. 1.1 provides that an organization?s treatment of multiple purpose activities will not resu increme (2) an an the relati in a reasonable allocation if it allocated to in?uen al amount of costs that would not have been incurred b1 iount based on the number of purposes for engaging in 1 ve importance of those activities. cing legislation (1) only the it for the lobbying purpose or .hat activity without regard to Reg. provides that the costs 3. hat costs are allocable to properly allocable to lobbying activities include 1 bbying activities? labor costs and general and administrative costs. Labor costs include costs attributable to full-time, part-time, and contract employees. This includes all elements of compensation, including overtime pay, vacation pay, holiday pay, sick leave pay, payroll taxes, pension costs, employee bene?ts, and payments to a supplemental unemployment bene?t plan. General and administrative costs include depreciation, rent, utilities, insurance, maintenance costs, security costs, and other administrative department costs (for example, payroll, personnel, and accounting.) Under the Reg. ratio method set forth in an organization multiplies its total costs of operations (excluding third?party costs) by a fraction. The numerator of the fraction is the organization?s lobbying labor hours lenominator is the organization?s total labor hours. The formula is expressed as follows: 4. hat is the ?ratio method?? I and the Lobbying labor hours Total labor hours Total costs of operations The pro defined whole 01 for trave iuct of this calculation is added to the organization?s Reg. Third-party lobbying costs are in part for lobbying activities conducted by third parties li(including meals or lodging while away from home) third-party lobbying costs, as 3 amounts paid or incurred in and amounts paid or incurred and entertainment relating in whole or in part to lobbying activities.) Thus, third-party costs include amounts paid to lobbying organiziions and dues or other similar amounts allocable to lobbying paid to exempt organiz ions. 72 Be as reasonz :ause some commentators interpreted the proposed regulations as trea ble, the final regulations clarify that organizations may use any rea ting only the three speci?ed methods sonable method. 73 Pa however, yments to independent contractors for lobbying purposes would not be included in third?party lobbying costs. fall under labor costs. They would, 355 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuina Issues Reg. provides that an organization may determine the number of labor hours spent on lobbying activities 36 any reasonable method to and may use the de minimis rule of Reg. It further provides that an organization may treat as zero the hours spent by personnel engaged in secretarial, clerical, supp as Opposed to activities involving significant judgment with respect to lobbying activities activities that an organization?s personnel spend on the organization?s trade 0 provides personne maintena personne Re 00 75 Reg. defines total labor hours as the on its trade or business. "106, and other similar activities, it must also treat as ze engaged in those activities. illustrates the operation of the ratio method. art, and other administrative otal number of hours of labor business during the year and that an organization may make reasonable assumptions concerning total hours spent by However, Reg. also provides. that if the organizatldn treats as zero the lobbying labor hours spent by per sonnel engaged in secretarial, "o the total labor hours of all In the example, three employees of an organization engage in both lobbying and nonlobbying activities. One spends 300 hour 3, another spends 1,700 hours, and the third spends 1,000 hours on lobbying activities, for a total of 3,000 hours for the year. The organization reasonably estimates that each of its three em] costs of organizat operations are $300,000 and it has no third-party costs. 74 REE as zero if I to determi employee lobbying, Reg. 1.16 similar m: otherwise research,1 contact 75 1 para?profe 356 provides that an organization may treat time Spent es's than five percent of the person?s time is Spent on lobbying activiti ne if that time is less than ?ve percent. However, pursuant to Reg. on "direct contact lobbying? (including the hours spent by that emplo uch as allocable travel time relating to direct contact lobbying) m2 "Direct contact lobbying? is de?ned as a meeting, tele :ans of communication with a federal or state legislator or covered qualifies as a lobbying activity. Reg. speci?cally pr ireparation, and other background activities related to direct contact 1c th a legislator or covered executive branch of?cial is not engaged i herefore, as Reg. explicitly provides, the hours ssionals and may not be treated as zero. >loyees spends 2,000 hours a year working for the organiz. ation. The organization?s total Under the ratio method, the ion allocates $150,000 to its lobbying activities for the year, calculated as follows: Lobbying labor hours Total Allocahle Costs - - - - - - - - - - - - - - - - - - - - - costs of third-party allocable to Total labor hours operations costs lobbying activities (300 1,700 1,000) -- it $300,000] $150,000 5/ an individual on lobbying activities es. Reasonable methods may be used any time spent by an yee in connection with direct contact Ly not be excluded under the rule of phone conversation, letter, or other Pederal executive branch of?cial that Pvides that a person who engages in bbying but who does not make direct direct contact lobbying. spent on lobbying activities by This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbyinq Issues guaranteed payments for services. bene?ts, basic lab arrive at organizat Costs attributable to pensi costs. Third-party lobbying costs are then added to otal lobbying costs. on may treat as zero the lobbying labor hours of perso Under the general gross?up method, which hat is the ?gross-up is described in an ethod?? organization multip ies its basic labor costs for lobbying labor hour by 175 percent. Pursuant to Reg. basic labor costs are limited to wages or 0th similar costs, such as ns, pro?t-sharing, employee iupplemental unemployment compensation plans, or sim lar items, are not included in result of the calculation to Reg. provides an alternative gross-up meth d. Under this alternative, an e1 who engage in secretarial, clerical, support, or other administrative activities that do not inv lve signi?cant judgment with respect to lobbying. However, if an organization uses this altem costs for that does not use proprieto a salary predecese did not ratio or 1 contende volunteer regulati01 lobbying personne total labc hours or Reg discussec that its employee $82,000 organiza l\ rules of section a and $25 per hour for the third employee. Thus, its Iany organizations engaged in lobbying activities are subje 263A, therefore, the regulations permit organizatior lobbying labor hours by 225 percent. the gross-up method. 1y reasonable labor costs for people engaged in lobbying :1 that they would be prevented from using either or activities are conducted by volunteers. total labor hours). . illustrates the operation of the gross-1 i above with regard to the ratio method. In this instance asic labor costs are $20 per hour for the first employee 300) ($30 1,700) ($25 1,000?. Un ion allocates $143,500 to its lobbying activities for the 3 Basic lobbying Allocable labor costs of third-party all personnel costs Cost to 3C 175% [175% $82,000] $143,500 the regulations thereunder to determine costs properly gross up method. 58 FR 68330, 68332 (Dec. 27, 199: in their lobbying activities (since no labor costs wer is, tax?exempt organizations can use either the ratio or Because volu 1, time spent by volunteers is excluded from the organizati iI? hours (although the hours may be included in their ox ive method, it must multiply 3g. provides that an organization (other than one subject to IRC 6033(e)) not pay or incur reasonable labor costs for persons engaged in lobbying activities may Such organizations would in ?ship in which the lobbying activities are performed by the owners who do not receive )r guaranteed payment for services. This provision is or in the proposed regulations. Under the proposed regulations, any organization that clude a partnership or sole ignificantly different from its activities could use neither the i) Tax?exempt organizations these methods if they used incurred). Under the ?nal ross-up methods even if their nteers are not organizations? on?s lobbying labor hours and vn employer?s lobbying labor 1p method to the same facts 3, the organization determines $30 per hour for the second nasic lobbying labor costs are der the gross-up method, the zear, calculated as follows: 5 allocable lobbying tivities ct to the uniform capitalization to use the principles of that illocable to lobbying activities. 357 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbui 6. Organiza regulations thereunder to determine the amount of costs allocable 1. Eow are exempt organizations xed under IRC 6033(e)? to provic lobbying lobbying to a pro} proxy ta: IRC 603 the amor 2. Issues Speci?cally, \that is the 263A method?? methodology to de :ions not subject to IRC 263A may also use the prime Exempt Organization Requirements (5) lobbying by deduc organizations that prevent this avoidar organizations subjec a notice to its members indicating the nondeductible activities. If the exempt organization does not provi expenditures exceed the amount disclosed in the notice, tl tax on the amount that should have been included in is equal to this amount multiplied by the highest corpo Thus, the organization has the option of provid' int of dues that is not deductible due to lobbying or pay' An organiza required to provide dues of the portion reasonably estimat organization?s lobt year and, thus, is What notices must be provided to members? This est' ate must be provided at the time of assessment or pay unde considered a service department or function. Therefore, an organ As discussec avoid the disallow IRC 263A, lobbying is ization may use its IRC 263A termine the amount of costs allocable to its lobbying department or function for purposes of complying with the regulations. lples of that section and the to lobbying activities. i above, organizations may not lance of the deduction for :ing dues paid to tax-exempt 'ngage in lobbying. Thus, to ice, IRC 6033(e) provides that :t to its provisions are required pOrtion of dues paid due to :ie the notice or if its actual ie organization will be subject the notice but was not. The rate rate imposed by IRC 11. a notice to its members of the proxy tax. LtiOI?l subject to IRC 6033(e) is notice to each person paying of dues that the organization es will be allocable to the ying expenditures during the ot deductible by the member. ment of the dues and must be reasona calculated to provide the organization?s members nondedu tible amount. IRC 6033(e)(1)(A)(ii). The legislative should provided in a conspicuous and easily recognizable fom the reg lations thereunder for guidance regarding the appropr stateme L76 with adequate notice of the istory indicates that the notice rat, referring to IRC 6113 and late format of the disclosure I 501(c)(4), IRC 501(c)(5), and IRC 501(c)(6) organiz informa ?on regarding their lobbying activities on Form 990, Retur Income Tax. If an organization is excepted from the IRC 6033( substant ally all of its dues were not deductible by its mem ations are required to disclose of Organization Exempt from 3) requirements either because bers or because its lobbying 76 F0 is no pen: guidance regarding IRC 6113, Notice 88-120, 1988-2 CB. 45? 119/ associated with failure to provide the disclosure notice in this ft 1. However, unlike IRC 6113, there irmat. 358 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuinq Issues 3. tax. Thi IRC l62( nondeduc the amOL years, ei because included should that were cancelled after a return reporting these costs wa Reg. 1.1 example nondedu reported :tible and the members paid a total of $100,000 of dues al expenditures What information must be disclosed on the Form 990? i organization does exceptions, it mu 3 information consists of the total dues received from e) lobbying expenditures, and the amount it disclo tible portion of dues. IRC The amoun hat amount is disclosed on Form 990 as IRC 162(e) bbying expenditures? accordance with bodies with respect to the organization the organization received a waiver of the proxy tax imp 3 reduced, but not below zero, by costs allocated in a pr If the organ] accordance with estimate of the port deductible under IF Form 990 the tot members were noti if the organization timely noti?ed its members that 25 1: that amount is disclosed for Tondeductible dues notices? on Form 990 would be $25,000. If the actua organization subjet amount that it nc deductible (either higher than anticip lower), the organiz hat if lobbying expenditures xceed the estimated amount? cons expenditures that di disclose this inform necessary to determ organization?s lobb lobbying of local direct lobbying ex expenditures is $2,000 or less (excluding allocable overhead exper nt disclosed. IRC 162(e)(2) and IRC Am her because the lobbying expenditures exceeded the dues received in those years or IRC 6033(e)(1)(C) and IRC 6033(e)(2)(B). The current isted solely of in?house not exceed $2,000, it must ation on the Form 990. If the not meet either of these at disclose the information ine if it is subject to the proxy members, the amount of its sed to its members as the i i. disclosed begins with the ying expenses determined in IRC 162(e). Thus, direct ouncils or similar governing to legislation of direct interest or its members and in-house penses if the total of such [368) should be excluded from ounts carried over from prior osed on that amount must be . year?s lobbying expenditures ior year to lobbying activities 8 ?led in accordance with ,zation notified its members in IRC 6033(e)(1)(A)(ii) of its .ion of dues that would not be LC 162(e), it must disclose on 11 amount of dues that its fied were nondeductible. For aercent of their dues would be locable to the year, the amount 1 lobbying expenditures of an :t to IRC 6033(e) exceed the >ti?ed its members was not because the expenses were ated or the dues receipts were ation is liable for a proxy tax 359 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Lobbuin 5] Issues on the excess amount. IRC 6033(e)(2)(A). The organization ma tax.77 organizat Form 990. The 0w does an organization quest a waiver? taxable amount of dues estimate for th amount on the A waiver of seek a waiver of the proxy the proxy tax is requested on organization checks a box agreeing to add the amount it entered as its lobbying expenditures to its 3 following year and enter the :xt year?s Form 990. An on may use this waiver procedure only if it sent dues notices at the time of assessment or payment of dues that reasonably estimated the dues allocable to nondeductible lobbying expenditL res. amount 5 disclosed by which then the 1 example, year wer amount However to $3 00x included IRC 603 Exempt an orga of dues deductio tax if it to mem?t requested a waiver, both the excess amount and the taxable am01 included lization elects to pay the proxy tax rather than to provide i I-ilow is the IRC 6033(e) proxy IRC 6033(6) must t] determined? of its IRC 162(e) 1 as the nondeducti ubject to the IRC 6033(e)(2) proxy tax is its IRC 162 to the members as nondeductible. However, if this am the total dues received exceeds the amount disclosed to ax is imposed on the lesser amount and the excess is carr an organization reports on the Form 990 that its IRC 162( 3 $600x and the aggregate amount of nondeductible dues dues received was $800x, then the taxable amount wou if the total amount of dues received was $400x, the tax ($400x $100x) and the excess $200x ($500x - $300: in the next year?s IRC 162 expenditures. he taxable amount is multiplied by the highest rate speci? 3(e) proxy tax. If the organization elects to pay the tax, rganization Business Income Tax Return (and proxy tax allocable to IRC 162(e) expenditures, all of the memb i to the extent otherwise deductible. The organization m2 nade a reasonable estimate and agrees to adjust its notic ers in the following year. Thus, in the second exam; in the next year?s IRC 162 expenditures. 77 It notice of dues income. The Conference Report indicates that guidance should be issued No. 103-2 360 IS also possible that an organization could overstate the portion of ti lisallowance. It could do so by overestimating the amount of the dis 13, 103d Cong, Sess. 608 n. 66 (1993), reprinted in 1993-3 CE As noted abc total dues it receive )ve, an organization subject to report on the Form 990 the from members, the amount obbying expenditures for the year, and the amount it disclosed to its members ble portion of dues. The expenditures less the amount aunt is more than the amount ne members as nondeductible, ied over to the next year. For e) expenditures for the taxable notices is $100x. If the total Id be $500x ($600x - $100x). able amount would be limited i) would be carried over and ed in IRC 11 to determine the it is reported on Form 990-T, mder section 6033 When its members with an estimate ers? dues remain eligible for also request a waiver of this of IRC 162(e) expenditures >le above, if the organization int would be carried over and dues that are not deductible in the allowed expenses or underestimating to cover this eventuality. HR. Rep. 5. 486. The matter is under study. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ust estimated tax on the Ifoxy tax be paid?? No, organiz IRC 6033(e) are not on the IRC 6033(e) provide notices Lobbuinq Issues ations that are subject to required to pay estimated tax aroxy tax, even if they do not 0 their members. The instructions for F0 990-T indicate that the proxy tax is not to included when calculating estimated tax liability. Under-repo ed lobbying expenditures are 10. What if lobbying expenditures subject to the IRC 6033(e) proxy tax for the year are under-reported? at issue only to the extent that the same 5 expenditures (if actually reported) would have resulted in a proxy tax liability for that year. A waiver of the proxy tax for the taxable year only applies tc reported expenditures. Under-reporting lobbying expenditures may also subject the organizat on to a $10 per day penalty under IRC 6652 for ?ling an incomplete or inaccurate . return. (6) Miscellaneous Rules As stated above, IRC 501(c)(3) 1_ 1 3y payments to charities organizations are not subject to the IRC 6033(e) mat lobby be deducted? disclosure requirements. However, 13222 of I OBRA 1993 also added IRC 170(t)(9) which provides that contributors to charities that engage in lobbying activities cannot take an IRC 170 or IRC 162 deduction for the contribution if the charities? lobbyi 1g activities are on matters of direct ?nancial interest to the contributors? trade or business and a principal purpose of the contribution is to avoid the general disallowance rule that would apply if the contributor conducted such lobbying activities directly. conducti by the c1 The pur disallow where t1 IRC 162(e)( What is the ?anti-cascading? Of an organizatio fule? business of lobbyi 1 who receives re ent or employer to the lobbyist or employee are nondeduc 3086 of this rule is to insure that, when multiple part since rule results in the denial of the deduction at only on 1e parties have a direct, one?on-one relationship and dc provides that in the case engaged in the trade or ng activities or an employee imbursements for lobbying expenses, the disallowance rule does not apply to expenditures of the organization or person in mg such activities directly on behalf of a client or employer. Instead, the payments made tible as lobbying expenditures. ies are involved, the general 6 level. The rule only applies es not have any relevance to payments to membership organizations that further the interests of all members, rather than one particular member. H.R. Rep. No. 103-213, 103d Cong, Sess. 610 (1993), reprinted in 1993?3 CB. 488. This document was obtained and uploaded by the Center for Res 361 ponsive Politics (OpenSecrets.org) Lobbuim Issues Subject Directory 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 2. Lobbying Activities of IRC 501(c)(3) Nonelecting Public Charities . . . . . . . . . . . 262 A. Legislative and Regulatory History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 The Pre?Statutory Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 (2) The Lobbying Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264 (3) Subsequent Statutory Developments . . . . . . . . . . . . . . . . . . . . . . 267 (4) The Constitutional Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 B. Speci?c Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 (1) The Meaninggf ?LegislationGeneral Meaning of ?LegislationMeaning of ?Action by the CongressMeaning of ?Resolutions or Similar MattersVotes on Executive Branch Nomnees . . . . . . . . . . . . . 271 5. Actions by Administrative Bodies . . . . . . . . . . . . . . . . 271 6. Zoning Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 272 7. Foreign Governments, Indian Tribes . . . . . . . . . . . . . . . 272 8. ?Good? vs. ?Bad? Legislation . . . . . . . . . . . . . . . . . . 272 (2) Attempts to In?uence Legislation . . . . . . . . . . . . . . . . . . . . . . . 273 1. Meaning of ?Attempts to In?uence LegislationMeaning of ?Action OrganizationNonpartisan Analysis . . . . . . . . . . . . . . . . . . . . . . . . 274 4. Appearances Before Legislative Committees . . . . . . . . . 276 5. Requests to Executive Bodies . . . . . . . . . . . . . . . . . . . 277 6. Attribution of Individuals? Actions to Organization . . . . 277 (3) Limits on Attempts to In?uence Legislation . . . . . . . . . . . . . . . . . 279 1. Meaning of ?SubstantialSupporting Activities . . . . . . . . . . . . . . . . . . . . . . . . . 280 3. Lobbying Activities of IRC 501(c)(3) Electing Public Charities . . . . . . . . . . . . . . 280 A. Legislative and Regulatory History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 (1) Enactment of the Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 (2) Overview of the Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282 (3) History of the Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283 E. Speci?c Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 The IRC 501(h) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 1. Organizations That May Make the Election . . . . . . . . . . 284 2. Organizations That May Not Make the Election . . . . . . 285 3. Exclusion of Churches . . . . . . . . . . . . . . . . . . . . . . . . 286 4. How the Election Is Made . . . . . . . . . . . . . . . . . . . . . 286 5. When the Election Is Effective . . . . . . . . . . . . . . . . . . 286 6. Newly Created Organizations . . . . . . . . . . . . . . . . . . . 287 7. Voluntary Revocation of Election . . . . . . . . . . . . . . . . 287 8. Re-election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287 362 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) LobbLLinq Issues 9. Involuntary Revocation of Electicn . . . . . . . . . . . . . . . 288 (2) Limits on Lobbying Expenditures . . . . . . . . . . . . . . . . . . . . . . . 288 1. ?Excess Lobbying ExpendituresNontaxable Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 289 3. Ceiling Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 4. Application of Rules . . . . . . . . . . . . . . . . . . . . . . . . . 290 (3) Exempt Purpose Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 1. What Are ?Exempt Purpose ExpendituresWhat Are Not ?Exempt Purpose ExpendituresTreatment of Transfers . . . . . . . . . . . . . . . . . . . . . . . 293 4. Determination of ?Exempt Purpose Expenditures? . . . . . 294 (4) Direct Lobbying and Grass Roots Lobbyin . . . . . . . . . . . . . . . . . 295 1. Meaning of ?Lobbying ExpendituresDistinction Between Direct and Grass Roots Lobbying . . 295 3. Meaning of ?LegislationMeaning of ?Speci?c LegislationDirect Lobbying Communication . . . . . . . . . . . . . . . . . 297 6. Expenses Associated with a Study . . . . . . . . . . . . . . . . 297 7. News Media Reports . . . . . . . . . . . . . . . . . . . . . . . . . 297 8. Indirect Communications with Legislator . . . . . . . . . . . 298 9. Grass Roots Lobbying Commun' ation . . . . . . . . . . . . . 298 10. Communications with General Public . . . . . . . . . . . . . 299 11. ?Call to Action? Requirement . . . . . . . . . . . . . . . . . . . 300 12. Volunteer Activity Costs . . . . . . . . . . . . . . . . . . . 301 (5) Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 i. Nonpartisan Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 1. Nonpartisan Analysis Exception . . . . . . . . . . . . . . . . . . 302 2. Meaning of ?Nonpartisan Analysis?Call to ActionHow Results May Be Distributed . . . . . . . . . . . . . . . . . 303 5. Distribution in a Series . . . . . . . . . . . . . . . . . . . . . . . . 303 6. Subsequent Use Rule . . . . . . . . . . . . . . . . . . . . . . . . . 304 7. Meaning of ?Advocacy CommunicationsWhen Advocacy Communicatiosz Become Grass Roots Lobbying . . . . . . . . . . . . . . . . . . . . . . . . . . 305 9. Primary Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 10. Time Limit on Subsequent Use Rule . . . . . . . . . . . . . . 306 ii. Other Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 1. Examinations of Broad Social Problems . . . . . . . . . . . . 306 2. Requests for Technical Advice . . . . . . . . . . . . . . . . . . 307 3. ?Self?defense307 (6) Special Rules for Mass Media Advertising . . . . . . . . . . . . . . . . . . 308 1. Mass Media Advertising Rules . . . . . . . . . . . . . . . . . . 308 2. Meaning of ?Mass MediaMeaning of "Highly Publicized309 363 This document was obtained and uploaded by the Center for Resaonsive Politics (OpenSecrets.org) (7) Earmarking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 1. Rules Relating to Transfers . . . . . . . . . . . . . . . . . . . . 310 2. When Transfer Is Earmarked for a Special Purpose . . . . 311 (8) Allocation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 1. Principles of Allocation Rules . . . . . . . . . . . . . . . . . . 311 2. Nonmember Communications . . . . . . . . . . . . . . . . . . 312 3. ?Same Speci?c SubjectMember Communications . . . . . . . . . . . . . . . . . . . . . 313 5. Mixed Lobbying Communications . . . . . . . . . . . . . . . . 313 (9) Special Rules for Membership Communications . . . . . . . . . . . . . . 314 1. Rules Concerning Membership Communications . . . . . . 314 2. Meaning of ?MemberMembership Communication Exception . . . . . . . . . . . . 314 4. Encouraging Direct Lobbying . . . . . . . . . . . . . . . . . . 315 5. Encouraging Grass Roots Lobbying . . . . . . . . . . . . . . . 315 6. ?Self-defense? Exception . . . . . . . . . . . . . . . . . . . . . . 316 7. Written Communications Not 801er for Members . . . . . 316 8. Allocation for Direct Lobbying Communications . . . . . . 317 9. Allocation for Grass Roots Lobbying Communications . . 317 (10) Af?liated Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 i. Affiliation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 1. Af?liation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 2. When Organizations are Af?liated . . . . . . . . . . . . . . . . 318 3. Meaning of ?Action on Legislative IssuesInterlocking Governing Boards . . . . . . . . . . . . . . . . . . 319 5. Board Members As Representatives . . . . . . . . . . . . . . . 320 6. Governing Instruments . . . . . . . . . . . . . . . . . . . . . . . 320 7. Whether Board Actions Establish Af?liation . . . . . . . . . 321 8. Organizations Filing a Group Return . . . . . . . . . . . . . . 321 9. Indirect Af?liation . . . . . . . . .. . . . . . . . . . . . . . . . . . . 321 10. 501(c)(3) Controlling Organization . . . . . . . . 322 ii. The Affiliated Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 1. Meaning of ?Af?liated Group of OrganizationsMember of More Than One Af?liatedllG?r?oup . . . . . . . . 323 3. Meaning of ?Electing Member CrganizEtienTaxable Year of Af?liated Group . . . . . . . . . . . . . . . 323 5. "Self?defense? Exception . . . . . . . . . . . . . . . . . . . . . . . 323 6. Membership Communication Rule . . . . . . . . . . . . . . . . 324 Excess Lobbying Expenditures . . . . . . . . . . . . . . . . . . . . . 324 1. Treatment of Af?liated Group . . . . . . . . . . . . . . . . . . . 324 2. Imposition Tax Liability of Electing Member . . . . . . . . . . . . . . . . 324 4. When Organization is Liable . . . . . . . . . . . . . . . . . . . . 325 5. Member of More Than One Group . . . . . . . . . . . . . . . 325 6. Organization Ceases to Be Member of Group . . . . . . . . 325 364 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) (BJO'SieJoesuedQ) somlod eAgsuodsea Jo; J81UGQ Aq pepeoldn pue peugeiqo SBM sgul Lobbuinc Issues iv. Application of IRC 501(Loss of IRC 501(c)(3) Status . . . . . . . . . . . . . . . . . . . . 326 2. Nonelecting Member . . . . . . . . . . . . . . . . . . . . . . . . . 326 3. Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 326 4. Application of Rules . . . . . . . . . . . . . . . . . . . . . . . . . 327 v. Limited Af?liated Groups . . . . . . . . . . . . . . . . . . . . . . . 328 1. ?Limited Af?liated Group of Organizations328 Meaning of ?National Legislative Issue328 Meaning of ?Controlling Member Organization329 Determination of Expenditures . . . . . . . . . . . . . . . . . . 329 Information Reported . . . . . . . . . . . . . . . . . . . . . . . . 330 ?Self-defense? Exception . . . . . . . . . . . . . . . . . . . . . . 330 Membership Communication Rule . . . . . . . . . . . . . . . 330 4. Lobbying Activities of IRC 501(c)(3) Private Foundations . . . . . . . . . . . . . . . . 331 A. Legislative and Regulatory History . . . . . . . . . . . . . . . . . . . . . . . . . . . 331 B. Speci?c IssuesLobbying . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 Meaning of ?Attempt to In?uence Legislation332 Membership Communication Rule . . . . . . . . . . . . . . . 332 Jointly Funded Projects . . . . . . . . . . . . . . . . . . . . . . . 333 Lobbying by Recipient of Program Related Investment . . 333 General Support Grants . . . . . . . . . . . . . . . . . . . . . . . 334 Speci?c Project Grants . . . . . . . . . . . . . . . . . . . . . . . . 334 Multi?year Specific Project Grants . . . . . . . . . . . . . . . . 335 Loss of Exemption by Grantee Public Charity . . . . . . . . 336 5. Lobbying and Tax-Exempt Organizations Not Described in IRC 501(c)(Restrictions on Lobbying . . . . . . . . . . . . . . . . . . . . . . 336 2. Lobbying Related to Exempt Purpose . . . . . . . . . . . . . . 337 3. IRC 501(c)(3) Organizations with Related IRC 501(c)(4) Organizations . . . . . . . . . . . . . . . 337 4. IRC 501(c)(3) Organizations that Lose Exempt Status Due to Lobbying . . . . . . . . . . . . . . . . . . . . . . . . . 338 5. Conversion of IRC 501(c)(3) Organization to IRC 501(c)(4) Status . . . . . . . . . . . . . . . . . . . . . . . 338 6. Exception to Transfer Rule . . . . . . . . . . . . . . . . . . . . . 339 7. Ballot Measure Committee . . . . . . . . . . . . . . . . . . . . . 340 6. Lobbying and IRC 162(Legislative and Regulatory History . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 (1) The Pie-Statutory Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341 (2) Allowance of the Lobbying Deduction . . . . . . . . . . . . . . . . . . . . . 341 (3) Disallowance of the Lobbying Deduction . . . . . . . . . . . . . . . . . . . 342 (4) Histor of Regulations and Administrative Pronouncements . . . . . . 344 365 Lobbuinq Issues B. Speci?c Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 (1) Organizations Excepted from the Reporting and Notice Reguirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344 1. Organizations Excepted from IRC 6033(IRC 501(c)(4) and IRC 501(c)(5) Organizations . . . . . . 345 3. IRC 501(c)(6) Organizations . . . . . . . . . . . . . . . . . . . . 345 4. ?Annual Dues? and ?Similar AmountsAf?liated Organizations . . . . . . . . . . . . . . . . . . . . . 346 (2) De?nitional Issues Regarding Lobbying . . . . . . . . . . . . . . . . . . . . 347 1. Meaning of ?In?uencing Legislation?Lobbying CommunicationApplication of IRC 4911(d)(2) Exceptions . . . . . . . . . . 348 4. ?Legislation?Speci?c Legislation?Legislative BodiesLocal Councils and Similar Bodies . . . . . . . . . . . . . . . 350 8. ?Covered Executive Branch OfficialMinimis In?House Lobbying . . . . . . . . . . . . . . . . . 350 (3). Lobbying Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351 1. Activity Engaged in for Lobbying Purpose . . . . . . . . . . 351 2. Activity Engaged in for Multiple Purposes . . . . . . . . . . 352 3. Activities Having No Lobbying Purpose . . . . . . . . . . . . 353 4. Supporting Lobbying of Another Organization . . . . . . . . 353 5. No Lobbying Communication Made . . . . . . . . . . . . . . . 353 6. Anti-Avoidance Rule . . . . . . . . . . . . . . . . . . . . . . . . 354 (4). Cost Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354 1. Allocation of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 354 2. Reasonable Method of Allocation . . . . . . . . . . . . . . . . 354 3. Costs Allocable to Lobbying . . . . . . . . . . . . . . . . . . . . 355 4. ?Ratio Method?Gross-Up Method263A Method358 (5) Exempt Organization Requirements . . . . . . . . . . . . . . . . . . . . . . . 358 1. Taxation under IRC 6033(Notices to Members . . . . . . . . . . . . . . . . . . . . . . . . . . 358 3. Information Disclosed on Form 990 . . . . . . . . . . . . . . . 359 4. Amount of IRC 162(e) Lobbying Expenditures . . . . . . . 359 5. Amount for Nondeductible Dues Notices . . . . . . . . . . . 359 6. Lobbying Expenditures Exceed Estimated Amount . . . . . 359 7. Waiver Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360 8. Determination of IRC 6033(e) Proxy Tax . . . . . . . . . . . 360 9. Estimated Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 10. Under?reported Lobbying Expenditures . . . . . . . . . . . . 361 (6) Miscellaneous Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 Contributions to Charities . . . . . . . . . . . . . . . . . . . . . . . . 361 Anti-Cascading Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361 366 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffery L. From: Sent To: Subject: Dear Mr. Yablon, Thank you for the Have a good week 7hr?; Wing Theron Friday, August 28, 2015 5:27 PM Yablon, Jeffery L. RE: Follow?Up to Our Conversation information. I will take it under consideration. end! Wi?? - Appeals, From: Yablon, Je Sent: Thursday, I To: Wing Theron Subject: Follow-l Mr. Wing: Thanl< constitute ?5 and/or logic this regard. I disag settled that organizatior requirement nothing but Vote to Rep education Oi and/or logic 501(c)(4). 'fery L. \ugust 27, 2015 5:01 PM Jp to Our Conversation SOD, Team 9 you again for taking the time to speak witl we discussed what ?social welfare? means in the contex 501(c)(4). You said that, after considering the matter, ocial welfare,? a communication must have a1 discussion. And you found some lacking in reed strongly with your interpretation of the i) a Code section 501(c)(4) organization may engage in nothing but ?lobbying? logical discussion is involved. Lobbying, is within the ambit of social welfare for pt 26 me yesterday. In that call of Code section ou had concluded that to an element of education 3 law, noting that it is well- a ?social welfare? and (ii) there is no that lobbying involve either education or logical discussion. Doing distributing bumper stickers that say ?Call Your Senator and Tell Her to eal All Federal Drug Laws? is a social welf are activity, even though no with or without education irposes of Code section This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) This is the law for a next few day this regard. In our trying to affc welfare.? I that political to you an ex Street Joum Chairman oi Commission 1122303351 and discussi claims that 1 Note t] recognizes welfare be the law. In sum purposes of welfare? is 2 Again, Jeffery L. Yablo Pillsbury Winthi 1200 Seventeer 202.663.8441 Partner It is crucial that you understand that the ;aid that there are people who think that the ?the Federal Election 1at Professor Smith is not saying that this is hat it is not. He is advocating that the estab Hanged. But until it is, his View, his intuitic ,?it is a mistake to try to intuit the meaning Code section 501(c)(4). Moreover, there is [term of art with an established meaning. esterday. thank you for speaking with me 5 eff ofp Shaw Pittman LLP th Street NW Washington, DC 20036-3006 I if 202.663.8007 jeffery.yablon@ ABU AUST: NORTH ERN RISI A SAN SHA VEGi-lm SILICON VAUJEEY WASHINGTON, DC piillsburylaweom 1 website bio HOUSTON LONDON L05 NASHVILLE NEW SACRAMENTO SAN SAN NORTH COUNTY 27 not opinion. This is not open to debate. Tl long time. I promised to send proof of this conversation we also discussed the fact that :c?t the outcome of an election is not witl activity would constitute social welfare act ample of this. Accordingly, here is a link tc a] opinion piece by Brad Smith, a law profe In this piece, Professor Smith says: ?Wh oh a form of promoting "social welfare?? Vi lolitical participation is not in the interest of 1is is the law and has been to you and will do so in the law is very, very clear in ?political activity? -- 1in the realm of ?social law should be changed such ivity, and promised to send an August 5, 2013 Wall ssor who was formerly the 11278873248090045786380 aren?t political education That kind of democracy "social welfare?" the law; indeed, he lished definition of. social in as to what is right, is not of ?social welfare? for no need to do so. ?Social This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) The contents of thi message, together with any attachments, are intended only for the use of the individual or entity to which the are addressed and may contain information that is legally privileged, con?dential and exempt from disc oisure. If you are not the intended recipient, you are hereby noti?ed that any dissemination, distribution, or ing of this message, or any attachment, is strictly prohibited. If you have received this message in error, ease notify the original sender or the Pillsbury Winthrop Shaw Pittman Help Desk at Tel: 800-477-0770, 0 on 1, immediately by telephone or by return E-mail and delete this message, along with any attachments, from Tour computer. Thank you. 28 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffery L. From: Sent To: Subject: Mr. Wing: Yablon, Jeffery L. Thursday, August 27, 2015 8:01 PM 'Wing Theron Follow-Up to Our Conversation Thank. you again for taking the time to speak with me yesterday. In that call we discusse< 501(c)(4). 3 constitute ?5 and/or logic this regard. I disag requirement nothing but Vote to Re education 0 and/or logi 501(c)(4). This i the law for next few da this regard. In our trying to afi welfare.? I that politica to you an e) Street Jouri Chairman 0 Commissio 112230335 ?ou said that, after considering the matter, ocial welfare,? a communication must have not opinion. This is not open to debate. long time. I promised to send proof of this ys. It is crucial that you understand that the conversation we also discussed the fact tha ect the outcome of an election -- is not wit said that there are people who think that the 1 activity would constitute social welfare ac :ample of this. Accordingly, here is a link 2a] opinion piece by Brad Smith, a law prof the Federal Election n: In this piece, Professor Smith says: ?Wl 29 This document was obtained and uploaded by the Center for Res 1 what ?social welfare? means in the context of Code section ou had concluded that to an element of education a1 discussion. And you found some lacking in reed strongly with your interpretation of the law, noting that it is well? settled that a Code section 501(c)(4) organization -- organization may engage in nothing but ?lobbying? that lobbying involve either education or logical discussion. Doing distributing bumper stickers that say ?Call a1 All Federal Drug Laws? is a social welf logical discussion is involved. Lobbying, is within the ambit of social welfare for pu a ?social welfare? and (ii) there is no our Senator and Tell Her to are activity, even though no with or without education rposes of Code section his is the law and has been 3 to you and will do so in the law is very, very clear in t?political activity? hin the realm of ?social law should be changed such tivity, and promised to send 0 an August 5, 2013 Wall essor who was formerly the 41278873248090045786380 1y aren?t political education aonsive Politics (OpenSecrets.org) and a form of promoting "social welfare?? What kind of democracy claims that pollitical participation is not in the interest of "social welfare?" Note that Professor Smith is not saying that this is the law; indeed, he recognizes that it is not. He is advocating that the established definition of social welfare be changed. But until it is, his View, his intuition as to what is right, is not the law. In sum it is a mistake to try to intuit the meaning of ?social welfare? for purposes of Code section 501(c)(4). Moreover, there is no need to do so. ?Social welfare? is a term of art with an establishedmeaning. Again, tiank you for speaking with me yesterday. --J eff Jeffery L. Yablon I Partner Pillsbury Winthr 3p Shaw Pittman LLP 1200 Seventeen :h Street NW Washington, DC 20036?3006 202.663.8441 202.663.8007 jeffery.yablon@ 3i.llsburylaw.com website bio ABU CHABI AUSTIN HOUSTON LONDON LOS ANGELES NASHVILLE NEW NORTHERN VIRGINIA PALM BEACH SACRAMENTO SAN SAN DIEGO NORTH COUNTY SAN FRANCISCO SHAN 3 SILICON VALLEY TOKYO WRS HINGTON, DC 30 This document was obtained and uploaded by the Center for Responsive Politics (OpenSeerets.org) Yablon, JefferyL. From: Yablon, Jeffery L. Sent: Monday, August 17, 2015 4:53 PM To: 'Wing Theron Subject: RE: Follow-Up to Our Conversation Mr. Wing: Thanks for getting back to me so quickly. Please understand that nothing in my last e-mail was in any way intended as a criticism of you. I truly believe that you are, as I stated, ?an experienced and knowledgeable IRS Appellate Conferee acting in good faith.? The problem is that both you and I must deal with the rules presented in Rev. Ruls. 2004?6 and 2007- 41, and those rules are not comprehensible. I look forward to hearing from you. Best regards. --J eff Jeffery L. Yablon Partner Pillsbury Winth *op Shaw Pittman LLP 1200 Seventeemth Street NW Washington, DC 20036-3006 202.663.8441 f202.663.8007 I website bio ABU DHABI AUSTIN BEIJING HOUSTON LUNDDN L05 .?r?tl?llGELES NASHVILLE NEW YORK NORTHERN VIRGINIA SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN SHA VALLEY DC pi lslium From: Wing Theron Sent: Monday, August 17, 2015 1:03 PM To: Yablon, Jeffery L. Subject: RE: Fo low?Up to Our Conversation Good Morning Mr. Yablon, e?mail/disclosure rules limit us from responding to taxpayer e-mails in detail, which is part of the reason that am brief in my e-mail replies to you. That being said, i understand your concerns and they may very well be correct. However, as we discussed, my intent was to find somJ: sort of common sense approach to answering the question ofwhether or not the TV ads give rise to political interve tion within the frame work of the two revenue rulings. Perha as my interpretation of the revenue 31 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) rulings and my "method" is flawed as you describe below, which is why we have requested our counsel?s opinion on the matter. It is my As with your prev Thank you, T?errm 4. IRS - A eals, From: Yablon, Jeffery L. Sent: Monday, A To: Wing Theron Subject: Follow- Mr. Wing: I again efforts to condt In our conversation you described the methodology that you ar activities under Rev. Ruls. 2004-6 and 2007?41. Having considered the a explain why, a valid interpre If I am using the el five that ?tend creating eighte ?Yes? meaning the TV ad is 5 equal weight t( sincere hope that they will be able to bring some clarity to this ious e?mailed information, i will consider your position as writ Wing SOD, Team 9 ugust 17, 2015 8:42 AM Up to Our Conversation ct a thorough and impartial review. :spite its seeming attraction, your methodology is not con tation of them. understanding you correctly and please let me know if I even factors of Rev. Rul. 2004-6 (six that ?tend to show? to show? that a communication is social welfare) and (ii) i en boxes. You then reviewed each TV ad and placed 6 that the factor implies that the TV ad is political and acial welfare. You told me that because the two rulings a each factor. 32 hank you for taking the time to speak with me on Mond. issue, one way or the other. ten below. 1y, August 10, and especially for your 3 using to evaluate Crossroads pproach you explained, I am writing to sistent with the two rulings, much less am not you have constructed a chart that a communication is political and :he seven factors of Rev. Rul. 2007?41, ither a ?Yes? or a ?No? in each box; 0? meaning that the factor implies that do not weigh the factors, you assigned This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Then you counted. If there were more ?Yesses? than ?Noes,? you deemed the TV ad political. If there were more ?Noes? than ?Yesses,? you deemed the TV ad social welfare. As you said to me, ?This made it easy.? I It is respectfully submitted that, despite its attraction as an ?easy way to resolve very dif?cult matters, this ?classify-aid?count? methodology is at odds with both of the rulings and with logic: 1. [fthe two rulings were intended to require the counting of factors rather than the weighing of factors, the rulii?rgs would have said so explicitly. Instead, the two rulings speak of ?analyzing? and ?considering? all the facts and circumstances,? which is the opposite of my mechanical classify-and-count technique. 2. Rev. Ruls. 2004-6 and 2007?41 have been the subject of intense and extensive commentary by many experts, including scholars, practitioners, and Congressional committees, who have studied both of the rulings and the other law in this area. For a very small fraction of the voluminous expert commentary, please see, Hill and Mancino, Taxation of Exempt Organizations, Chapter 6; Hopkins, The Law of Tax-Exempt Organizations, Chapter 23; Colinvaux, Political Activity Limits And Tax Exemption: A Gordian?s Knot, Virginia Tax aw Review; Gregory J. Colvin, Chair of the Drafting Committee, Bright Lines Project of Public Citizen; ?Testimony to Senate Judiciary Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts? (July 29, 2015) (?[The rulings are] vague, unpredictable and dif?cult to interpret?); United States Senate, I?el'rmanent Subcommittee on Investigations (Committee on Homeland Security and Government Affairs) aiid TIGTA Management Failures related to 501(c)(4) Applicants engaged in campaign activity? (September 5, 2.014); and ?Charting a Path Forward at the IRS: Initial Assessment and Plan of Action,? (June 24, 2013) prepared by Acting IRS Commissioner Daniel Werfel. (?One of the signi?cant challenges with the 501(c)(4) revie process has been the lack of clear and concise de?nition of ?political campaign intervention?) Not one of these experts absolutely no one has ever suggested or even hinted that the appropriate or orrect method of analysis is the classify-and-count metho :1 that you have adopted. Nor has the 33 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) author of both 1 approach. 3. example, an ad therefore labell shown after the Yesses would the ad to be lab analysis that caniproduce this result must be rejected. 4. articulated or must receive nc is very radical, In closi and if, as seen 2004-6 and 20 faith, to create before-seen me they cannot be of common ir governmental 2 that any more I If you prpceed down this path to a ?nal adverse conclusion, we denial docume ullings, Judith Kindell, who has given many public speech Ais we discussed, the classify-and-count method can produ i referencing pending legislation that had at least two or mc i . . . ecil as political, in part because it was aired right before an election but before the lame duck session that will consid changed to a No, but there would still be enough Yesses elled as political even though the election is over. This is E?ven if the classify-and-count method could be sustained . i Kplained by the Internal Revenue Service or by anyone els itice of changes in the law, especially radical changes. An irideed. i ng, I note something that is irrelevant for current purpose i siincreasingly likely, this matter goes to court. The fact I, )7:~41 have led you, an experienced and knowledgeable and assert as controlling law ?ve years into the IRS i uinderstood (even by smart people who have studied the telligence? which the Supreme Court has said is the Lgents the power to decide cases based on unpredictable, I iroof is needed. his you explain this methodology in detail. We believ 34 es on the topic, ever suggested such an ice nonsensical results. Consider, for are Yesses than Noes and was election. If the same ad was then er the proposed legislation, one of the to cause the post-election showing of an absurd result. Any theory or is a logical matter, it has never been e. Under our system of law, taxpayers Ld the classify-and-count methodology 5 but will become quite relevant when s-and-circumstances tests of Rev. Rul. RS Appellate Conferee acting in good review process an ?easy? but never- chanism. This demonstrates conclusively that the tests are unconstitutionally vague because law in the area, much less by the ?men referent) and (ii) because they give unknown and undisclosed factors. Not respectfully request that in the written a that this methodology would fail to This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) withstand scrutiny from the judiciary, and need to make sure the records 0 basis for such ac Again, tl Pillsbury Winth 1200 Seventeen 202.663.8441 Jeffery L. Yablo'E I jeffery.yablon@p AEIU DHABI AUSTIN NORTH ERN VIRGINIA SAN FRANCISCO SHAN pl lshuni The contents of exempt from dis distribution, or message in err01 800-477-0770, attachments, fro a This documen ti tank you for your consideration. El. Al th entity to which opying of this message, or any attachment, is strictly proh )ption 1, immediately by telephone or by return E-mail an ons, are complete in the record. Jeffery Yablon Partner Shaw Pittman LLP I Street NW Washington, DC 20036?3006 if 202.663.8007 l sbury aw.com website bio ING HOUSTON UJNDOM L05 ANGELES NASHVILLE NEW YORK BEACH SACREMENTO SAN DIEGO SAN DIEGO NORTH VALLEY TOKYO WASHINGTON, DC is message, together with any attachments, are intended 3y are addressed and may contain information that is leg losure. If you are not the intended recipient, you are here please notify the original sender or the Pillsbury your computer. Thank you. 35 actions taken by the Service, and the only for the use of the individual or ally privileged, con?dential and by noti?ed that any dissemination, ibited. If you have received this )p Shaw Pittman Help Desk at Tel: delete this message, along with any twas obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffe ry L. From: Sent: To: Subject: Good Morning iv e?maiI/disclo brief in my e-mail replies to you. That being said, was to find some political interver rulings and my matter. As with your pre Thank you, Tiara? Wi?i IRS - A eals, From: Yablon, Sent: Monday, A To: Wing Theror Subject: Follow Mr. Wing: I again efforts to condt In our activities under It is my Wing Theron Monday, August 17, 2015 1:03 PM Yablon, Jeffery L. RE: Follow?Up to Our Conversation lr. Yablon, sure rules limit us from responding to taxpayer e?mails in deta understand your concerns and they may very well be correct. sort of common sense approach to answering the question 01 tion within the frame work of the two revenue rulings. Perhar nethod" is flawed as you describe below, which is why we hav sincere hope that they will be able to bring some clarity to this vious e-mailed information, I will consider your position as wri SOD, Team 9 affery L. rugust 17, 2015 8:42 AM -Up to Our Conversation thank you for taking the time to speak with me on Mond let a thorough and impartial review. :onversation you described the methodology that you ar Rev. Ruls. 2004-6 and 2007-41. Having considered the a 36 I, which is part ofthe reason that I am However, as we discussed, my intent 'whether or not the TV ads give rise to )5 my interpretation of the revenue requested our counsel?s opinion on the issue, one way or the other. tten below. ay, August 10, and especially for your using to evaluate Crossroads pproach you explained, I am writing to This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) explain why, despite its seeming attraction, your methodology is not cons a valid interpretation of them. If I am understanding you correctly and please let me know if I using the ele? ?ve that ?tend to) creating eightee ?Yes? meaning the TV ad is so? equal weight to Then y01 were more ?No easy.? It is resp this ?classify-an l. I factors, the rulir as cc, 1 ?considering technique. 2. many experts, including scholars, practitioners, and Congressional commi rulings and the see, Hill an Organizations, Virginia Tax La Jen factors of Rev. Rul. 2004-6 (six that ?tend to show? show? that a communication is social welfare) and (ii) tl nlboxes. You then reviewed each TV ad and placed ei that the factor implies that the TV ad is political and ?No :i a1 welfare. You told me that because the two rulings each factor. .1 counted. If there were more ?Yesses? than ?Noes,? ya es than ?Yesses,? you deemed the TV ad social welfar ectfully submitted that, despite its attraction as an ?easy? d--count? methodology is at odds with both of the rulings 2 fthe two rulings were intended to require the counting of i gs would have said so explicitly. Instead, the two rulings i Ruls. 2004-6 and 2007-41 have been the subject of in1 )ther law in this area. For a very small fraction of the V011. Mancino, Taxation of Exempt Organizations, Chapter 6 Shapter 23; Colinvaux, Political Activity Limits And Tax i I Review; Gregory J. Colvin, Chair of the Drafting Com 37 istent with the two rulings, much less 1m not you have constructed a chart that a communication is political and re seven factors of Rev. Rul. 2007-41, ther a ?Yes? or a ?No? in each box; meaning that the factor implies that 0 not weigh the factors, you assigned 1 deemed the TV ad political. If there a hit As you said to me, ?This made it way to resolve very dif?cult matters, ind with logic: ?actors rather than the weighing of speak of ?analyzing? and 111 the facts and circumstances,? which is the opposite of any mechanical classify?and-count .ense and extensive commentary by ttees, who have studied both of the iminous expert commentary, please Hopkins, The Law of Tax?Exempt Exemption: A Gordian?s Knot, mittee, Bright Lines Project of Public This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Citizen; ?Testin?ony to Senate Judiciary Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts? States Senate, Pt :rmanent Subcommittee on Investigations (Committee on (July 29, 2015) (?[The rulings are] vague, unpredictable and dif?cult to interpret?); United Homeland Security and Government Affairs) and TIGTA Management Failures related to 501(c)(4) Applicants engaged in campaign activity? (September 5, 20l4); and ?Charting a Path Forward at the IRS: Initial Assessment and Plan of Action,? (June 24, 2013) prepared by Acting IRS Commissioner Daniel Werfel. (?One 01 501(c)(4) reviev 1 process has been the lack of clear and concise de?nition "the signi?cant challenges with the of ?political campaign intervention?) \Iot one of these experts absolutely no one has ever suggested or even hinted that the appropriate or author of both r1 approach. 3. A example, an ad therefore labelle shown after the Yesses would the ad to be lab: analysis that car 4. I articulated or e: must receive no is very radical, In closi and if, as seem 2004-6 and 20? is we discussed, the classify-and-count method can produ< ?eferencing pending legislation that had at least two or mo di as political, in part because it was aired right before an election but before the lame duck session that will conside changed to a No, but there would still be enough Yesses :lled as political even though the election is over. This is 2 1 produce this result must be rejected. Even if the classify-and?count method could be sustained a :plained by the Internal Revenue Service or by anyone els tice of changes in the law, eSpecially radical changes. An irideed. 1g, I note something that is irrelevant for current purpose 3 increasingly likely, this matter goes to court. The fact )7-41 have led you, an experienced and knowledgeable I 38 arrect method of analysis is the classify-and-count method that you have adopted. Nor has the 11ings, Judith Kindell, who has given many public speeches on the topic, ever suggested such an :e nonsensical results. Consider, for re Yesses than Noes and was :lection. If the same ad was then :r the proposed legislation, one of the to cause the post-election showing of in absurd result. Any theory or a logical matter, it has never been 3. Under our system of law, taxpayers the classify-and-count methodology 3 but will become quite relevant when s-and-circumstances tests of Rev. Rul. RS Appellate Conferee acting in good This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) faith, to create before-seen me< they cannot be 1 of common inte governmental a that any more If you denial document: withstand scruti basis for such a Again, Jeffery L. Yablc Pillsbury Winther 1200 Seventee 202.663.8441 jeffery.yab on@ ABU A USTIN VI SAN SHA pliishmq The contents 0 entity to which exempt from distribution, or message in error Option 1, immediately by telephone or by return E?mail and delete this message, along with any 800?477-0770, attachments, fr om your comput 1r :h mderstood (even by smart people who have studied the lligence? which the Supreme Court has said is the ge *oof is needed. roceed down this path to a ?nal adverse conclusion, we 11 :tions, are complete in the record. hank you for your consideration. Jeffery Yablon I Partner 3p Shaw Pittman LLP Street NW Washington, DC 20036?3006 202.663.8007 Jillsburylaw.com website bio it i 9F BEIJING HOUSTON LONDON L05 AMGELES l?lEW YORK Punk-1 BEACH DIEGO SAN DIEGO NORTH COUNTY VALLEY TC?kit?O t] 0 his message, together with any attachments, are intendec are addressed and may contain information that is lei closure. If you are not the intended recipient, you are her opying of this message, or any attachment, is strictly pro please notify the original sender or the Pillsbury Winthi I er. Thank you. 39 1d assert as controlling law ?ve years into the IRS anism. This demonstrates conclusively that the tests ar :nts the power to decide cases based on unpredictable, 3 you explain this methodology in detail. We believe from the judiciary, and need to make sure the records :view process an ?easy? but never- unconstitutionally vague because aw in the area, much less by the ?men referent) and (ii) because they give .nknown and undisclosed factors. Not respectfully request that in the written that this methodology would fail to )f actions taken by the Service, and the I only for the use of the individual or gally privileged, con?dential and eby noti?ed that any dissemination, hibited. If you have received this :op Shaw Pittman Help Desk at Tel: This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) 40 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeff From: Sent: To: Subject: Mr. Wing: e?y L. Yablon, Jeffery L. Monday, August 17, 2015 11:42 AM 'theron.c.wing@irs.gov' Follow?Up to Our Conversation I again tihank you for taking the time to speak with me on Monday, August 10, and especially for your efforts to conduct a thorough and impartial review. In our conversation you described the methodology that you are using to evaluate Crossroads activities under explain why, de a valid interpret Iflam1 using the eleven factors of Rev. Rul. 2004-6 (six that ?tend to show" spite its seeming attraction, your methodology is not con ation of them. inderstanding you correctly and please let me know if I Rev. Ruls. 2004-6 and 2007-41. Having considered the approach you explained, I am writing to sistent with the two rulings, much less am not - you have constructed a chart that a communication is political and ?ve that ?tend 10 show? that a communication is social welfare) and (ii) the seven factors of Rev. Rul. 2007-41, creating eighte ?Yes? meaning the TV ad is St equal weight to Then yt were more easy.? It is res this ?classify-and-count? methodology is at odds with both of the rulings :n boxes. You then reviewed each TV ad and placed that the factor implies that the TV ad is political and >cial welfare. You told me that because the two rulings each factor. )u counted. If there were more ?Yesses? than ?Noes,? yc 363? than ?Yesses,? you deemed the TV ad social welfa pectfully submitted that, despite its attraction as an ?easy 41 ither a ?Yes? or a ?No? in each box; 0? meaning that the factor implies that 10 not weigh the factors, you assigned deemed the TV ad political. If there re. As you said to me, ?This made it way to resolve very dif?cult matters, and with logic: This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) 1. factors, the rulings would have said so explicitly. Instead, the two rulings 9? (C ?considering technique. 2. many experts, including scholars, practitioners, and Congressional commi rulings and the I Rdv. Ruls. 2004-6 and 2007-41 have been the subject of in fthe two rulings were intended to require the counting of all the facts and circumstances,? which is the Opposite of a factors rather than the weighing of speak of ?analyzing? and my mechanical classify-and-count tense and extensive commentary by ttees, who have studied both of the other law in this area. For a very small fraction of the voluminous expert commentary, please see, e. g, Hill and Mancino, Taxation of Exempt Organizations, Chapter 6; Hopkins, The Law of Tax-Exempt Organizations, Chapter 23; Colinvaux, Political Activity Limits And Tax Exemption: A Gordian?s Knot, Virginia Tax Law Review; Gregory J. Colvin, Chair of the Drafting Committee, Bright Lines Project of Public Citizen; ?Testir Federal Courts? States Senate, Affairs) a (September 5, 2 24, 2013) preps 501(c)(4) revie intervention?) appropriate or i author of both approach. 3. example, an ad therefore label] shown after th: iony to Senate Judiciary Subcommittee on Oversight, Age ermanent Subcommittee on Investigations (Committee on ncil TIGTA Management Failures related to 501(c)(4) App 014); and ?Charting a Path Forward at the IRS: Initial As red by Acting IRS Commissioner Daniel Werfel. (?One process has been the lack of clear and concise de?nitior :orrect method of analysis is the classify-and?count metho As we discussed, the classify-and-count method can prodt referencing pending legislation that had at least two or ed as political, in part because it was aired right before an 3 election but before the lame duck session that will consic 42 "ulings, Judith Kindell, who has given many public speech 'ncy Action, Federal Rights and (July 29, 2015) (?[The rulings are] vague, unpredictable 71nd dif?cult to interpret?); United Homeland Security and Government licants engaged in campaign activity? sessment and Plan of Action,? (June if the signi?cant challenges with the of ?political campaign Not one of these experts absolutely no one has ever suggested or even hinted that the that you have adopted. Nor has the es on the topic, ever suggested such an ICC nonsensical results. Consider, for are Yesses than Noes and was election. If the same ad was then ler the proposed legislation, one of the This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yesses would the ad to be labc analysis that can produce this result must be rejected. 4. articulated or e) must receive notice of changes in the law, especially radical changes. An is very radical, . . . . In closung?, I note something that IS irrelevant for current purpose and if, as seem 2004-6 and 20C faith, to create before-seen me they cannot be of common in governmental agients the power to decide cases based on unpredictable, I that any more If you 1: denial docume withstand scrut basis for such a Againlained by the Internal Revenue Service or by anyone els ?i deed. 5 increasingly likely, this matter goes to court. The fact 7-41 have led you, an experienced and knowledgeable I a1 I teilligence? which the Supreme Court has said is the I . r00f is needed. i i rocee i down this path to a ?nal adverse conclusion, we tions, are complete in the record. from the judiciary, and need to make sure the records Cl hank you for your consideration. Jeffery Yablon 43 changed to a No, but there would still be enough Yesses ed as political even though the election is over. This is 2 Even if the classify?and-count method could be sustained a nd assert as controlling law ?ve years into the IRS ianism. This demonstrates conclusively that the tests a1 its you explain this methodology in detail. We believe to cause the post-election showing of 1n absurd result. Any theory or a logical matter, it has never been e. Under our system of law, taxpayers :1 the classify-and-count methodology 5 but will become quite relevant when s-and-circumstances tests of Rev. Rul. RS Appellate Conferee acting in good eview process an ?easy? but never- 'e unconstitutionally vague because uhderstood (even by smart people who have studied the law in the area, much less by the ?men referent) and (ii) because they give mknown and undisclosed factors. Not respectfully request that in the written that this methodology would fail to of actions taken by the Service, and the This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Jeffery L. Yablon Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenl Street NW Washington, DC 20036-3006 202.663.8441 f202.663.8007 jeffery.yablon@ Dillsburylaw.com website bio ABU DHABI AUSTIN EUING HOUSTON LONDON LOS ANGELES NASHVILLE NEW YORK NORTHERN VIRGINIA WM BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN FRANCISCO SHAN a?sl SILICON VALLEY TOKYO DC 44 This document was obtained and uploaded by the Center for Resoonsive Politics (OpenSecrets.org) Yablon, Jeffer L. From: Wing Theron Sent: Tuesday, August 11, 2015 4:35 PM To: Yablon, Jeffery L. Subject: RE: Senate Finance Committee Report Mo 'e Material ITEM 2 OF 2 Thank you Mr. Yaplon. I will consider the information submitted. Take care, Willy SOD, Team 9 IRS - Appeals, From: Yablon, Jeffery L. Sent: Tuesday, A ugust 11, 2015 1:18 PM To: Wing Theron Subject: Senate Finance Committee Report -- More Material ITEM 2 OF 2 Mr. Wing: And here is a link to the press release by the SFC Committee, which in turn has links to the additional Views and a timeline: ?nance. senate. gov/newsroom/ chairman/rel ease/ ?id= lf4db f-9986- 4ecb?ba61?13a83beb2672 eff Yablon Jeffery L. Yabl Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street NW Washington, DC 20036?3006 202.663.8441 f202.663.8007 jefferyyablon?)pillsburylawcom website bio l'i HG 50"} la CRTHERH HIE IN A 3.11 kaCil?If-JlEleD SAN ?11550 NSF-TH Finis HERE 503 5?41 Jr?s-It. W415 DC 45 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) The contents of this message, together with any attachments, are intended only for the use of the individual or entity to which they are addressed and may contain information that is leg ally privileged, con?dential and exempt from disclosure. If you are not the intended recipient, you are hereby noti?ed that any dissemination, distribution, or copying of this message, or any attachment, is strictly prohibited. If you have received this message in error, please notify the original sender or the Pillsbury Winthrop Shaw Pittman Help Desk at Tel: 800-477-0770, Option 1, immediately by telephone or by return E-mail and delete this message, along with any attachments, from your computer. Thank you. 46 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffery L. From: Yablon, Jeffery L. Sent: Tuesday, August 11, 2015 4:18 PM To: 'theron.c.wing@irs.gov' Subject: Senate Finance Committee Report -- More Mr. Wing: And here is a link to the press release by the SFC has links to 1 he additional views and a timeline: aterial ITEM 2 OF 2 Committee, which in turn 4ecb-ba6 ?f3a8abeb2672 eff Yablon Jeffery L. Yablorl Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeenlth Street NW Washington, DC 20036?3006 202.663.8441 202.663.8007 jeffery.yablon@ ?llsburylaw.com website bio DJ ABU AUSTIN ING HOUSTON LONDON LOS ANGELES NASHVILLE NEWYORK NORTHERK PALM BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN FRANCISCO SILICON VALLEY TOKYO WASHINGTON, DC 47 This document was obtained and uploaded by the Center for Res ponsive Politics (OpenSecrets.org) Yablon, Jeffery; L. From: I Yablon, Jeffery L. Sent: Tuesday, August 11, 2015 4:17 PM To: Subject: New Senate Finance Committee Report ITEM 1 OF 2 Mr. Wing: As promised, here is a link to the new 145?page Senate Finance Committee Report on IRS malfeasance against applicants for recognition of exemption under Sections 50 and 501(c)(4); it is searchable and GPS is mentioned by name more than once: Staff%20Report.pdf Best regards. --J eff Yablon Jeffery L. Yablon Partner Pillsbury Winth Shaw Pittman LLP 1200 Seventeer th Street NW Washington, DC 20036?3006 202.663.8441 [f 202.663.8007 jeffery.yablon@ pillsburylaw.com website bio ABU DHABI BEIJING HOUSTON L-DNDON L05 JUJGELES NASHVILLE NEW YORK VLRGINIA ?AL't-l BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH SAN 59?111. SILICON VALLEY TOKYO WASHINGTON, DC 48 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffel ILL. From: Sent: To: Subject: Mr. Wing: Thank I great submission which I will of the Third As we Washingtor liberal/prog does and Means with generally Yablon, Jeffery L. Monday, August 10, 2015 2:42 PM Crossroads GPS ly appreciate your willingness to accept an (the ?Third Supplemental Submission?) relz that was made public last week by the Senate Finance send you by link later today. Absent unfor Supplemental Submission will be sent to discussed, a friend of mine, Beth Kingsley L, DC law ?rm that specializes in representir ressive/Democratic tax-exempt organizatior all known, Beth recently testi?ed before the respect to IRS audits of tax?exempt organi: you again for taking the time to speak with me today. additional supplemental iting to the new information Iommittee Report, a copy of eseen problems, a hard-copy ou within two weeks. is a partner in a 1g is. Excellent at what she Committee on Ways and :ations: See 030/ and speci?cally Kingsley-T In thi worked to i underrepres voting righ1 missionhtn Project Vote mobilize low- Despite rece in low-incom weakens our vulnerable an I testimony Beth referred to her client Proje ncrease voter registration and participation ented citizens, and has emerged in recent yr The Project Vote website http://ww? 11 elaborates on this: Our Mission 5 a national nonpartisan, nonprofit 501(c)(3) that ncome, minority, youth, and other marginalized am upticks in voter participation, a significant portio and minority communities, is still alienated from democracy by excluding from major public policy (I least powerful. Project Vote knows that strong (I 49 ct Vote, which she said ?has among historically :ars as a national leader in w.proiectvote.org/our? rorks to empower, educate, and i under-represented voters. of the electorate, concentrated he electoral process. This ecisions the voices of the most emocracy needs active This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) participation from all sectors of society, and works hard to engagi?e low-income and minority voters in the ivic process. Beth?s testimony describes the IRS audit and reports a favorable outcome for her client. The outcome the IRS examination of Project Vote is of direct relevance to your review of Crossroads GPS. No he intent (both nest person, including Beth, would deny that the motive, purpose, and subjective and objective, if there is any difference) of Project Vote?s activities are to elect Democratic candidates. The IRS 2 luditor who approved Project Vote could not have missed this clear and obvious truth. (And, as we discussed, there are analogous situations in which ?nonpartisan? voter registration in certain locations have the motive, purpose and intent candidates.) to elect Republican In my July 1 e-mail to you I highlighted Vote AID and said that there were many other motive, pur submission: because the Project Vot Both approved as whatsoever irrelevant, It is re indirectly, 6 Crossroads liberal organizations. Agair Jeffery L. Yabli Pillsbury Wintl 1200 Seventee irop Shaw Pittman LLP IRS-examined-and-approved organizations pose and intent. The same point was made to the IRS. No concrete examples were pr re is no easy way to ?nd them, as you well 1 to consider. Vote AID and Project Vote were examined . charities, as organizations that can eng . If the motive, purpose, and intent of these he IRS would not have recognized them uni :spectfully submitted that the IRS cannot co :ither explicitly or implicitly the motive, GPS without applying to it a standard that i l, thank you. Jeffery L. Ya I Partner Street NW Washington, DC 20036?3006 50 like it that had the same in the voluminous written ovided, however, largely (now. But now we have in great detail by the IRS and gage in no political activities organizations were not :ler Code section 501(c)(3). nsider either directly or purpose or intent of not applied by the IRS to .blon This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) 202.663.8441 202.663.8007 llsburylaw.com website bio ABU DHABI AUSTIN EIJING HOUSTON LONDON LOSANGELES NASHVILLE NEW YORK NORTHERN VIRGINIA BEACH SACMMENTO SAN DIEGO SAN DIEGO NORTH CDU NTY SAN FRANCISCO I SILICON VALLEY TOKYO WASHINGTON, DC 51 This document was obtained and uploaded by the Center for Res aonsive Politics (OpenSecrets.org) Yablon, Jeffer L. From: Wing Theron Sent: Tuesday, July 21, 2015 4:22 PM To: Yablon, Jeffery L. Subject: RE: Television Ads Number 23, 24 and 36 Thank you for the information Mr. Yablon. Tier?; IRS - Appeals, W137 SOD, Team 9 From: Yablon, Je Sent: Tuesday, To: Wing Theron Subject: Televis Mr. Wing: In our telephone conversation on July 17, 2015, numbered TV ads that appeared to be missing: Numbe promised to The answer is presented in footnotes 160 and 16] Appendix and 24 were that Crossrc Pleas in any other Again, thank you for your diligence. Jeffery L. Yablo Pillsbury Winth 1200 Seventee 202.663.8441 jefferyyablonG ffery L. uly 21, 2015 1:16 PM on Ads Number 23, 24 and 36 research the issue and get back to you as St of the ?Revised Protest? dated February 28 inadvertently skipped in the numbering pI?i lads GPS began but never completed. In su 3 let me know if you have any other questio regard. eff I Partner op Shaw Pittman LLP 1th Street NW Washington, DC 20036?3006 f202.663.8007 Dpillsburylaw.com website bio rou asked about three possible. (on pages 125 and 126) of 2014. As you will see, 23 )cess, and 36 related to an ad m, nothing is missingassistance 52 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ABU AUSTIN EEli ING HOUSTON LONDON L05 ANGELES NASHVILLE NEW YORK NORTHERN VIRGINIA FALM BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY SAN FRANCISCO SHANSHM VALLEY TOKYO pl lshum The contents of this message, together with any attachments, are intended only for the use of the individual or entity to which 3y are addressed and may contain information that is legally privileged, con?dential and exempt from di closure. If you are not the intended recipient, you are hereby noti?ed that any dissemination, distribution, or Opying of this message, or any attachment, is strictly prohibited. If you have received this message in erro please notify the original sender or the Pillsbury Winthrop Shaw Pittman Help Desk at Tel: 800-477-0770, ption 1, immediately by telephone or by return E-mail and delete this message, along with any attachments, fro your computer. Thank you. 53 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffe ryL. From: Sent: To: Subject: Mr. Wing: In ou numbered "1 promised to Thea Appendix and 24 were that Crossrc Pleas in any other Agaii Jeffery L. Yablc Yablon, Jeffery L. regard. Partner Pillsbury Winthrop Shaw Pittman LLP 1200 Seventee 202.663.8441 jeffery.yablon@ ABU DHABI VIRGINEA SAN SEA pi lshuru I f202.663.8007 Dpillsburylaw.com website bio HGUSTON NASHVILL Tuesda Jul 21 2015 4:16 PM Television Ads Number 23, 24 and 36 1, thank you for your diligence. --J eff 1th Street NW Washington, DC 20036-3006 NEW YORK PALM BEACH SACRAMENTO Sft?d SAN DIEGO NORTH COUNTY NGHN SIUCONVAUEY TOKYO 54 telephone conversation on July 17, 2015, you asked about three ads that appeared to be missing: Numbers 23, 24, and 36. I research the issue and get back to you as soon as possible. nswer is presented in footnotes 160 and 161 (on pages 125 and 126) of of the ?Revised Protest? dated February 28, 2014. As you will see, 23 inadvertently skipped in the numbering pr )ads GPS began but never completed. In sum, nothing is missing. let me know if you have any other questic assistance ocess, and 36 related to an ad This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffe ry L. From: Sent: To: Subject: Mr. Yablon, Thank you for th Take care, IRS - A eals, From: Yablon, Sent: Wednesda To: Wing Theror Subject: Follow Mr. Wing: Thanks i am wr motive or purp activity? under and/or Rev. Ru resolution of ti As I salt a reasonable action was inte ever the test. The pro think we both Wing Theron Wednesday, July 01, 2015 6:25 PM Yablon, Jeffery L. RE: Follow?up to Our Telephone Call additional information/foilow-up. i will endeavor to conside W171i SOD, Team 9 effery L. y, July 01, 2015 1:42 PM I ?up to Our Telephone Call again for speaking with me on June 22. Iting to memorialize and elaborate on our conversation ose) is relevant to the determination of whether any com Code section 501(c)(3) or Code section 501(c)(4) and, mo l. 2007-41. Please forgive the length of this email, but thi Iis matter. to you on the phone, when I initially read Rev. Rul. 2004 nded to affect the outcome of an electionnot difficult. As a threshold matter, please consider agree: it in a fair and impartial manner. ith respect to whether intent (or munication or action is "political re particularly, Rev. Rul. 2004?6 5 issue is crucial to the proper I thought that the test was: "Would erson think, taking into account all of the facts and circumstances, that the communication or 'ong. That is not the test. Nor was it three basic principles with which I 55 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) 1. but not 2. "Vote for individuals regi candidate?s car 3. as a gro 2007-4: Code 56 be unif< In light TAM 9117001 U) targeting and length at its ve absolutely no outlier; there do not make (ii) charities may 6 certain types 0 registration in IRS that the mi Democratic/lib Of cour targeted voter political views Note a two detailed a has ever askec It is oft truth about th it to matter but not when the reviewer does not. More to the po 1 1 is the same as I under Code sec the law for any nd probing IRS forms have been in use for several decade ither intent always matters or it never matters. It cannot for liberals. he tests announced by Rev. Rul. 2004?6 and Rev. Rul. 20C Jones") and (2) non-verbal activities of all types, including ster to vote or driving voters to the polls) and financial ac npaign or a political organization). he definition of "political activity? for social welfare orga he definition of "political activity? for charities under Cod tion 501(c)(5) and for trade associations under Code sect thing else. Indeed, anything else would be absurd. i) Rev. Rul. 2004-6 speaks to ?social welfare organiza up. ii) The Proposed Adverse Letter assumes that this is L, which is expressly aimed at charities and does not even Many of the thousands of comments on the failed ction 501(c)(4) decried any implication that the new defir >rm across Code sections 501(c)(3), (4), (5), and (6). of the foregoing, please consider the material presented i September 5, 1990): JOTE AID expressly told the IRS that its intent was to elec egistering voters who would vote for such candidates. ry highest levels and declared Vote AID to be a charity, ev iolitical activity whatsoever. Vote AID was not a fluke, an are many similar organizations that operate in the same gh-profile submissions to the IRS. Intent did not matter. TAM 9117001 the IRS declared that geographical focus ngage in "nonpartisan" voter registration "in a geographi fvoters generally inclined to a common political view exi: poor urban neighborhoods even though it is absolutely cl )tive, purpose, intent and result is to increase the nun eral candidates. Again, intent did not matter. se, it is necessary to play by the "rules of the game?: The registration cannot mention specific policies or candidate But such actions are not needed to achieve the goal of a so that if intent mattered, both Form 1023 and Form 102 about the applicant?s underlying intentions. Not one. Ei en said that taxpayers should not be allowed to ?game? rules governing political campaign activity is that the 56 matter when the IRS reviewer wants int, it cannot matter for conservatives 7?41 are applicable to (1) statements physical actions helping tions contributing money to a wizations under Code section 501(c)(4) section 501(c)(3), for labor unions ion 501(c)(6). There is no support in tions, unions and trade associations? orrect by repeatedly citing Rev. Rul. mention Code section 501(c)(4). 2013 proposed regulations under iition of "political activity? would not :0 you with respect to Vote AID and liberal or progressive candidates by IRS considered this information at en though charities can engage in inadvertent mistake by the IRS, or an warmer and have the same intent, but does not matter and therefore area where a predominance of st? a charity may engage in voter ear to friends, to enemies and to the iber of voters who will vote for se who engage in nonpartisan but as or ask potential voters about their ffecting the outcome of elections. 4 would expressly ask about it. These 5, and not one of their many iterations Ier. That tells us something. he tax laws. But the plainand essential 5 itself has created a game-like This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) challenging reg complex rules, A feder electior al officeholder (?Senator?) is running for re-election. A rr she introduces a bill to prohibit (or allow your choice) electromic surveillance of suspected terrorists. A social 3 series three Vi Senator no refe It may I suppon series Organiz which AlD?s Fl and IR Organiz The undeniable defined by the 2004-6 and Re activity at all, if GPS ha money to do Si welfare organization ("Organization") disagrees with this of advertisements beginning one week after the bill is eeks before the election. The ads say the bill is ill-conc ?s constituents to contact her office to ask that she recor 'ence to the election or her fitness for public office. )e that each and every founder, director, officer, employ er of Organization hopes that Senator loses the electi 3f ads will have an impact in this regard. We belie ation has filed an application for recognition of exempt liscloses exactly the same amount and type of informa )rm 1023. Nevertheless, the ads don?t say anything abc 5 rules do not contemplate a reviewer speculat ation?s motives, or the possible effect of the ads on the atruth is that these are, by all objective measures, "issue Code, the Treasury Regulations and the lRS?s own public I. Rul. 2007-41. Indeed, if Organization were a charity, pr . could still run these ads, subject to the applicable lobbyi carefully followed the existing rules promulgated by the then, the IRS must apply the current rules fairly, to conservatives and lib As I sail if it is a produc complications. Again, Jeffery L. Yabl Partner 1200 Seventee 202663.844 jefferyyablon in our first conversation, this should not be a hard case. of applying the real law to the real facts. Beginning witl thank you for taking the time to speak with me and your Jeffer on Pillsbury Winthrop Shaw Pittman LLP Street NW Washington, DC 20036?3006 f202.663.8007 @pillsburylawcom pillsburylaw.com 57 ulatory environment and forces tax-exempt organizations like it or not. And a game it is, as a simple example demonstrates: i to attempt to comply with these onth before the certain types of i policy and runs introduced, eived and urges isider, but make ree and financial 3n and that the me this because ion, Form 1024, tion as did Vote nut any election, ing about the ewer. ads" and are not political activity as announcements, including Rev. Rul. ohibited from engaging in any political rig limitations. IRS, spending much time, effort and 3. Moreover, if the IRS creates new rules, GPS will carefully follow those rules as well. But until erals alike. The conclusion is not difficult to reach I the conclusion is what created the efforts to be both thorough and fair. yYablon This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) AEIU DHABI AUSTIN NORTHERN VIRGINIA SAN FRANCISCO SHA BE PA MIG IJING HOUSTON LDI-IDDN U35 ANGELES NASHVILLE NEW YORK BEACH SACRAMENTO SAN DIEGO SAN DIEGO NORTH COUNTY HM SIUCON VALLEY TOKYO DC shun] Please note the The contents of entity to which exempt from di distribution, or new address ofthe DC office. Telephone, email and fa) t] th 5c cc 'liS message, together with any attachments, are intended are addressed and may contain information that is leg losure. If you are not the intended recipient, you are here )pying of this message, or any attachment, is strictly pro] message in erro 800-477-0770, attachments, In This documen please notify the original sender or the Pillsbury Winthr 58 are unchanged. only for the use of the individual or ,ally privileged, con?dential and :by noti?ed that any dissemination, 1ibited. If you have received this op Shaw Pittman Help Desk at Tel: ption 1, immediately by telephone or by return E-mail and delete this message, along with any 1 your computer. Thank you. twas obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffe ryL. From: Sent To: Subject: Mr. Wing: Thanks lam wr motive or purp activity? under Yablon, Jeffery L. Wednesda Jul 01 2015 4:42 PM Follow-up to Our Telephone Call again for speaking with me on June 22. iting to memorialize and elaborate on our conversation vv ose) is relevant to the determination of whether any com Code section 501(c)(3) or Code section 501(c)(4) and, mo and/or Rev. Rul. 200741. Please forgive the length ofthis email, but thi resolution of ti iis matter. As said to you on the phone, when I initially read Reerul. 2004 a reasonable action was inte ever the test. The think we both "Vote for individuals reg candidate?s ca 3. is the same as under Code 2007-4 Code 5 nded to affect the outcome of an electionnot difficult. As a threshold matter, please consider agree: Either intent always matters or it never matters. It canno tter but not when the reviewer does not. More to the pc for liberals. The tests announced by Rev. Rul. 2004-6 and Rev. Rul. 201 Jones?) and (2) non-verbal activities of all types, includin ster to vote or driving voters to the polls) and financial ac npaign or a political organization). The definition of "political activity? for social welfare orga the definition of "political activity" for charities under Co: ction 501(c)(5) and for trade associations under Code sec ithing else. Indeed, anything else would be absurd. Rev. Rul. 2004-6 speaks to "social welfare organiz )Up. (ii) The Proposed Adverse Letter assumes that this is 1, which is expressly aimed at charities and does not ever Many ofthe thousands of comments on the failec action 501(c)(4) decried any implication that the new defi be uniform across Code sections 501(c)(3), (4), (5), and (6). 59 ith respect to whether intent (or munication or action is "political re particularly, Rev. Rul. 2004-6 5 issue is crucial to the proper -6, I thought that the test was: "Would erson think, taking into account all ofthe facts and circumstances, that the communication or "orig. That is not the test. Nor was it three basic principles with which i matter when the IRS reviewer wants >int, it cannot matter for conservatives 37?41 are applicable to (1) statements physical actions helping :tions contributing money to a nizations under Code section 501(c)(4) :le section 501(c)(3), for labor unions tion 501(c)(6). There is no support in ations, unions and trade associations? correct by repeatedly citing Rev. Rul. I mention Code section 501(c)(4). 2013 proposed regulations under nition of ?political activity? would not This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) In light TAM 9117001 U) targeting and length at its ve absolutely no outlier; there do not make registration in IRS that the Democratic/Ii Of course, it is necessary to play by the "rules of the game?: Those who engage in nonpartisan but registration cannot mention specific policies or candidates or ask potential voters about their But such actions are not needed to achieve the goal of affecting the outcome of elections. targeted voter political views. Note a! two detailed a It is oft complex rules, A federal Officeholder (?Senator?) is running for re?election. A month before the election, she introduces a bill to prohibit (or allow your choice) certain types of electro A socia three It may be that each and every founder, director, officer, emplo suppo er of Organization hopes that Senator loses the elect series which of the foregoing, please consider the material presented September 5, 1990): to you with respect to Vote AID and JOTE AID expressly told the IRS that its intent was to elect liberal or progressive candidates by egistering voters who would vote for such candidates. Tl? IRS considered this information at ry highest levels and declared Vote AID to be a charity, even though charities can engage in olitical activity whatsoever. Vote AID was not a fluke, an inadvertent mistake by the IRS, or an gh-profile submissions to the IRS. Intent did not matter. eral candidates. Again, intent did not matter. nic surveillance of suspected terrorists. Organi ation?s motives, or the possible effect ofthe ads on the viewer. This docum nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) 60 are many similar organizations that operate in the same manner and have the same intent, but TAM 9117001 the IRS declared that geographical focus does not matter and therefore charities may engage in ?nonpartisan? voter registration "in a geographi area where a predominance of certain types of voters generally inclined to a common political view exi t? Le, a charity may engage in voter poor urban neighborhoods even though it is absolutely cl ar to friends, to enemies and to the tive, purpose, intent - and result is to increase the nu ber of voters who will vote for so that if intent mattered, both Form 1023 and Form 1024 would expressly ask about it. These 1d probing IRS forms have been in use for several decades, and not one oftheir many iterations has ever asked about the applicant?s underlying intentions. Not one. Ever. That tells us something. an said that taxpayers should not be allowed to "game" the tax laws. But the plain and essential truth about the rules governing political campaign activity is that the IRS itself has created a game?like challenging regulatory environment and forces tax?exempt organizations to attempt to comply with these like it or not. And a game it is, as a simple example demonstrates: welfare organization ("Organization") disagrees with this policy and runs a serie of advertisements beginning one week after the bill is introduced, eeks before the election. The ads say the bill is ill?conceived and urges Senato ?s constituents to contact her office to ask that she reco no ref rence to the election or her fitness for public office. nsider, but make yee and financial on and that the ads will. have an impact in this regard. We believe this because Organi ation has filed an application for recognition of exemption, Form 1024, iscloses exactly the same amount and type of information as did Vote rm 1023. Nevertheless, the ads don?t say anything about any election, and IS rules do not contemplate a reviewer speculating about the The undeniain defined by the 2004-6 and Re activity at all, i1 GPS has money to do so). then, the IRS rr As I said if it is a produc complications. Again, Jeffery L. Yabli Partner 1200 Seventee 202.663.8441 jeffery.yablon(, ABU DHABI NORTH ERN SAN pi lshuru Please notei atruth is that these are, by all objective measures, ?issue Clode, the Treasury Regulations and the lRS?s own public I. Rul. 2007-41. indeed, if Organization were a charity, pr could still run these ads, subject to the applicable lobbyi carefully followed the existing rules promulgated by the Moreover, if the IRS creates new rules, GPS will careful ulst apply the current rules fairly, to conservatives and lib our first conversation, this should not be a hard case. of applying the real law to the real facts. Beginning with thank you for taking the time speak with me and your effer an I Pillsbury Winthrop Shaw Pittman LLP Street NW Washington, DC 20036?3006 202.663.8007 Bpillsburylawcom pillsburylawcom BIEIJING HOUSTON LDSANGELES NASHVILLE PALMBEACH SACRAMENTO SAN SAN COUNTY TOKYO h:e new address of the DC office. Telephone, email and fa i 61 ads? and are not political activity as announcements, including Rev. Rul. ohibited from engaging in any political 1g limitations. IRS, spending much time, effort and follow those rules as well. But until erals alike. The conclusion is not difficult to reach the conclusion is what created the efforts to be both thorough and fair. Yablon are unchanged. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jefferi From: Sent: To: Subject: Attachments: Jeffery L. Yablor Partner 1200 Seventee 202.663.8441 jeffery.yab on( ABU DHABI AUSTIN NORTH EFth SAN FRANCISCO pl lshurq Please note th This documen Yablon, Jeffery L. Monday, June 22, 2015 4:18 PM Wing Theron Article re Motive, Purpose and Intent -- Iterr 099754?0556140 (2013?08-19 05-38-50 PM). 2 of 2 3BF I Pillsbury Winthrop Shaw Pittman LLP th Street NW Washington, DC 20036?3006 f202.663.8007 pillsburylaw.com pillsburylaw.com HOUSTON LONDON U35 ANG-ELES NASHVILLE NEW YORK PALM BEACH SAN DIEGO SAN UIEGCI COUNTY SHAI VALLEY WASHINGTON, DC new address ofthe DC office. Telephone, email and fax are unchanged. 62 twas obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Intent is Not Relevant in ween Distinguishing Be Education and .1i,ties Tying an organization's quali?cation for exemption to the motive, purpose, or intent at its founders can lead only to inconsistent treatment and untairress. JEFFERY L. YABLON and EDWARD D. rofr ssor Frances R. Hill re- cen ly published an article in the: newing the coll Speaker grich (R Ga_) that prompted his charitable organizations that spon- KenneS'aW State COllege, investigation by the Committee on Sored- GingriCh?S. course' ls .Part.0f the Georgia Standarc of Official Conduct of Readers may also WiSh-to ConSider: State Univermy ~5y5tem' It was pages concerning ?Re- imerican Civilization,? ege course taught by of the House NeWt Gin- the Hou of Representatives (the ?House thics The article co cluded that although the course as ?educational,? the charitab organizations involVed engaged behaviorinconsistent with the tax?exempt status if, as Prof. grich?s in teach litical.? expert cellent a] on tax-t= In the 0 however Gingricl never ill believes, Rep. Gin- otive, purpose, or intent mg the course was ?po? rof. Hill is a recognized co-author of an ex- 1d well-regarded treatise Xempt organizations.2 pinion of the author?s, her analysis of the rmatter is not the law, as the law, should not JEFFEH L. Washingtor YABL 0N Is a partner In the 0.0., law firm of Shaw Pittman Potts Tro EDWARD D. COLEMAN is a partner In the Washington, 0.0., law firm of Webster, Chamber/am Bean. be the law, and could not be the law. In the interests of full disclosure, the authors note that they repre- sent The Progress 8c Freedom Foundation one of the however, that Mr. Yablon repre- sented the taxpayer in Big Mama Rag, 631F.2d.10303, 46 AFTR 2d 80-5723 (CA-D.C., 1980), rev?g 494 F. Supp. 473, 44AFTR 2d 79- 5125 and that Mr. Coleman previously served as Director of the Exempt Organi? zations Division of the IRS. THE FACTS While the facts can be debated, we will not do so. Solely for purposes- of this discussion, the following facts presented by Prof. Hill are taken as true: 0 In 1993, Rep. Gingrich de- veloped and began teaching a course entitled ?Renewing American Civilization.? A former professor at West Georgia College and the holder of a doctorate in his- - lege, a privatecollege- exempt tory from. Tulane University, Rep. Gingrich had not yet become Speaker of the House. . ?Renewing American Civi- lization? was first taught at later moved to Reinhart Col- from federal income tax under Section 501(c)(3). The course was televised and videotapes were offered for sale. Created and recognized by the IRS in 1993 as exempt under Section 501(c)(3), PFF is a ?think tank.? Although Rep. Gingrich was never an officer, director, or employee of PFF, some of the original organizers and key personnel of PFF had previously been involved in Republican politi- cal activities with him. As part of its early activities, PFF helped with both research and logistics for the course. 0 The thrusr of the? lectures was that the'U.S. should re- place its current ?welfare state? with an. ?opportunity society.? This was also the ?58 JOURNAL OF 0F EXEMPT ORGANIZATIONS January/Februarywsa Vols/Not This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) central tl eine of both Rep. Gingrich re-election cam- paign an. GOPAC, a Repub- lican pol tical action committ closely associated with him Indeed, a precur- ?take ov rtly partisan posi- tions or xpressly advocate the electi or defeat of par- ticular ndidates? in the lectures. Indeed, at times he expressl praised certain promine t?Derriocrats. Moreov the course was ?educati nal? within both common parlance and. the meaning of the Regulations under Se tion 501(c)(3). To some ex nt, however, Rep. Gingric motive, purpose, and inte in teaching the course a pears to have been to prom lgate his political views or to advance his own. political areer. The Hou e. Ethics Committee hired a Spec a1 Counsel, James M. Cole, whos background was in criminal ters rather than tax law. He in rn hired Celia Roady, an experien ed tax lawyer. Rep. Gingrich a hired 'an experi- enced tax la er, James P. Holden. Mr. Holden encluded that. no vi- olation of had occurred and that Mr. Gi grich?s motive, pur- pose, and i tent in teaching the course we immaterial. Ms. Roady?s vie was the opposite.4 The matt rswas not resolved by the House Ethics Committee. Some of the ommittee"s members were reluct nt to function as the arbiter of ta disputes between ex- . perts.5 But ep. Gingrich admit? ted that ce tain untrue written statements ad been submitted to the Commi tee- on his behalf and agreed to :rtain sanctions. THE ISSUE Citing and discussing Gregory v. Helverz'ng, 293 U.S. 465, 14 AFTR 1191 (1935), and Duberstez?n, 363 U.S.. 278,- 5 1626 (196.0), Prof. Hillnotes that results under the tax law sometimes de- pend on motive, purpose, or intent. This is true, but no one is argu- ing otherwise. In many cases, an inquiry into in- tent is unavoidable. Assume, for ex? ample, that Malcolm owns a corporation that pays Steve $500,000 a year for services ren- dered, but Steve?s services are only worth $300,000. If Malcolm knows this and causes the corporation to? overpay because Steve is Malcolm?s son, the tax laws say that the trans- action must be recharacterized to the extent of treating $200,000 as a taxable dividend from the cor- porati-on to Malcolm followed by a taxable gift from Malcolm to - Steve. If Malcolm and Steve are strangers, however, and Malcolm is simply ignorant of Steve?s true market value Malcolm does not . have an intent to make a gift to Steve), the corporation may deduct the entire $500,000 as an ordinary business expense. Tax lawyers Will generally agree, however, that in most cases motive, purpose, and intent are ir- relevant. If Madalyn gives a valu? able asset to a church on December 31, she may claim a charitable de- duction even if she is an outspo- ken atheist and the donation was made to the church because it was the only charity that would accept the asset before the end of the year?i.e., her sole intent was to reduce taxes. Most factual ques? tions involving tax law are like this: The question is ?what did you. do?? not ?whydid you do it?" As Prof. Walter J. Blum noted 30 years ago, while inquiries into mo- tive, purpose, and intent may be unavoidable in some cases, tax laws that require such analysis sho Id be minimized as a matter of 0d social pol-icy.? he real question is whether the sub ect?ive motive, purpose, or in- ten that a per-son has for creat- ing' operating, .or_ becoming inv lved with a charitable org-a? niz tion can or should result in?a den al or loss of exempt status if the activities of the entity are cha itable when evaluated by ob- ject ve criteria. INT NT is NOT AND NEVER WAS TH LAW If ucaition'al activities that would 0th rwise be permissible are ren- der impermissible by motive, pu os'e, or intent, the .IRS would ton iner make inquiries in this re- gard before recognizing an o?rga- - niz-atio?n as tax-exempt under Section 501(c)(3). For at. least the last five decades, however, IRS Form 1023 (?Application for 1 .Hill, "The Role of Intent in Distin- gui hin'g- Between Education and Poli- tics, 9 JTEO 9 (Jul/Aug 1997); hereinafter ll'Hi Lu Hill and Federal and State Ta tion ofExempt Organizations (War- ren, Gorham 8c Lamont, 1994'); hereinafter ll and . Hill at 10. Although Mr. Holden presented his vie in a written opinion letter, Ms Roady's views were given orally to Mr. Co and his colleague, who reduced them to rit'ing and had Ms. Ready confirm the ace racy of the final product. As other commentators have done, Pr f. Hill notes that, while 'Mr. Holden ?t the position that the organizations had not been engaged in prohibited political act vity Mr. Holden agreed with MS. RD idy that he would have not advised any client to fund such a course through ex- em pt organizations.? Hill at 11. To a lay- man, this seems to be an admission of weakness. The reality, however, is that most experienced tax lawyers have told a client that, although a proposed course of action is legal, it should nonetheless be avoided. in Federal Income Taxation? 34 U. Chi. L. Rev..485 (1967). 6 Blum, ?Motive, Intent and Purpose January! February 1998 Vol DI Not This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) EDUCATION AND POLITICS 157 Recogn' ion of Exemption Under Section of the Internal Revenu Code?), has made 'no in- quiries hatsoever about intent, asking nly about what the or- ganizati has done, is doing, and inte ds to do. This 1 Ck of curiosity about in- tent is accident. The 1993 Continu Professional Education test pub 'shed by the IRS contains the folly ing: Does the mo- tivati of an organization deter ine whether the polit- ical ampaign contribution The 3 me view is also reflected in a recent interview given by Marcus 8. Owens, Director of the Exempt Organizations Divi- sion oft 1.6 IRS: Interviewer: setup an or- I ganize tion that is promoting homo sexuality to young peo- ple, ct I get a exemp- tion for that? Mr. Owens: Our focus would be on what the particular ap- plicant organization does, how it?s go mg to raise money, and .how it?s going to spend. the money .We aren?t going to be inquiring into the particular view of the organization. The bottom line answer is it?s. going to depend on what the organ zation plans to do. Interu ewer: Well,1?m going to have minars and I?m going to ha people come and t'hey?r going to listen to the prese ration of the virtues of a ho osexual lifestyle and I?m go mg to give a full and fair expos tion of these views. Mr. wens: If what you?re talkin about is having confe nces and seminars, I think at?s a classic case of ed- ucati al activity.a While some may find this shock- ing, Mr. Owens is only following common sense and the long-es- tablished thinking of the IRS. On 3/13/97, then-Commissioner Mar- garet Milner Richardson released a 1960?s internal IRS document en- titled ?TentativeAnalysis of Legal Criteria Governing Determina- tions of Religious or Educational Qualifications of Activities of Ide~ ological Organizations.? Serious stu- dents of this subject should read this document in its entirety, but. a few excerpts will suffice to reveal its painstaking and decades-in-the- making conclusion. that an analy- sis based on intent is and should be irrelevant to the determina- tions of tax-exempt status under Section 501 These excerpts are set out in Exhibit I on page 159. Bruce R. Hopkins, author of an- other excellent and well-regarded treatise on tax-exempt organiza- tions, seemingly agrees, saying that ?the motive of the founder in initiating the alleged charitable ac- tivity is immaterial in terms of as? certaining whether the activity is in fact ?charitable in Continuing, he quotes a 1977 Tax Court case to the effect that [i]t is the use to which a bequest is to be applied that determines its deductib-ility and not the motive prompting the bequest.an It Works both? ways. Purity of motive, purpose, and intent will not insulate an impermissible ac- tion. In The Association of the Bar ofthe City ofNew York, 858 F.2d 876, 62 88?5625 (CA-2, 1988), rev?g 89 TC 599 (1987), cert. the Second Circuit de- clared that the rating of candidates for elective judgeships was parti- san political activity even if done by an, otherwise nonpartisanor- ganization with the most honor- able and nonpartisan intent. The court?s message is unmistakable: actions control?net motive, n0t purpose, not intent. Similarly, Rev. Rul. 76-456, 1976~2 CB 151, involved an or- ganization that ?was formed for the sole purpose of elevating the standards of ethics and morality that prevail in the conduct' of [political] campaigns.? This unas- sailable intent aside, the IRS con? cluded that by soliciting candidates campaign practices, the organi- zation was engaging in prohibited political activity. TAM 9609007 reached the same conclusion with respect to a'fundraising letter that supported certain political candi- though the intent was exclusively poses. ?Most importantly,? it said, ?the motivation of an orga- nization is irrelevant when de- termining whether the political campaign prohibitibn has been vi- olated. 11 Prof. Hill?s article discusses none of this history, authority, or logic. It focuses instead on National Alliance, 710 F.2d ?8 6.8, 52 868 (CA-D.C., .1983), rev?g 48 81-5138 (DC DC, 1981) and Rev. Proc. 86-43, 1986-2. CB 729, with respect to the mines whether an activity is edu- cational by determining whether 7 Kindelland Reilly, ?Election Year Is- sues,? Exempt Organizations Continuing structr?on Program for FY1994, page 415 (.1993). a 2 Paul Streckfus? EO Tax Journal (hereinafter Journal?), pages 4-5 9 ?Tentative Analysis of Legal Crite- ria Governing Determination of Religious or Educational Qualification of Activities of Ideological Organizations,? released 3/13/97 (97 TNT 54-63). 10 Hopkins, The Law of Tax-Exempt Organizations (John Wiley 85 Sons, 1992.), page 105. ?1 Esrate of Amick, 67 TC 924 (1977). 13 See also TAM 9635003. to sign or endorse its code of fair dates and opposed others, even. to raise funds for charitable pur?I ?methodology test? that ?deter- . Professional Educatioml Technical In? 153 JOURNAL OF XATION 0F EXEMPT This docume twas obtained and uploaded by the Center for Resp January I February 1993 Vol 9 I N04 onsive Politics (OpenSecrets.org) EXHIBIT I: Excerpts from ?Tentative Analysis 0! legal Criteria Bovornins Determination of Ileiigloua or Education- al Dualifl ation of Activities of Ideological Organizations." te of methodologvaas clearly enunciated in 1945 [by the internal Reven and such test is an admission that one's ulterior motives orpreconoelved views not deter inative of educational status, as long as educational methods were am i i I [In] 1 4 . . . Mr. Norman Sugarman, Assistant Commissioner (Technical), aff the folio ng statement: atlon ofap ublic sentiment favorable to one side of a controversial issue and still a nut . i i In 195 the area was extensively re-ex-amined [by the Treasury Department]. oughly cumente'd view of all of the developments In this area. The author notet positions fthe Revenue Service as well as the extremely vague guidelines-that the The two that had. at one time or another, been controlling were: a. Th methodology approach, and b. 'Th ultimate purpose approach. would seem that the policy makers had decided upon the continued use I i Th Th APPROACHES. The two general approaches are: 3 Ultimate Purpose Approach, [and] 2 Methodology Approach. a ue Service in internal docUments] in undertaking sUch an effort were ol?oyed. [Document Paragraph 26] irmed the 1945 position. He made now reasonably established under the law that an organization may have as its ultimate objective the cre- secure exempt status . . . rhe study was a detailed and ther- i with particularity the inconsistent courts have attempted to set down. of a methodology test. ULTIMATE The ultimate purpose approach the ultimate objective of the organization. The organization's ultimate all factors bearing on the organization's creation and only-with review of b. that an 0' ence or of the pre The particula the assu tlonal RE original.) sence or absence of educational SULT ls accomplished despite an ultimate purpose to persuade to a [Document Paragraph 35) I i i REOC unde?yh shown by ?Mo?l chant upon s?tuti acqui prope Boge ?unso It is in sok?y ?sh a these MMENDATIONS. ?Th?is study recommends adoption of the methodolc gadministratlve and practical realities, but also accords with the Servlc (analysis of legal The Restatement of Trusts, section 368 es of settlor Immaterial. If the purposes to which the property is by'the trust to establish an educational institution, the trust is charitable altho on is to be called by the name of the test?ator, and although his motive In re fame for himself rather than to promote education. Even if the motiv rty Is to spite his heirs. the. trust is nonetheless a charitable trust it the 1 states that a contrary theory is und and that most courts consider only the, effect. of a particular trust in de tmateri?al what state of mind in the settlor Induced him to transfer the pro; to satisfy his family pride. for self-glorification, in order to emulate and memorial and cause future generations to remember him and his farn Incidental or sentimental advantages to the settler or his faml is, as its name implies. concerned urpose is to be determined from a METHODOLOGY APPROACH. The methodology approach. on the her hand, is based on the premise ganfzat'ion's methods are sufficiently determinative of accomplishment educational result. and-the pres- bsence of educational purpose, to warrant the predicailon of a finding educational purpose on the basis differences between the. two approaches are in the weight .gl an to the methods employed by the organization in determining compliance with the educational purpose quirement of the statute, and (2) in nption underlying the methodology approach that the requirements of statute are satisfied if'an educa- rticular point of view. (Emphasis in g-y test. It not only conforms with the :e's legal capabilities in the area as comment (1935) states: terms of the trust to be devoted are able purposes. the motive of the settler in creating the trust ls immaterial. Thus, if a testator leaves property .rgh by the terms of the trust the ln? creatfng the charitable trust was to of the testator in disposing of his urposes are charitable." whether it is charitable or not. >erty. He may have founded the trust val a neighbor's bounty, or to estab- lly. The courts are not interested in [Paragraph Document 37] January I February 1998 Vols/Nod This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) EDUCATION AND courics tits - .1 tax-exe listeners re given enough facts to permit them to engage in their own learning process.? The article does not, however, mention Big Mama Rag, the precursor case that is dis? cussed in every academic analysis of these two authorities, including Prof. Hill?s own treatise.? Big Mama Rag involved an or? ganization that published a. fem- inist/lesb lam-oriented newspaper. The Nat onal Office and the IRS District Director concluded that pt status should be de- nied on hree separate grounds: the commercial nature of the .news aper; (2) the political and legislati commentary found through ut; and (3) the articles, lectures, editorials, etc. promot- ing lesbi nism.? The district court agreed hat tax-exempt status should denied because the con- tent of publication failed to meet th ??full-and-fair exposi- tion? sta dard ofReg. which states that an ducational organization is perm?i ted to advocate a par?' ticular'position or viewpoint so long as it presents a sufficiently full and fair xposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion. On the other ha 1d, an organization is not educaticnal if its principal func-' tion is the mere presentation of un- supported opinion.? I The I: istrict of Columbia Cir- Cuit reve sed, declaring in language of broad applicability that the reg? ulation wasunconstitutionaliy vague: A?ppil nations for tax exemption must be evaluated on the basis afcriteria capable ofneu? trni pplication. The stan- da may net be so imprecise that Hey afford latitude to in- divid Jal IRS officials to pass judgment on the content and quali of an applicant's views and goals and therefore to discriminate against those en- gaged in protected First Amendment activities. National Alliance was the next case to be decided. It involved an organization that promulgated racist and anti~Semitic views, cou- pled with calls to violence. The or? ganization sought to rely on the taxpayer?s victory in Big Mama Rag,? but the IRS unveiled? the so- called ?methodology? test, which. focuses not on what is said but how and whether the conclusions advanced follow from the premises. While the lower court found the methodology test itself to be unconstitutidnally vague, the Circuit decided in a some- what opaque opinion that. the publications of the NationalAl- liance Were simply not, ?educa- tional? under ?any reasonable interpretation of the statutory term.? I The methodology test was sub- sequently reiterated and pub- lished as Rev. Proc. 86?43. Since then, the IRS has acted as if the problem has disappeared, but that may be wishful thinking. After all, the Regulation was held to be unconstitutional by a court of appeals and Revenue Procedures normally are not regarded as hav- ing greater preceden?tial'value. In her treatise, Prof. Hill states that ?the [NatiOnal Alliance appel- late] court did not. determine whether the methodology test, whether adopted as ?a matter of practice or under anamendment to the regulation,? would correct the Regulation?s vagueness.?? Her article, however, describes this area of the law as being settled. Under the void?for-vagueness doctrine, a statute or Regulation is unconstitutionally vague if ei- ther (.1) "?men of common intelli- gence must necessarily guess at its meaning?16 or (2) it allows gov- ernmental personnel IRS employees) to confer or withhold benefits or detriments in an arbi- trary and discriminatory man? net.17 It is respectfully submitted that any set of rules focusing on intent would fail in both regards. Almost in paSsing, Prof. Hill cites American Campaign Acad- emy, 92 TC 1053 (1989), for the proposition that ?the purpose of activities [controls] their charac- terization as political participation or intervention. The court relied upon ?factual inferences? to de- termine the purpose of activi- ties. The correctness of the court?s holding aside, .hoWever, the facts inAmerican Campaign Academy were vastly different from those surrounding Rep. Gingrich and his I course. In essence, the American Campaign Academy trained'Re- publican political operatives. 0 It ?was eXclusively funded by the National Republican Congressional Trust.? 0 It ?instituted a curriculum that included studies of the ?Growth of NRCC [National Republican Congressional ?3 Hill and. page 2-91 . 14 While both cases were wending their ways through the administrative process, the lawyers for the, Big Mama Rag . met with the lawyers for the National. Al- liance. Section 742.8, providing for de- claratory judgments concerning tax-exempt status, had just been enacted and the process had never been invoked. In the course of discussions, it was decided that the Big Mama Rag should proceed first. - This was in partbecause ofthe belief that while the constitutionality of the Regula- tion should present the same question in both situations, the peeple who were in- volved with the Big Mama Rag were more sympathetic than those involved with the National Alliance. 15 Hill and page 2-30. 1? Hynes v. Mayor and Council of Bor? ough of Oradell, 425 U.S. 610 (1976) (quot- ing .Connelly v. General Construction Company, 269 (1926)). 17 See generally Amsterdam, ?The Void-For-Vagueness Doctrine in the Supreme Court,? 109 U. Pa. L. Rev. 67 (1960). or 0F EXEMPT ORGANIZATIONS This document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) January [February 1993 Vol 9 I NM Comm tree], etc." and ?Why are peple Republicans.? 0 It had . "means of limiting enroll I ent to applicants who at likely to subse- quentl work in Republican organiations and cam- paigns.? 0 It grad ated students. who ?serve On campaigns of candid tes who were pre- domin I:er affiliated with the Re u'blican party.? 0 It ?fail ed] to establish. that [it] br dly distributed its secondry benefits in a non-se- ect manner be- yond eRepublican partyl- "3 As Prof. ill?s own factual syn-? opsis malts clear, 'Rep. Gingrich?s course wa quite different with re? spect tofu ding, curriculum, en? rollment partisanship, and distributi - n. - More i I portant, the American Campaign ?Ica-demy court repeat- edly stresed that its conclusion was a pro uct of an extreme set of facts a recognized that its holding hould not be read broadly: A sho ing that petitioner?s graduas served in cam? paigns of candidates from both ijr political parties would V8 significantly aided pctitionr?s contention [that it was Had the record stablished the Acad- emy?s a- tivities were nonpar- tisan i nature and that its graduat were not intended to primari benefit Republican candid-tes, we would have a different case.? This intense and extraordinary gin- gerliness tn the part of. the court is not sur arising. The result can be defend<.d only if it is viewed as turning what the organiza? tion did, for what its organizers and officers thoaght. Simply stated, it is clear that a search for ?thought crimes? is not part of established exempt orga- nization law and that subjective motivation, purpose, and intent are regarded as irrelevant: 0 Lawyers and business people routinely join the boards of hospitals or museums in the hope of meeting. potential clients and customers. 0 Single people often get in- volved with charitable orga- nizations in order to meet potential mates,? . Volunteersde-siring only the fun of being on stage or be- hind a lectern commonly sing, dance, g'ive- lectures, or teach courses for or under the auspices of charitable or? ganizations. 0 Pe0ple of all types frequently participate in the operations of charities to enhance their resumes or elevate their so- cial standing. - Everyone knows and. accepts that there are ?liberal? tax- exempt organizations The Brookings Institute) and ?conservative? tax-exempt organizations The Her? itage Foundation). The mo- tive, purpose, and intent of. these organizations and their contributors with respect to politics is impossible to. mis- understand. Indeed, it is standard Operating proce- dure for out?of?office' politi- . cos to join the staffs of like-minded think tanks while waiting for more fa- vorable election results. . Many politicians have risen to prominence or remained in the public through charitable organizations. Woodrow Wil- son was President of Princeton University and Dwight Eisen- hower was President of Co- lumbia University. . .In these and all analogous cases, the organization?s tax~ex- pt status is not jeopardized by emotive or purpose of the par- ti ipants, provided that What is ac? ally done by the organization is aritable in nature. Clandestine even Open desires for business a vantage,~romance, social ptability, self-aggrandizement, 0 even political advancement are considered. This should not be rprising. There would be very charitable organizations if rity of subjective motive, pur- "p and intent were required. etc would, however, be a lot ore IRS agents, because judging bjective motives, purposes, and i tentions is a labor-intensive s?iness. I TENT SHOULD NOT AND NNOT BE THE LAW hat the law should or could be in some ways more interesting an what it is. Accordingly, as- me that there is not and never as been any law on the subject a that it is now necessary to de- de whether the subjective moti? ation, purpose, or intent that a erson has for creating, operating, becoming involved with an or- anization should result in a de- ial or loss of tax?exempt status en if the activities of the entity re charitable when viewed and valuated by objective criteria. At first glance, Prof. Hill?s view is appealing. Most people a gree that, in' general, motive, purpose, and intent matter in de- termining whether praise or blame is. appropriate. A person whose in? tentions are genuinely good is entitled to some praise even if his or her actions inadvertently result to 18 American Campaign Academy, 92 TC 1053' (1.989). 1'9 Id., pages 1072 and 1079. January I February 1993 (II 9 I Not EDUCATION AND POLITICS 181 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) ?32 This docume in harm. A person with evil intent is open tc censure even if his or her actions i advertently have a good result. ure purposes are good and, bec use charitable organiza- tions are 00d, it seems that the two ought to 0 together. Conversely, impure urposes are bad and should ver, ever be associated with cha itabie Organization's. But ality-is not that simple, particul rly if the task at hand is writing laws that are supposed to functi in and shape the real the tax 1 ws require a ?correct? motive, urpose, and intent and the folio ing four peeple each in- dividual seek charitable tax? exempt tatus for entities that have as eir. exempt function the playing ddissemination ofclas- sical mu ic?i.e., local orchestr that operate in the same nn-er as dozens of local orchestras that cur- rently j:oy Section 501(c)(3) status: John as a sincere love for usic of Beethoven, s, and Schubert, and want; only to have the pub- lic at large enjoy and learn abou them. 0 Paul ikes classical music, - but he is creating his organi? zatio '1 because he thinks that classical music will attract at least one wealthy single worm in he can date and, he hOpe ., marry. 0 George can take or leave class cal music. He is creat- ing 5 organization because he is lawyer who hopes that twill bring him into cont ct with wealthy busi- ness aeopie who will hire him and, ultimately, sup-port his Diiticai aspirations to become governor, or maybe even President. 0 Ringo hates classical music, although his parents forced him to learn a lot about it. His sole motive, purpose, and intent in starting his organi- zation is to improve his social status in the community. Each of these four organizations does precisely the. same thing. Should the Code treat them dif- ferently? What if there are not four separate entities organized and controlled by a single individual, but rather only one entity that is organized and collectively con- trolled by a board of directors con- sisting of John the music-lover, Paul the fortune?seeker, George the lawyer-politician, and Ring-o the social climber? How should their motives, purposes, and intents be weighed? What about Elvis, the ex- ecutive director whose only .intent in taking the job is to meet women (but not to marry), or Mick, the musical conductor, who is inter? ested only in having a steady and well-paying job? Should it matter that Elvis and. Mick. are employ- ees rather than members of the board of directors? Should it mat- ter if none of these people know about the motive, purpose, and in- tent of the other five? Making matters much more complicated is the fact that mat- ters are always much more com- plicated. Real human beings often have several, sometimes conflict- ing or competing motives. Worse, because. people are not static, the relative strength of these various pure and impure motives within each individual is constantly changing. What exactly is the IRS to measure? How and when should it measure it? Is constant moni- toring of the constantly changing subjective motives, purposes, and intents of a large number of citi- zens something that the IRS should or can do? One possible re5pon?se to these questions is to say that the law should judge most organizations by their actions alone, but that mo- tive, purpose, and intent should control when they become obvi? ous and overwhelming. Thus the ?normal? organization will, be granted tax-exempt status with- out regard to motive, purpose, and intent, but the organizations as- . sociated with someone like Newt Gingrich will be denied tax?exempt status because people like Rep. Gingrich seem compelled-to trum- pet their motives and, even if they do not, their enemies will gladly do so for them. This ap- proach, however, lacks intellectual integrity and is at odds with the fundamental consistency required byfairness and the Constitution. Moreover, having motive, pur- pose, and intent control only when these elements are obvious is merely an invitation not to be' obvious. ?Don?t ask, don?t tell? may be an appropriate policy with respect to the sexual orien- tation of military personnel, but it is a particularly inap'pr0priate policy for the tax laws that con? trol charitable organizations. Another possible response is to say that motive, purpose, and in- tent should matter only if the 'or- . ganization is communicating ideas, as opposed to playing classical music or engaging in other ?non- controversiai? activities. But the Supreme. Court has taught us that . there is no bright line delineating the communication of ideas from other activities?for example, burning the American flag or dancing in the nude. (Indeed, some people find playing the music of Richard Wagner to be a political statement.) Moreover, the communication of ideas in a free society ought to get more leeway, not less. -In any event, Prof. Hill?s approach makes no .such distinc- - don?motive, purpose, and intent are always relevant. JOURNAL OF OF EXEMPT ORGANIZATIONS nt was obtained and uploaded by the Center for Resp January] Fabiuary use Vol 9 [No 4 onsive Politics (OpenSecrets.org) Yet anther possible response is to have pecial laws for ?politi- cians? a want to ?teach.? This gets to th heart of the issue, for it is absol. tely clear that if an un- known ofessor named Newt Smith ha- delivered exactly the same lect res as did Newr Gin- grich, no one would have raised. an-eyebrw. This approach has several svere problems, how- ever. It ould violate the .First and pOSsibly other parts of Constitution. It would require at politicians be distin- guished fom others?an increas- ingly diffi ult task. (.Is Ralph Reed 3 politicin? Ralph Nader? Pat Buchana or Jesse, Jackson in 1970? Pa Buchanan or Jesse Jack? son in 192?) And it would be truly awf l-social policy. CONCLUS UN Deciding at motive, purpose, and intent are and should be irrelevant to exemp ion is easy compared to the real ?t of deciding What the law oug?h .to be, a task that is be- yond?the - 0pc of this article. Some concludi observations, how- ever, are :1 order. 0 Nothi presented above shou'l. be read as denying that tere are many organiza- tions ~1aiming exemption under Section 501(c)(3) that are vi lating both. the letter and esPirit of the law with ?respet to political activities. Some them are little more than nvextension of a politi~ cal ca paign. (Although no statisics exist, it would not be suprising to find that a disprportionate number are Repu 'lican or conservative in orienation.) Such organiza- tions ypically are focused on a sinle political candidate, are ated at the beginning of a olitical campaign, go out of existence shortly after the election, are Staffed with political operatives rather than scholars, and funnel their work to the campaign organization rather than to the public or the academic community. Without ques? tion, these organizations should be denied tax~exempt status, but inquiries into me- tive, purpose, and intent are not the way to do it. In fact, such inquiries seem certain to prevent meaningful reform. This area of the law is in desperate need of improve- ment. The current state of the law encourages demean? I ing manipulation by politi- cian-s, superficial posturing by the media,'and growing cynicism by the public. - Something must be done but, again, inquiries into intent are not the way. Much follows from the fact that entities rather than courses or individuals are granted exemption by the Code. As many people who attended college in the last thirty-five years can attest, the IRS will do nothing if a person with a. gives a politicallypartisan course or lecture at a large private uni- versity, even though the smallest amount of ?politi- cal? activity should in the- ory' cause the entire entity to lose tax-exempt status. The IRS is simply not going to challenge the exempt status of a Harvard, a Yale, or a Stanford.20 But the IRS may well take an intereSt if the exact same person expounds exactly the same views under the'aegis of a small college or think-tank that has few other activities. There is a ?dilution? effect at big edu- cational institutions. No matter how partisan or po- litical a few professors in the history, philosophy, or polit~ ical science departments might get, the apolitical mathematics, geology, and astronomy departments pre- vent the entity as a 'whole from being viewed as politi- cal. There is something fun- damentally wrong with the tax laws and the administra- tion of the tax laws, how- ever, ifthe place where something is said determines - whether it is permissible to . say it, or if the rules apply to some exempt organizations but not to others.21 While it is not surprising that the ugliness ofmodern poli- tics has seeped into the rela- tively apolitical World of exempt organization tax the- ory, it is nonetheless 'sad. As temperatures and tempers rise, everyone must strive to remember that bad facts really can make bad law. Perhaps even more than other laws, tax laws must be the same for friend and foe alike. I 20 Neither will the IRS challenge the ex- empt status of churches,.synagogues, or mosques that engage-in forbidden politi- cal activity unless the activity is extraor- dinarily blatant--and probably not even then. See, Groups Target Politically Active Churches for Audits,? Wall St. J., Discuss Political Activity by Charities,? 75 Tax Notes 486., 4/28/97; ?Editor?s Note- book: Pulpitory. Political Pronounce- me?nts,? 2 E0 Journal, page 3 ?Interview with Marc Owens,? 1 E0 Journal, page 23 (April 1996); ?Reid Preaches Politics from the Pulpit; Sermon Reflecrs Loss of Congressional. Race,? Baltimore Sun, 3/25/97, page IB. 2] Would-be political. activists, then, would be well'advised to teach their views at big schools rather than small think-tanks. Not only isthc pay and prestige better, but until and unless the law in'this area is made rational and fair, both the individual and the organization will be less likely to be bothered by the IRS. 3/20/97, page Owens and Lehrfeld . January/February 199 Vol 9 I N04 This docum nt was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) EDUCATION AND POLITICS 188 131113; :i 3: EXEMPT ORGAN ZATIONS November De :ember 1.998 Vol 10 No 3 bays and Conservatives Both Have Exemption Battles With the IRS JEFFERY L. TenThis document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) ilitary personnel some- times say of bad events that the first time is an acciden the second time is'an un- fortun coincidence, but the third ti ,e is enemy action. A sim- ilar logi has recently led both gay the IRS is not claims . ,ves-tiga clearis trying and sub organiz emptior tions and. conservative tions to._.conclude? that is biased against them. It ear, however, how" these should- be analyzed, ?in- d, or evaluated. What is hat the IRS should not'be enforce i-nnately' vague ective rules about whether ations qualify fortax ex? 1. Encoun andthe affairs. that at .achieve ters between taxpayers IRS'are normally private Indeed,-there are laws 5. expressly?designed to thisresult? It is therefore Washr'ngtc The Big Freedom .- YABLON is a partner In the D. 0. firm of Shaw Pittman awn/dye. He has represented two m'a Reg and The Progress oundatr?on. of the tai?xempt entities discussed herein, Gays and Conservati Have Exemptim The evidence at allegedi?s bias is really evidence that the lain - I JEEFERY L. dangerous to extrapolate from the two recently reported con? troversies involving Kathy?s Group and The Gay. and Lesbian Ado- lescentSupport System GLASS). Nonetheless, it is worth noting that, in both situations, the con- troversies sub? mission "to'fthefIR?S '.0f the application for. recognition of taxe_exempt status. It is also worth noting that, in. both- situations, other partie's?became involved? 5pecifi?cally', a'h?friendly: tax-ex- empt organization that supplied legal help'and a friendly legisla- tor who app'lied'politi'cal pressure. Kathy's Group. Kathy?s Group was incorporated An application for'exemption' Was filed in. January the . is "to provide information and 5s upport to lesbians with" February 1 9.98, an IRS official, Brenda Ivery- "Rivers,- called the president: ?of P?Ka?thy?s Group, Lorraine Ga'r'vin, to "say that exemption wOuld be grant- ed if and only if the organization would change its m'iSSion to better serve the? ?public Speci- fically, the organization?s missiOn Statement would have to befalter'ed .es-Both - aides to include all women, regardless of exual orientation. Ivery?Rivers hen sent a follow-up fax to Garvin, tating that the purpose of Kathy?s 'GrOup should be to ?provide upportive resources for lesbians, heir families (Whether blood or ffinity') and any women Who have been diagnosed I In reapons'e, Kathy?s Group obtained the legal services Of a Sec- tion" 501(c)(3)" organization, the Lambda Legal Defense and Edu- cation Fund, Inc. (?Lambda?), which is the Oldest and largest legal organization servingthe gay com- unity;3 On taff? attorney David Buckel wrote to'the IRS asking i'tito its demand" that Kathy?s Group alter its mission statementandto issue a favorable determination let- ter immediately. The letter noted that there is no authority allow- ing?.? the IRS [to] force applicants ?to' change their missions based 'on :h?e viewpaints'of the IRSIagent. Buckel?s letter also urged the IRS ?to ensure that other charitable Or educational organizations that people do not face sim- ilar 1 difficulties gaining tax- exempt status.? I 'At about-the same time, the IRS Novumbcr/Decemearl?s Voi'tOlNoa EXEMP-TION AND BIAS This document was obtained and uploaded by the Center for Politics (OpenSecrets.org) was contacted by Rep. Barney Frank (L -Mass.), an openly gay member of the HouSe of Repre- sentatives. In a letter dated 4/23/98, 1e called the. Service?s po- sition ?outrageous, and one that I am impelled to fight.? He noted he me should not be trying to enlnree innater vague and subjective rules about exemption. ilar problem had arisen I of 1997 with respect to half of th organization, expressing his conc and requesting that the IRS tak steps to preVent future manifest tions of anti?gay bias by IRS peronn-el. The 1998 letter conclude urge you to grant im- mediate Kathy?s Group appli- cation fr tax-exempt, status and I renew demand that the IRS take necssary action to prevent this p-rolem from recurring.? A wek later, the IRS issued. a favorab determination letter to Frank 'rferred to in his letter, describe itself in its application for Sec on 501(c)(3) status as helping young gay men, lesbians and bise uals? between the ages of 15 and 1 in dealing with their sexualit and resulting harassment, prejudic, isolation, and low self- esteem. response, IRS National Office ax law specialist John Roman aron wrote on 9/10/96 that the roup could be viewed as ?tendin to encourage or facilitate 'hornose ual practice and propen- sities by he young and impression- able.? rnong a variety of other I requests the letter asked GLASS to ?descri in detail the procedures and safguards in place to assure that counselors and participants do not encourage or facilitate homo? sexual practices or encourage the de- velopment of homosexual attitudes and propensities by minor individuals attending your programs.? GLASS did nothing in response to this letter for several months, reportedly because its president was ?too intimidated? by the ?homophobic? tone of the letter. Ultimately, however, the matter was turn-ed over to Lambda?s at- torney, Buckel. In what would prove to foreshadow the Kathy?s Group dispute, Buckel wrote to the IRS on 7/1/97 to ask that its letter be withdrawn. He stated that: the discriminatory language in the September 10, 1996 letter echoes inappropriate language that has surfaced in past IRS considerations of gay-related organizations and thus we are concerned that it remains boil- erplate language for IRS agents. See, Big Mama Rag, 1116., [631 F.2d 1030,46 80-5723 (CA-D.C., 1980)]. (IRS officials earlier advised appellants counsel that an exemption could be ap? proved only if the organization a=gree(d) to abstain from ad- vocating that homosexuality is a mere'preference, orienta- tion, or propensity on par with het'erosexua'lity and which should otherwise be regarded as normal.)5 Buckel also noted that the Service?s own ?methodology test? requires the IRS to examine the method used by an organization to com- municate its viewpoint rather than the viewpoint itself. On 7/9/97, Edward K. Karch-er of the IRS wrote to Withdraw the earlier letter and agree with Buckel?s analysis of the method- ology test. ?In order to take a fresh look at your application, it will. be reassigned to a different Tax. Law Specialist . . . Karche-r added. GLASS is today listed in Publica- mm 78 as tax-exempt under Sec- lon 501(c)(3). in Mama Reg and its altermath. Big 'ama Rag, Inc., to which attorney made reference, the best known case involving x-exempt status for hOmosex? ally-oriented organizations. It in- olved an organization that pub- shed a feminist and lesbian-orien- newspaper. Officially, the Na- 'onal Office and the IRS district irector concluded that tax-ex- status should be denied on ree separate grounds: the ommercial nature of the newspaper; the political and legislative ommentary found throughout; and the articles, lectures, editorials, tc. promoting lesbianism.? Un- fficially?and before the litigation egan?the organization was told IRS officials that a favorable eterminatio-n letter would be issued if it would. st0p saying that homosexuality was a mere pref- :rence, should be regarded as nor? nal, and was the ?equal? of heter~ asexuality. The district court agreed with the Service?s conclusion, though '10t precisely with its reasoning. The court held that tax-exempt sta- :us should be denied because the 1 See, Section 6103. 2 Stokeld, ?Lesbian Group Gets Exempt Status After Flap With 20 Exempt Org. Tax Rev. 390 (June 1998). 3 See press'release reprinted in 3 Paul Streckfus? E0 Tax Journal (hereinafter ?130 Tax Journal?) 33 (August 1998). 4 ?Barney Frank Says Approach to Granting Exemption to Lesbian Group is Outrage0us," 3 130 Tax Journal 152 (June 1998). 5 ?Information Letter to Gay Group Criticized as ?Antagonistic Treatment? by 2 EO Tax Journal, 8 6 Stokeld, Letter to Youth Group Raises Concerns .in Gay Community," 17 Exempt Org Tax Rev. 243 (August 1997). 110 JOURNAL OF AXATION 0F EXEMPT ORGANIZATIONS This docum nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) November/ December 1998 Vol 10 I No 3 content of the publication failed to meet the expo- sit'ion?l? .s andard orReg. 1.501(c) which states that an ekempt ducational organization 'is perm' ted to advocate a pair ticular I'sition or'viewPoint'?so long asi presentsa sufficiently full and fair reposition of the pertinent facts as :perr'nit'an individual or the p'ubl to form an independent opinion "or conclusion; On? the other ha id, an or-ganiZation is not educatic nal if?its principal func- tiOn is the mere presentation- of un~ ?supported opinion-i? 4 - Among "other claims, lawyers for the giMa-ma Rag asserted that this standard COuld "not withstand constitu 'ional scrutiny.- Under the void-for-va'giieness doctrine, a statute regulation is unCO?n'sti- tutionally vague if?either (1) ?men of comrr 0n intelligence mustn?eC? essarily?guess at-"its meaning? or it a ows governmental per- sonnel ch'as? IRS employees to confer- withhold benefits or detrim?e ts in an arbitrary and dis? ?crim'ina ory-?manneri, The" dis- trict co rt, ho'Wever, found the ?full?a d-fair exposition test? not to unconstitutionally vague. ents by IRS officials that ptstatus was being de- cause the organization was ?promoting lesbianism? were termed'rnerely? ?unfortunate? and the clairns?of the IRS that it itself idid'not adopt s'Lich a position were accepted." i The District of Columbia Cir- cuit reversed, declaring in language of broad applicability that the reg? ulation was, unconstitutionally vague? 9" Applications for tax exemption must be evaluated on the basis oficriteria?c'apable of neu? tral applicationhThe stan- dard: may not be so imprecise that ey afford latitude to in-? divi ual IRS officials to pass judgment on the content and quality of an applicant?s views and goals and . therefore to discriminate en- gaged in protected First Amendment activities.' As for'the ?unfortunate? com- ments about ?promoting les? bianism? and the language that Buck'el was to 'quote '17 years later,- the court declared! The history of appellant?s ap- plication for tax?exempt sta-.. - tus attests to the vagueness of, I the ?fullrand-yfair? exposition? test and evidences the evils'that" the vaguenessdoct-rine is de?? signed to acid. The district- . court?s decision was based on the value-laden conclusion - Whether or not - .[the anti-gay comments of the IRS officials] represented of- _fidial IRS policy ,is. irrelevant. It simply highlights the in- here?nt' Esu'sceptibil-ity :d dis?i criminatory enforcement of vague statutory language. -. After Rag, how- ever, the edges of the law in this area became fuzzy and remain so to i this. Alliance, 710 F.2d'868, 52 33-5609 (cane; 1983), reu?g48 81-5133 .in- volved an organization thatpro- mulgate?d racistyand anti?semitic views, coupled with calls tolfvio- 'lericeilt soughtto rely onthe?hold? mg .of Big Mama Rag, but-the IRS unveiled the ?methodology? test, which focuses not on what'is said but how and whether the conclu? sions'advan'ced followiflrorn the premises. While the lower court found the?methodology test itself to be unconstitutionally vague, the D.C. Circuit decided, in 'a some? what opaijue opinion, that the-pub- lications of the National Alliance were simply not .?edu'cational? under "?any- reasonable interpre? tation'of the statutory term.? The methbdoldgy test was sub- sequently reiterated and pub- ish'ed as Rev. Proc. 86?43, 1986- 2 CB 729. S'inCe their, the IRS has acted as if the dis- appeared, but that may notbe true. in the Words of one ooh, this is a political ease and the decision is going to he made at the national Ieuel.? methodology test, whether ?oated: as {Miter-vi practice R's?gr. I 6/3798, after Kathy?s Group ob- tained exemption from the IRS, Buckel wrote to IRS Commissioner Charles O.- RosSotti asking that the IRS take steps to prevent discrim? inatory treatment by. the agency against gay organizations. In re- sponse, on- 7/23/98, -Marcus 8. Owens, Director ?of the Exempt Organization Division, wrote to Buckel, stating that, to ensure that the tax laws are applied in a ?fair and nondiscriminatory manner,? he and other National Office offi- cials would travel to the field offices to talk ?about the need for professionalism, impartiality, and fairness in dealings with all tax- payers? and would use examples that ?.?specifically address the issue of bias against." groups that are supportive of gay men and les- 7 See Void-For- Vagueness Doctrine in the Supreme Court," 109 U. Pa.? L. . 3 Hill and Krischten, Federal and State Taxation of?zer?pt Organizations (WGL, 1994), 2:30. National Alliance appellate] court did not determine whethefisthe 1993 writ/Mo?s AND BIAS 11'1 This docume int was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) bians.?9 oreover, he said that Buckel?s ter would be forwarded to the IR official responsible for IRS poliy and training with respect to discrimination. ALLEGED BIAS At least five sometimes interrelated elements make the publicly re- ported IRS controvers-ies. involv- ing conservative organizations different crom that of gay orga? nizations. ew exempt organizations at any nnlitieal stripe could allurd the legal tees incurred by Empower America. are t, conservative organi? zatio complain of a large set of irror-image tax?ex- empt deological opponents that not seem to be hav? ing ta problems. 4. While third parties have be- come nvolved in the IRS in- vestig tions of both gay and conse vative organizations, most In the third parties that have ecome involved in the tax m?tters of conservative organ zations have been un~ frienly. 5. A number of disputes involv- ing conservative organiza- tions are ongoing as this ar- ticle goes to press and are likely to remain ongoing for some time. American Campaign Academy. American Campaign Academy, 92 TC 1053 (1989),. involved the charitable status of an organization that trained people who became Republican political Operatives. All of its funding came from the National Republican Congres- sional Trust. The curriculum was focused on the. Republican Party, with study topics such as the ?Growth of the NRCC [National Republican Congressional Committee] and ?Why are people Republicans?? Enrollment was effectively limited to ?applicants who are likely to subsequently work in Republican organizations and campaigns? and, indeed, this is what the graduates actually did. All agreed that the organization?s activities were educational and did not constitute participation in elections. Nonetheless, the .IRS declined to recognize the tax- exempt status of the organization under Section 501(c)(3). The Tax Court agreed because the entity served the non?exempt private purpose-s of benefiting the Republican Party. The court repeatedly stressed, however, that the holding should be limited to its facts and should not be read broadly: A showing that petitioner?s graduates served in cam- paigns of candidates from both major political parties would have significantly aided petitioner?s contention [that it was Had the record established the Acad- emy?s activities were nonpar- tisan in nature. and that its graduates were not intended to primarily benefit Republican candidates, we would have a different case.10 El Ol'??l'lil?tl?l'ls. In 1 9.3, a year before the Republican ta cover of the House of Rep- reentatives that made him Speak- Rep. New-t Gingrich dveloped and began to teach a curse entitled ?Renewing A erican Civilization.? A former pofessor and. the holder of a d? ctorate in history, Rep. Gingrich i itially taught the course at Knnesaw State College, part of 't Georgia State University Sstem. The Kennesaw State Cllege Foundation aided in the poduction of the course, which 3 televised and offered for sale 0 tape. The course was later oved to Reinhart College, a ivate college exempt under ct-ion 501(c)(3). The Progress 86 eedom Foundation, a private Sction 501(c)(3) ?think tank,? wiped Rep. Gingrich with research a logistics. The central theme of course was that the U.S. should rplace its current ?welfare state? ith an ?Opportunity society.? I is was also the central theme of brh- Rep. Gingrich?s re-election mpaign and GOPAC, a Repub- li an. political action committee ith which he was closely a sociated. A Democratic member of the ouse charged that Rep. Gin- ich?s involvement with the course nstituted a violation of both the tx laws and the ethical stan- - of the House. The House thics Committee investigated Gingrich, but ultimately eached no. conclusion with respect 3 the tax laws. The investigation ras ended rather than resolved then Rep. Gingrich admitted that ertain untrue statements had 9 Will Train Agents to Be Fair and npartiai to Gay Groups,? 80 Tax Notes 68 (8/17/98). 1? 92 TC at 1072 and 1079. 112 JOURNAL OF 0F EXEMPT ORGANIZATIONS This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Nuvembu I Decembu J59: Val 10 I No: been sub 'tted to the Committee on his beha lf'and agreed t'o?certain? sanctions. That dial not end the matter for the tax-ex :mpt entities, however. Questions had been raised about the exem at status of the two schools an the two foundations that helpec with the course, as well as GOPACI and certain other tax- ex'empt entities that had beenin- volved .in one- way or another with Rep. Gingrich. These ques- on in the media." It therefore came: as no surprise when mo or. all of these entities- were repo ted to be under IRS in: vestigatio . After all, the IRS can be presu editoread the newspa? pers. Mor over, some ofthe com: plaining arties sit in the House of Repres ntatives. . . .. Western ournalismlcentor. Rec- ognized . the IRS as tax?exempt under Se tion 501(c)(3), The Western ournalism Center (the: ?Center? engages in investigative journalis . Conservativein out: look, the Center investigated tal- leged illeg lities of the ClintonAd- ministrat on, including, for ex- ample,,t e. circumstances sur- rounding he death of WhiteiHOuSe Deputy; onus-cl, Vincent Foster. After the Center ran nationwide full-page newspaper ads raising questions about the?case, a White Housela reportedly Wroteia: memoran urn?later obtaineduby" congress'onal' investigators?- naming Center and one of its reporters hostile to the Clinton Administ 'ation.n A year later, .in White House Democra ic National Committee issued a report that identified the Center as one of a number. of conduits of?s?tOries critical -of the Clinton Administration. The 'Centerfs founder and executive Farah, has publicly stated that thereafter he 3 soon reported and- began to hear rumor-s that the IRS Was targeting the Center-1-2 In 199 6, the IRS began an audit of the Center?s 1995 tax year. Ac? cording to the 'Center?s accountant, when the audit began to focus on the Center?s political views and choices of stories,? the IRS agent twice stated, this is a po-? litical case and the decision is going to be made at the national On'lO/22/96, while the audit was. progressing, Farah published an article in the Wall Street Journal describing the-audit as ?retalia- tory"?: and .listedother- conserva-. tive organizations that heidentified?. as .having been .subjecttot similar treatment, including the Heritage Foundation and the National Rifle Association.14 The article and its- claims received much media cov-. erage.- -. - In December 1996, the panded the scOpe of the Center?s audit to include the 1994. tax year. The audit wascompleted in May 1.997 and the IRS issued a written determination declaring that the Center Was .in full Com- pliance with Section 501 taxes, interest, or penalties were assessed..=.. - A year later the Center filed a $2.0 million?lawsuit against former and current IRS employees,-gin~ eluding former Commissioner Margaret Milner Richardson and unidentified other parties, claim- ing t?h?at'a variety of its'co'nstitu- tional b;eeri::violated under colorof law and that ithad suffered substantial. damages.? The complaint lists 13 other _con~ servative tax-exempt entities- that are alleged to have beeni'sub- jected to'siinilar politically meti- Vated audits, four ._co'nslelr_vative entities that are'alleged to have been in effect threatened with politically motivated audits, three conservative entities that are al-: leged to have suffered politically I motivated delays in the process- ing of their-?applications for recog- nition -of Exemption, and a num- ber. ofrother "parties: Who are alleged to have been targeted for audit because of their 'political. views and 7' he problem is that the tax laws on exempt status are so vague as to allow individual Ills agents to indulge their biases color 0! law. The ?Kemp commission." In 1995, Rep. Gingrich?and. then Senate Majority. Leader .._Bob Dole (R-i Kan.) established the National Commission for .the, Study of Economic Growth and Tax, Reform to; study and recommend basic reform. of'the federal'ltax la ws. Sempole and Rep. Gingrich a1: pointedall- of the members of the Commission, including its cl? airman, former Rep. Jack Kemp. Rep. Kemp thereafter created, The Fundfor the Study?bf Growth and Tax Reform '(the ?Fundi?l, Which 60l- leeted money to finance the Com- mission?s work. The, Fund was organizedasatrust, and its'docu- mentation contained all of the legal educational organizati'ons?l'lnormally .have in order, to qualify :under Section 501(c)(3), prohibitions :11 Farah; ??Criticiai?hg Clinton Got Me'- u?dited,? Wall St. 13:, 5/1l8/9 page A22. West-curb Journalism Center Press ase,"reprinted' 'in 3 EO Tax journal. 95' -. - 713 Farah, supra note 11.; Western Jourv nalism Center Press Release, supra note 1'2. (h '14-.Farah, supra note 11.; I 15 ?Group Sues IRS, White House Of- cials in Dispute Over Audit," 79 Tax 10135 816 - 55-h Novnmbuloecemhcri 98 VoliolNoa AND BIAS This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) against legislatio The and app-l nition of Section 5 consistec studying1 and pres inurement, influencing n, and political activity.? und began operations led to the IRS for recog- tax?exempt status under 01(c)(3 The operations almost exclusively of 'he concept of a ?flat tax? enting reasons why the courting political enemies to the ms is attractive because it forces the subject to spend resources. current - deral income tax system - abolished. Both ideas are associated with the ports co sistently identified the Commis ion and the Fund as ?Re- publica or the ?Kemp Com- missiOn.? Rep. Kemp later resigned and son after became the 1996 Republi n?Vice-Presidential can? didate, 'th Sen. Dole heading the ticket. After over a year of consider- ation, mt submissi grounds- substant etings and supplemental ons, the IRS denied the application on two ?it was operated for a lal non-exempt purpose and it was an ?action organiza- tion? wi 1.501(c) The FL trict cou IRS.17 In a substa pose, the come of exercise flat tax, span of1 the 1996 which ta and that niedthe ?Republ the Fun< hin the meaning of Reg. ind took the matter to dis- rt, which ruled for the molding that the Fund had ntial non-exempt pur- court noted that the out- th-e nominally academic was foreordained to be a that the timing and life he Fund coincided with Presidential election (in reform was an issue), :he Commission never de- nedia characterization of ican.? In holding that. was an action organi- zation, the Court found. that both of the two characteristics of such organizations were present, (1) a primary objective (the flat tax) that can be obtained only through "legislation and (2) advo- cacy for that primary objective ?as distinguished from engaging in nonpartisan analysis, study, or re- search and making the results thereof available to the public.?18 The case is on appeal as this arti- cle goes to press.? Empower America. Empower America was incorporated on 1/8/93 ?to advance a conservative reform agenda.? The five initial members of its board of directors were all prominent Republicans?? Jack Kemp, former Secretary .of Education William Bennett, former Representative Vin Weber (R- Minn.), former UN. Ambassador Jeanne Kirkpatrick, and financier Ted Forstmann. On 2/9/93, the organization filed an application for recognition of tax-exempt status under Section 501(c)(4) as a social welfare organization. This began an almost five-year, slow-- motion repetitive two-step dance of information, request, and response. In a letter dated 5/16/94, the IRS gave the following. explanation for requesting more information: [W]e are concerned that your organization may be involved in activities that are appro? priately categorized as "polit- ical campaign intervention. In particular, we are con- cerned that you are. ?testing the Waters? for a future run by Mr. Jack Kemp for national office by keeping his name before the public and helping to develop positions and public support for .his platform.20 As time passed and more in? formation was requested, the or- ganization complained of unfair treatment. On 2/21/97denial letter in hich the organization was char- terized as too partisan for Sec- on 501(c)(4) status because its activities are designed to promote electoral interests of the Re- ublican Party and politicians af- liated with the Republican arty.? In support of this con- usion the IRS noted that all of peOple inVOIVed were Repub- 1 cans, and all of the policies ad- nced were associated with the epublican Party. On 4/21/97, counsel for Em- ower America submitted a written rebuttal, empha- 8 Zing the large number of De- ocrats?including President linton?who publicly agreed ith the various positions es? oused by the organization with spect to such issues as the North merican Free Trade Agreement, nti-crime legislation, welfare re- orm, spending curbs, drug policy, ducation reform, school reform, nd several other topics. The let~ er also noted that at least one new card member was a Democrat nd that there were new ?strong ?rocedural safeguards? to ensure hat the organization would never ecome partisan. A conference was eld on 9/12/97 and more infor- 1ation was submitted the fol- owing month. On 11/21/97, the IRS recog- Empower America as exempt L'nder Section 501(c)(4). An Em~ powerAmerica spokesman said F?trtL??mn??mOH? ?5 1? The Fund For the Study ofEconomic Growth and Tax Reform, 997 F. Supp. 15, El 98-947 (DC 171d. 13 Reg. 19 ?Kemp Commission Case Moves to Circuit Court.? 3 EO Tax journal 44 (Sep- tember 1998). 2? ?Special Report: Empower Amer- ica?Its Long March to Exemption,? 2 E0 Tax Journal 24 (12/22/97). 114 JOURNAL This docume AXATIUN 0F EXEMPT at was obtained and uploaded by the Center for Resp November I December 1998 Vol 10 I No 3? onsive Politics (OpenSecrets.org) that the IRS had been given ?a copy of rerything we?ve done.?1 Branch (The church at Pierce. 8 eek). Four days before the 199 presidential election, Branch inistries, a religious or- .doing business as The letters to the Christian ity~ in national news- he letters stated that the taken by then?candidate on regardingabortion, uality,? and teenage ab- ere contrary to Christian iews.-The IRS viewed this ited political involvement sequently revoked the status of Branch Ministri s. Aided by the conser? vative ndmark Legal Founda? tion, the church has filed a lawsuit contesting the revocation, claiming a violation of its constitutiOnal rights to free speech,? religion, and due process, as well as selective enforcement of the tax selective enforcementiclaim may be the mos: interesting aspect of this case, if only because many other churches holding more liberal views a'e widely reported to en- dorse candidates "and allow poli- ticians routinely to' campaign and even co le'ct funds before, during, and after church services. . srinence. biblical Section The cup stian unalitlun and related entities *The IRS has beeniin- vestiga 'ng a number- of"0rgani- zations associated with evangelist politic-i Pat Robertson, including The ris-tian Coalition, The. Christi Broadcasting Network, The. Freedom Council, the. I Perspectives Institute,? and '6 National Freedom .23 AcCOrding to publiShe?d report on 5/19/98, House Ways and Means Committee" Chair Bill Archer spoke, with IRS Commssioner Charles 0. Rossotti on be ralf of the pending. ap- plication'for recognition. of tax- exempt status of the Christian Coalition.? 1 - other conservative 'organlzatluns. An eXhaustive list Of the con- servative organizations that have been reported in" the media to? be involved? in discussions With the IRS concerning their oWn'tax? exempt status is beyond the scope" of this article. A few random items are worth noting, however:' 0 In 1997, the'conservative Heritage Foundation was'de- scribed inmedia'reports as being subject'to an IRS audit that it found to be onerous.? 0 Both the National?Rifle As- sociation. and Citizens Against Government waste were widely reported in. 1997 to be undergoing IRS audits.26 . . .. I 0 [Landmark Legal Founda- tion, the tax-exempt organi- zation that iscurrently representing Branch Min- istries, was itself reported in early 1997 to be under IRS audit}7 I . It .has also become relatively ammon for conservative. orga- izations to be reported to the-IRS their. ideological adversaries for. ard-hess interest-group politics should not be a part of our tax system. .1. -- bh?afis??di??lMun, Th?? congress - as to date taken two steps in re5ponse to the many complaints and media reports concerning the lRS'treatment of conservative organizations. . First,~in early 1997, the Joint Committee on Ta?xa'tion'was or- :lered by House Ways and Means Committee Chair Bill Archer and Senate Finance Committee Chair William Roth {Rn-Del.) tp investigate whether conserval? rive organizations have been sys- tematically mistreated or targeted for audit bythe IRS and to issue 21 ?Exempt Organizations: IRS Re? versal onTaX' Exemption for. Politically Active Advocacy Group Surprises On- iookers,? BNA Daily Report for Execu? title's (12/8/97); I 22 f?Current Litigation Status'pReport,? 20 Exempt Org. Tax Rev. 534 (June 1998). 23 ?Christian Broadcasting-NetWOrk, IRS Reach Settlement,? 78 Tax Notes 1598 (3/30/98). I . . g; - 7'4 ?Archer Brings Up Tax-Exempt Status For Christian Group in Meeting on Wat; St. page A18. . Heritage FoundationAudit?Congress to Look Into IRS Audits, of Exempt 74 Tax Notes 1623 (3/31/97). 27 Said To Be Auditing Conser- vative Groups, 74 Tax Notes 773 . . . 28 See, Have Engaged in Partisan Politics, Watchdog Group Says,? 75 Tax Notes1318 ?Fal- well May Have Violath Ban on Church Politicking,'Watchdog Group Alleges,? 76 Tax Notes-187 (7114/97), ?fAmeri'cans United Letter to Charles 3 130 Tax journa?11'59 (June 1998); ?Com- Participating in Lobbying, Pol- itics, Labor Organization Charges,?- 20 Exempt Org.'Tax Rev. 515 (June 1998); ABA'Transcript, 16 Rev. 435 .(March 1997); Lavish Spending at Tax-Exempt Magazine,? The Chronicle of Philanthropy 46 (6/18/98). Sometimes it is impossible to determine whether the?dispUte is ideo- logical or not. see, ?Greater Birm- ingham Ministries Urges IRS to Revbke Exemption of Joint Venturer,? 3150 Tax Journal 153 (June 1998). ofthe'rnle?s gap-?5 4 .i?ablfeit?oyster-exempt organiza-z?iit ..: . VQHDINH EXEMPTION .AND BIAS 115 This document was obtained and uploaded by the Center for Resbonsive Politics (OpenSecrets.org) a written port of its findings. A specific a a for investigation is whether a alogous liberal orga- nizations . re being treated more favorably a claim that. has ap- peared in veral media reports-.29 As this at icle goes to press, the report is to be released in the fall of 19 8.3O I he law as an rrently written, interpreted, and administered has an intolerable mess Second, the 1 99 8 IRS Restruc- turing Act added Section 7217 to the Code, designed (according to its title) as a ?Prohibition on Ex- ecutive Branch Influence. Over Taxpayer Audits and Other In?- vestigatior OBSERVAT 0N8 The discu sion above suggests some observations: 0 Thinking people must strongly resist the ?pox-on- both-their?houses? response that is ometimes heard: ?If the IRS is attacking both the gays and the conservatives, it must be doing a good job.? mila'rly, the issue should not be viewed as pos- ing a choice between believ- ing or clisbelieving conspiracy theories involv- ing the White House, IRS political appointees, or the IRS as institution. 0 There is a fundamental dif- ference between a govern- mental agency having an institutional bias and a gov- 0 ernmental agency having in- dividual employees whose positio is allow them to act on thei personal biases under color of law. While the immediate results of the two situations may in many ways seem to be the same to the. victim, the fact remains that, as Justice Oliver Wen- dell Holmes, Jr., once noted, ?even a dog distinguishes be- tween being stumbled over and being kicked.?31 Not every biased action is necessarily motivated by evil intent. In the case of Kathy?s Group, for example, the IRS agent who sought to predi- cate tax?exempt status on a change in mission could be viewed as wanting to im- prOve the organization by expanding the charitable class from lesbian women only to all women without regard to sexual orientation. Of course, if this were to be- come standard IRS operating procedure, the world of tax? exempt organization's would be dramatically different be- cause each IRS agent could impose his or her own val- ues. An IRS agent might con- - clude that the Red Cross would accomplish more good if it spent less effort on teaching children to swim and more effort on teaching children to read. Perhaps an IRS agent would find that the local museum, Opera, or orchestra focuses too much on activities of in- terest to rich elitists who do not need the hidden tax sub- sidy anyway. Indeed, an IRS agent might conclude that some religions would be im- proved by the elimination of certain exclusionary aspects of their doctrinal beliefs. The public will never know how many gay or conserva? tive organizations quietly collapsed in the face of in? ten5c IRS scrutiny. Kathy?s Group and GLASS were for- tunate enough to have the support of Lambda, but there may have been other similar entities that were not that lucky. Similarly, despite the public image of conserv? atives being rich, the truth is that few tax-exempt organi? zations of any political stripe could afford the legal fees and other costs incurred by Empower America in its long adminisrrative battle. Moreover, as is too often the case throughout modern American society, the result obtained can depend to an extraordinarily great extent on the quality of the legal counsel used, wholly apart from the cost. In view of how many gay and lesbian organizations had previously received recognition of tax-exempt status before GLASS and Kathy?s Group, it seems un? likely that the IRS has an in- stitutional bias against homosexuals. It seems unlikely that the IRS has an institutional bias against conservatives. Al~ though the outcome of the Western Jonrnalism Center?s lawsuit may prove. differ? ently, it also seems unlikely that the White House or? dered the IRS to withdraw or deny the exemption of the. Center or any other conserv- V65 74 00 mil: ser Ta. 29 See, Plans to Beef Up In- igation of Exempts? Political Activities,? Tax Notes 845 (2/17/97); Dellinger, )litical?ly Motivated Audits Need Not ve Come From the Top,? 80 Tax Notes ?i (8/17/98). 3? Report on IRS Audits of Cen- vative EOs Needs More Time,? 80 Notes 752 (8/17/98). 3'1 Holmes, The Common Law (1881), ;e 3. 113 JOURNAL OF TAFATION OF EXEMPT ORGANIZATIONS This document was obtained and uploaded by the Center for Resp I December 1998 Vol 101m 3 onsive Politics (OpenSecrets.org) ative rganization. It would not surprising, however, to fin thatindividuals who dislik conservative organic . zatio presented the IRS 'with hat they regardedas evide cc of abuse. Nor woul it be surprising to find at some of the indi- vidua swere politicians,lpo- litica appointees, or emplyees of political orga- nizatons.' With approximately . 102,00 people on the pay; . roll,l_' 'isa mathematical cer- taint t'hat't'heIRShas some 'empl yfees who dislike ho- mose uals and some employ- ee?s dislike conservatives. The r'oblem, however, is not that ome IRSagents halve-so? cial a political views that may He'liCall'ed biases. The? prob cm is that the tax laws perta ning to tax-exempt sta- tus ae so vague and amor- ph'ou as to allow individual IRS gents to indulge their biase under color oflaw, perh- ps sometimes without even I ealilzing' I As 5 been argued else- w'he it makes littlesense - to te tax-exempt organiza- tion for impermissible mo? tive, purpose, or intent.32 People start and join tax?ex- empt organizations for an unanalyzable mixture of pure and impure motives that :hange over time and cannot possibly be measured by tl' or anyone else. Alth augh some have lately argued in favor of the IRS predicating tax-exempt sta- tus a complete absence of political intent, liberals would probably be .as hurt as conservatives if the IRS would adopt such a view and enforce it uniformly. For ex- ample, the IRS now allows Section 501(c)(3) organiza- tions to engage .in ?nonparti- san?ivoter registration . drives in poor neighbor?- hoods,? even though it is clear to. all that the motive, purpose, and intent (as well as the result) is to increase the number of voters who. support the Democratic Party. . I Regardless of the ultimate result, reporting political en- emies to. the IRS is attractive because, Without-any cost. to the reporter, it forces the sf victim of the r-eport'to spend resources. Any adverse. pub- licity is an added bonus, par- ticularly if it"sscares away potential donors; To date, this tactic seems to be- used mostly by liberals against conservatives, but the con- . servatives may soon begin to return the favor.34 There is no shortage of liberal orga- nizations with activities that are functionally and-concep- tually indistinguishable'from those of some of the conser? vativeorganizations that have. been subjected-to porting? by private citizens or groups. More of this ac? tivity will not. be good news for the IRS, which can nei- ther enjoy nor avoid its role, particularly if a member of Congress is involved. There is something wrong with the spectacle of a gay congressman contacting the IRS on behalf of a gay orga- nization and a conservative congressman contacting the IRS on behalf of a conserva? tive organization. Even when radically updated and dis? guised almost beyond recog? nition, ward?boss interest?group politics should not be a part of our tax system. UFO-SM. he law- as currently written, in- trpreted, and administered has odUCe-d an?intolerable mess of i consistent results, partisan mud restling,? and cross- a taCks. Worse, it has undermined ?exnress aduusacy'. standard should he adopted. ublic confidezn'cenin? the IRS and tax laws generally. Dramatic I an'ges must be made 'so that the I S, and its personnel will no Inger be called on to interpret and . .dmi-nister at set of vague and bjective rules that are not sub? to neutral application. What does this mean, exactly? I means that, to the maximum ex- nt possible, the subjective tests the. current system should be urged and replaced with ?bright line? tests that are less subject to abuse. It is not possible in this ar- ticle to delineate all of the changes that this would entail, but the fol? lowing three ?points should be sufficient. to outline the approach: 1. The "?methodology?? test 'of National Alliance and Rev. Proc. 86?43 should be dis- carded, along with whatever remains of the ?full and fair exposition? standard of Reg. The lower court in National Al- liance was surely correct in finding the methodology test to be unconstitutionally 32 See Yablon and Coleman, ?Intent Is Not Relevant in Distinguishing Between Education and Politics,? 9 JTEO 156 (Jan/Feb 1998). 33 TAM 9117001. 34 Indeed, this has already started on a small scale. See Lehrfeld Richardson et (11., 132 F.3d 1463, 81 98-529 (CA-D.C., 1998). NovembniIDecumbm 1998 Vol 10 [Nail This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) EXEMPTION AND BIAS 117 guess its meaning? but it allows indeed, sometimes adopte .35 Among other things, this means charitable resent ives would be pro- hibited from expressly advocaiting the election or defeat 3f any political party or canc idate, but the would not get involved un- less the advocacy rises to the express level of ?Vote for Candid ate or funds for Candidate are eXpressly solicited'or collected on the premis Motive, purpose, and intent should be irrele- vant. Will this mean that some tax?exempt organiza- tions will become blatantly political, stopping only at the bright line of express ad- vocacy? Definitely so, but that would not be very much different or very much worse than what we already have, and the level of gamesrn-an? ship, hypocrisy, and IRS in- volvement would decrease dramatically. To the extent this will allow easy manipu- lation and avoidance of the election finance laws, the election finance laws should be changed}6 It is poor pol- icy to perpetuate bad tax laws in order to backstop weak election finance laws. . There should be a prohibi-. tion on the IRS seeking to ?improve? organizations, ei- ther in mission or in corpo- rate structure. This means, for example, that the IRS should not be able to force Kathy?s Group to serve non- gay women. It also means that the IRS should not be able to force Empower America to put a Democrat on its board. This sort of governmental interference is ugly even when it is well?in- tentioned and intolerable when it is not. ere is no hint of a cease-fire ing called anytime soon in the ltural wars that are currently ing fought on the American litical landscape. Some of the les of this warfare are con- ta'ned in an innately vague and bjective set of tax rules that the I has been called on to admin- is er. Not surprisingly, some of the mbatants believe strongly and mplain bitterly that the IRS 3 become a partisan for the other si e. The only solutionis to remove IRS from the battlefield. The rrent vague and subjectiVC rules st be replaced with a set of aright line? tests that require lit- tle factual analysis and legal in- terpretation. The war will go on, of course, but there will be less cl ance of respect for the tax laws becoming a casualty. I 35 The IRS has considered and re- iec ted the ?express advocacy" standard. See, TAM 9609-007. 36 This is a valid concern. See, Carr, "Tax-Exempt Groups Scrutinized As Fundraising Clout. Grows,? 55 Congres~ sicmal Quarterly 471 (2/22/97); Carney, ?Stealth Bombers," 29 National Journal 1640 (8116/97). 118 JOURNAL or 0F EXEMPT ORGANIZATIONS This docume it was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffer L. From: Sent To: Subject: Attachments: Mr. Wing: Yablon, Jeffery L. Monday, June 22, 2015 4:18 PM Wing Theron Article re Tax Reform Item 1 of 2 099754?0556140 (2013-05?14 06?01?40 Thank you for taking the time to speak with me today. As promised, attached is a copy of exempt orga making poli years demor Turni: to you my 0 the contrary motive, pu between pol the reasons political act accident th reference 0 Agair Jeffery L. Yabloi'i Pillsbury Winthrop Shaw Pittman LLP Partner 1200 Seventeer 202.663.8441 jefferyyablon? ABU CHr'xBi AUSTIN SHA pi lsliuru Please notet l? the article that I wrote back in 1998 about inizations should be changed to get the IRS tical judgments. I think that the events of ti istrate that the need for this reform is greate rig from what the law should be to what the ther 1998 article demonstrating that -- deS] that affects most people until they really th rpose, and intent is not and cannot be legall? itical activity and education in the IRC sect we discussed, the same is clearly true for di ivity and issue advocacy in the IRC section neither Rev. Rul. 2004-6 nor Rev. Rul. consider motive, purpose or intent. 1, thank you. eff ith Street NW Washington, DC 20036?3006 f202.663.8007 pillsburylaw.com BEIJING HOUSTON LDNG-DN NASHVILLE NEW YORK PALM BEACH SACRAMENTO SAN DIEGO CCIUNTY WASHINGTON, DC we new address ofthe DC office. Telephone, email and fa) 63 vhy the law governing tax out of the business of ie intervening seventeen than ever. law is, I will separately send Jite the intuitive appeal to ink about the issue -- relevant in distinguishing ion 501(c)(3) context. For stinguishing between 501(c)(4) context. It not an 2007-41 ask about, 'ablon (are unchanged. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffer From: Sent: To: Subject: Mr. Yablon, I have received tl' Thank you, Tiara? d. IRS Appeals, 2525 Capitol St Fresno, CA 93721 Telephone: (559)443-7611 FAX: (559) 443? E-FAX (855)238-8646 From: Yablon, Je Sent: Wednesda To: Wing Theron Cc: Tom Josefiak Stephen S. Subject: Crossrc Mr. Wing: Per 01 to Crossroai Than] Jeffery L. Yablon Pillsbury Winthrop Shaw Pittman LLP Partner 1200 Seventee 202.663.8441IT jeffery.yablon@ DHi?tBl NORTHERN \?lR?lNlA SAN FRANCISCO SHA pillsliuni Please note we new address of the DC office. Telephone, email and fa: Wing Theron Wednesday, May 20, 2015 5:48 PM Yablon, Jeffery L. RE: Crossroads GPS me SOD, Team 9 Suite 201 7614 ffery L. y, May 20, 2015 2:33 PM (3 Jason Torchinsky; J. Michael Bayes (j ads GPS 1r conversations, attached is the supplemen1 you for your consideration. ??Jeffery L. th Street NW Washington, DC 20036-3006 f202.663.8007 pillsburylaw.com HOUSTON LONDON NASHVILLE NEW YORK PALM BEACH SACRAMENTO SAN DIEGO SAN DIEGO COUNTY VALLEY WASHINGTON, DC 64 4.1449? is GPS that you graciously agreed to accept. attached appeal summary. I will associate it with your client?s file and give it careful consideration. Dunn, Alvin; Asay, a1 submission with respect 'ablon (are unchanged. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) The contents of exempt from dis distribution, or message in error 800-477-0770, attachments, fro 5 th entity to which cl >1 is message, together with any attachments, are intended 3y are addressed and may contain information that is leg osure. If you are not the intended recipient, you are here ying of this message, or any attachment, is strictly proh lease notify the original sender or the Pillsbury )tion 1, immediately by telephone or by return Email an your computer. Thank you. only for the use of the individual or ally privileged, con?dential and by noti?ed that any dissemination, ibited. If you have received this )p Shaw Pittman Help Desk at Tel: delete this message, along with any 65 This documen twas obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffer L. From: Sent To: Cc: Subject: Attachments: Mr. Wing: Per 01 Jeffery L. Yablo Partner Yablon, Jeffery L. Wednesday, May 20, 2015 5:33 PM Tom Josefiak Jason Torchinsky; J. Michael Bayes Dunn, Alvin; Asay, Stephen S. Crossroads GPS 2015?05-20 Crossroads GPS appeal 1r conversations, attached is the supplemental submission with respect to Crossroads GPS that you graciously agreed to accept. Thank you for your consideration. --Jeffery L. Yablon 1 I Pillsbury Winthrop Shaw Pittman LLP 1200 Seventeerth Street NW 1 Washington, DC 20036-3006 202.663.8441 jefferyyablonCa? f202.663.8007 pillsburylaw.com pillsburylaw.c0m ABU DHABI AUSTIN BEIJING HOUSTON UDNDON LDSANGELES NASHVILLE BEACH SACRIEMENTO SAN SAN DIE-GO NORTH COUNTY SAN FRANCISCO SHAITGHN SIUCUN VALLEY WASHINGTON, DC Please note the new address ofthe DC office. Telephone, email and fa) are unchanged. This document was obtained and uploaded by the Center for Res 66 aonsive Politics (OpenSecrets.org) Illshuru sbury Winthrop Shaw Pittman LLP 30 Seventeenth Street, NW Washington, DC 20036 1 tel 202.663.8000 fax ll Pil 12 202.663.8007 Jeffery L. Yablon tel 202.663.8441 lay 20, 2015 email attachment and FedEx ternal Revenue Service heron C. Win Re: Crossroads Grassroots Policy Strategies: Appeal of Internal Revenue Service Final Adverse Determination Dear Mr. Wing: gal and factual issues Strategies Thank you for agreeing to accept a summary of key 1e resented in the appeal involving Crossroads Grassroots Polic [the ?Service?) issued to \dverse Letter?) :mption under section On September 6, 2013, the Internal Revenue Service GPS 3 proposed adverse determination letter (the ?Proposed 2? regarding Form 1024 application for recognition of ex? (Jl 2 1?1 01(c)(4) of the Internal Revenue Code (the ?Code?). After .atement, participated in a conference of right, and submittec .atement and two supplemental submissions, the Service by 014, noti?ed GPS that the Service is prepared to issue a ?na :garding tax-exempt status. On August 18, 2014, GPS requested that the Service? =view application for tax-exempt status, as set forth i Guidance Memorandum issued May 1' )ctober 27, 2014, your of?ce noti?ed GPS that it would be rocess. 3P8 submitted a protest its revised protest etter dated July 23, adverse determination Office of Appeals 1 the Service?s Interim 9, 2014. By letter dated andling the appeal This docum? nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) (D ron C. Wing Ma 20, 2015 Page 2 We have discussed this matter with you by telephone on a number of occasions over the past few months. You have asked us not to submit a brief but have agreed that a shorter summary may be helpful to you as you review the ?le. Thalt summary is attached. We hope that you will determine, after reviewing the attached summary and th 5 record in this matter, that GPS should be recognized as exempt. If, however, you a unable to make such a determination based on your review of the written aterials, you have agreed to have an in-person meeting with us and to consider a tional information and arguments. We appreciate your consideration of this matter. WM Jeffery L. Yablon Sincerely, 3-Counse1: Tom ose?ak Jason Torchinsky ehael Bayes Vo gel Jose?ak PLLC 45; North Hill Drive, Suite 100 Warrenton, VA 20186 Tellephone: 540-341-8808 Fadsimile: 540?341?8809 9?1. Al lin Dunn Si ephen S. Asay Pi Winthrop Shaw Pittman LLP 200 Seventeenth Street, NW Walshington, DC 20036 Tellephone: 202?663-8000 Facsimile: 202-663-8007 This document was obtained and uploaded by the Center for Responsive Politics (OpenSecretsorg) 501 Instead rules to of App it will justifyi we higl SUMMARY APPEAI We are here because the Service did not follow its own rules 4) social welfare organizations, rules that GPS relied upon it the Service ignored its own rules, created new rules, and ap i GPS. The Service also made ?ndings of fact that are dem01 eals objectively applies the Service?s published revenue rulir onclude that GPS is entitled to recognition of tax?exempt sta As set forth in detail in protest materials, the Service ng its conclusion that GPS is not exempt under Code section ilight just two fundamental errors, each relating to timing: I li. The Proposed Adverse Letter considered only ?r fact that the Service requested, and GPS provided, exten subsequent time periods. Looking at the complete ?le 0 activities in the Service?s possession, even witho errors made by the Service and applying that flawed ana recognized GPS as tax-exempt. The Service misapplied its own facts?and-circumstances timing above all other factors and effectively creating a under which any advocacy advertisement that appears election and that mentions an Of?ceholder who is also a classified as campaign intervention activity, even when a current legislative matter. The proper application of circumstances test (which includes nothing even remote governing Code section 1 conducting its activities. plied these never-before-seen istrably untrue. If the Office to each GPS expenditure, made numerous errors in 501(c)(4). In this summary, 3t taxable year, despite the sive information pertaining to information regarding ut correcting any of the other .lysis, the Service would have . test, elevating the factor of per se eleven-week rule, lithin eleven weeks of an candidate is automatically the advertisement pertains to he Service?s facts-and- ly suggesting a per se eleven- This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) If your recogn new, preord: of GPS unlawf interes 2014) 1. GP regard ofany signifi limited to ?rst taxable year. Qf?ce corrects just one of these two clear errors, it will dete tion of tax-exempt status. Because each of these two errors, at its core, involves the Se iannounced rules to GPS, it seems apparent that the Service? lined] This conclusion is bolstered by the known facts abou ?5 application from its substantial delays in considering GI ul leak of application to the media, and to its inappro; groups urging the Service to deny application. GPS :?Revised Protest?) at 1, 19-20; Supplemental Submission at The Service Improperly Limited Its Review of Ac week rule), compels recognition of tax?exempt st: 1tus, even if the inquiry is rmine that GPS is entitled to rvice creating and applying 5 adverse determination was the Service?s mishandling ?S?s application, to its >riate contacts with outside Revised Protest (February 28, 3-7. tivities to First Year gf Operations ?rst year of operations, but it failed to incorporate in its anal rig activities after its first year. This approach is unpi other case in which the IRS requested, received, and then de cant relevant information about an organization. The empl Jublicly available record shows that Director of Exempt Organizations oyees to deny application and prepare an adverse determination le criti revi ther ?er, a committee of Service personnel close to Ms. Lerner apparently dete Subn We was y. of GPS, apparently without actually ever reviewing application er of the application did not begin drafting the adverse determination The Service requested and received voluminous information covering activities beyond ysis any information 'ecedented. We are not aware liberately chose to disregard Dis Lerner directed Service tter shortly after meeting with materials. It appears that the initial ntil directed to do so. At some point ecided to issue the proposed adverse Eination Ms. Lerner had demanded. GPS Supplemental Submission (May 7, 2014) (?Supplemental iilssion?) at 8-10. ress, however, that GPS should be recognized as tax-exempt under Cod epeatedly mistreated by the Service but because it clearly qualifies unde 3 Section 501(c)(4) not because it the law. This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) I had in it 2011, th on infor VIoreover, in its Proposed Adverse Letter the Service did not 3 possession but chose not to consider information on end of ?rst ?scal year. The Service stated only that mation GPS provided in connection with its application fort Form 9590 for the taxable year ending May 31, 2011. Proposed Advc during 2 tax-exe Service for and Service informs ?rst tw every engage the Ser i gnorec that it have to flawed activiti welfare nl essence, the Service conducted an audit, which by de?niti 1 speci?c taxable year. Yet the Service?s consideration of a status, in the normal course, addresses proposed activitit unilaterally delays its consideration of an application for tax must consider the materials in its possession. In this case, tl tion regarding activities from its inception through A 3 itaxable years. This approach is logical and fair, and has be ase until now. Revised Protest at 41-44. Ignoring activities after its ?rst taxable year made a :l in extensive legislative advocacy activities after its ?rst tax its own guidance and applied its ad hoc per se eleven-week Ised to reach its determination regarding ?rst-year act I conclude that GPS is entitled to recognition of tax-exempt brand-new standards (as re?ected in the PrOposed Adverse activities and less than 35% to campaign intervention activ es would result in a ?nding that GPS devoted more than 65?/ even acknowledge that it ?S?s activities after May 31, it based its determination ax?exempt status, and in its :rse Letter at 1-2. on concerns past actions iorm 1024 application for Where, as here, the -exempt status and then asks receives extensive additional information covering a broader period, at the very least the rose materials included pril 30, 2012, more than its en followed by the Service in [igni?cant difference. GPS _able year, nearly all of which vice would have to categorize as social welfare activities. Thus, even if the Service rule to all of activities ivities, the Service would tatus. Applying the Service?s setter) to all of 6 of its expenditures to social ties during the period This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) covered by the material in the Service?s possession. Revised Protes properl more lopsided. From its inception through April 30, 2012, GPS in i 75% oi its expenditures to social welfare activities and approximate intervention activities. Revised Protest at 14-16, 44, 67 (Appendix Expenditures through April 30, 2012). We stress, however, that while considering the totality of that approach is not required to determine that GPS is ent approa exempt status. As GPS demonstrated in its protest materials, such 1 at 44. If the Service were to apply its facts-and-circumstances test to those same activitlies, the numbers are even fact devoted approximately ly 25% to campaign C: Table of 3S?s activities is the correct :itled to recognition of tax- ecognition is appropriate even if one looks only at operations in its first taxable year and properly applies the facts- and-circumstances test. Revised Protest at 26-28, 33-35, 37-41, 65 Expenditures through May 31, 2011). The Service Failed to Apply the Established Facts?and-( new II. Since at least 2002, the Service?s facts-and-circumstances ti organi of that facts-and-circumstances test in this case. Instead, the Service eleve timing of advertisements over all others. Treating timing critica factor above all others has never been suggested in any pric Moreover, the Service created and applied a new rule classifying a ms an incumbent elected of?cial who is also a candidate for weeks of an election as campaign intervention activity, rege mentic eleven of the communication. (Appendix B: Table of Zircumstances Test to :st has provided guidance to zations governed by Code section 501(c)(4), and GPS has carefully applied the elements test in conducting its activities. The Service, however, did Tot properly apply its own Lted a single factor the of communications as the tr guidance from the Service. ny communication that (1) office and (2) is made within irdless of the actual substance This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) the regulations, or the Service?s published guidance. Revised Prote 6, 200? ?coinc comm in Rev [an] states 1 campaign intervention? is ?[w]hether the statement is delivered clo The three relevant examples (again, ?Situations?) describe a comm ?short specif becaut communication ?coincides? with an electoral campaign, is delivere electic phrasi nothin elever that This new implicit rule a per se eleven-week rule has abs 1-1 CB. 328, states that if the timing of a communication ides with an electoral campaign,? that timing is a factor that Jnication was for campaign intervention. Each of the six ex: . Rul. 2004-6 describes an ?advocacy communication . . . [th ?ectz?on.? Rev. Rul. 2004-6 (emphasis added). Rev. Rul. 200 hat one of the ?key factors in determining whether a commu before an election.? Id. (Situations 14-16). One of these city regarding timing and describes a communication that is e? it ?takes place in the month before the election. Id. (Situ Thus, the Service?s only guidance regarding the timing fact tn,? or appears ?shortly? before an election. One example in refer to communications distributed ?in the month befor in either Revenue Ruling that even remotely suggests that weeks before an election.? But that is the meaning the Sen and seemingly only for this case. Doing so made a critical Adopting and applying this new per se eleven-week rule, tl i010 television advertisements together and concluded that PS ran within eleven weeks of the 2010 general election wa I I a olutely no basis in the Code, st at 21-23. Rev. Rul. 2004- it mentions a candidate would ?tend to show? that the imples (?Situations?) set forth at] appears shortly before nication results in political se in time to the election.? unication that is made :xamples provides greater ?shortly before the election? ation 16) (emphasis added). or focuses on whether a ?close in time to the dicates that these various 3 an election.? There is these phrases mean ?in the rice applied, at least for this iifference. 1e Service grouped all of any television advertisement 3 for campaign intervention This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) purpos< interve three-vs 2010 53 day: (Apper televisi electior of thos campai Service televis welfar< time to factors interve Interve them at best exemp Proposed Adverse Letter at 12-13. In so doing, the Serv1 union activity a group of social welfare television advertisem eiek period that started more than two-and-a?half months (or animal election (and constituted ?rst public broadcast . for almost two months) before the 2010 general election. dgix B: Table of Issue Advocacy and Social Welfare Such treatment by the Service was improper and consequen advertisements it ran in during this timeframe long befc as social welfare activity, because, in addition to the tirr advertisements warranted such treatment. Revised Protest Liikewise, GPS classi?ed the television advertisements that intervention activity based on a full and fair assessment its facts-and?circumstances test. GPS began running the advertisements eleven days after it aired the last of the at television advertisements. GPS recognized that it aired the an election? (late September October 2010). That timing r:egarding the content of the advertisements, caused GPS to ce treated as campaign ents that GPS aired during a eleven weeks) before the communications) and ended revised Protest at 95-101 Television Advertisements). tial. GPS classi?ed the )re ?the month before the ting factor, the actual content at 9-11, 26-28. it ran after this time frame as >f the factors set forth by the se campaign intervention ?orementioned group of social se advertisements ?close in factor, along with other classify them as campaign I ntion activity. Revised Protest at 121?128 (Appendix F: Table of Campaign ntion Television Advertisements). These critical facts are well-documented. The Service, hov~ I oinpletely. Worse, the Service set forth facts regarding timi misleading in order to reach its preordained determination 1 Status. The Service used its new result-oriented eleven-we rever, appears to have ignored ng that were simply wrong or, ,hat GPS is not entitled to tax- ek rule to avoid undertaking This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) the detailed item-by?item analysis that is required by Rev. Rules 2C GPS it at 9-16 I analys faithfully did. The Service cannot now take shortcuts and apply ne the we publisl with tl found comm advert Revise the Sc indica candic miscla the lar own reach ie:d guidance. Service?s new and subjective standards for social welfare I sing satisfy the reviewers? judgments as to what constitutes Protest at 28?3 1. Nice also ignored its own detailed examples in its two contr s'sified as campaign intervention activities certain GPS adve iguage and form of illustrative social welfare communicatior .eEVenue Rulings. Revised Protest at 26-28, 33-35. In sum, the Service grossly misapplied its own facts-and-CI tlie result of denying application. The proper applica I self performed when conducting and carefully tracking its or - i From real-world experience, we understand that an item-by siis a painstaking, tedious process. But it is what the Servic it requires of taxpayers or to dictate a result based upon St it proper application of the Service?s facts-and?circumstanc anywhere in its guidance, including supposed requirements 1 cations must discuss issues ?sufficiently? or in a particula in rigidly applying this new eleven-week test to issu te: that pre-election advocacy communications may, in fact, ate?s policy positions and still qualify as social welfare actii IO6-4 and 2007-41 and that Nl?l activities. Revised Protest -item facts-and-circumstances has mandated and what GPS standards to avoid doing )mething other than its .es test must also dispense communications that are not hat issue advocacy Lr amount of detail, and that ?effective? issue advocacy. advocacy advertisements, alling Revenue Rulings, which efer to a candidate and the rity. As a result, the Service rtisements that closely tracked is set forth in the Service?s rcumstances test in order to tion of the facts-and- This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) circumstances test to varied activities requires that the Service recognize tax- exempt status, whether the Service looks only at ?rst taxable year-or all of activity re?ected in the record. CONCLUSION A fair and objective review of the factual record and the Service?s own long-held rules will demonstrate that GPS is entitled to exemption under Code section 501(c)(4). At all times, GPS has carefully followed the Service?s rules as they currently exist. I Riespectfully submitted this 20th day of May, 2015. at, Pil ury inthrop Shaw Pittman LLP 1200 Seventeenth Street, NW Washington, DC 20036 Telephone: 202-663-8441 Facsimile: 202?663?8007 Toni Jose?ak Jason Torchin'sky Michael Bayes Holtzman V0 gel Jose?ak PLLC 45 North Hill Drive, Suite 100 Warrenton, VA 20186 Telephone: 540-341-8808 Facsimile: 540-341-8809 Alvin Dunn Stephen S. Asay? Pillsbury Winthrop Shaw Pittnan LLP 1200 Seventeenth Street, NW Washington, DC 20036 Telephone: 202?663?8000 Facsimile: 202-663-8007 Counsel for Crossroads Grassroots Policy Strategies This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Yablon, Jeffen I From: Yablon, Jeffery L. Sent: To: Subject: YouTube The Pillsbury DC will be: Pillsbury Winthri 1200 Seventeeni Washington, DC Phone numbers Jeffery L. Yablor Pillsbury Winthr 2300 Street, 202.663.8441 jeffery.yablon@ r?iElLl 8 NORTH ERN SAN SHAH pi- Shaw Pittman LLP :h Street, NW 20036 Tuesday, December 02, 2014 3:48 PM Office is on the move! We will be relocating effective Dec and email addresses will remain the same. Partner at) Shaw Pittman LLP Washington, DC 20037-1122 3i;llsburylaw.com website bio 3Hm VALLEY TOKYO DC LDSANGELES NASHVILLE NEW YORK ?.le BEACH SACRAMENTO Slt'N SAN DIEGO NORTH COUNTY 67 :ember 8, 2014 and our new address This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Isbury Winthrop Shaw Pittman LLP May 20, 2015 By email attachment and FedEx ternal Revenue Service heron C. Win ear Mr. Wing: mm?n egarding tax-exempt status. "1 FOCCSS. "00 Seventeenth Street, NW Washington. DC 20036 tel 202.663.8000 fax 202.663.8007 Jeffery L. Yablon tel 202.663.8441 Thank you for agreeing to accept a summary of key le presented in the appeal involving Crossroads Grassroots Policy Strategies *irieirv': Re: Crossroads Grassroots Policy Strategies: Appe al of Internal Revenue Service Final Adverse Determination gal and factual issues On September 6, 2013, the Internal Revenue Service (?the ?Service?) issued to PS 3 proposed adverse determination letter (the ?Proposed Adverse Letter?) egarding Form 1024 application for recognition of exemption under section Dl(c)(4) of the Internal Revenue Code (the ?Code?). After GPS submitted a protest tatement, participated in a conference of right, and submitted its revised protest statement and two supplemental submissions, the Service by letter dated July 23, 2014, noti?ed GPS that the Service is prepared to issue a ?nal adverse determination On August 18, 2014, GPS requested that the Service?s Of?ce of Appeals eview application for tax-exempt status, as set forth in the Service?s Interim uidance Memorandum TEGE-07-0514-0012, issued May 19, 2014. By letter dated ctober 27, 2014, your of?ce noti?ed GPS that it would be handling the appeal This docume int was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) Theron C. Wing May 20, 2015 Page 2 We have discussed this matter with you by telephone on a number of occasions over the past few months. You have asked us not to submit a brief but have agreed that a shorter summary may be helpful to you as you review the ?le. T?iat summary is attached. We hope that you will determine, after reviewing the attached summary and the record in this matter, that GPS should be recognized as exempt. If, however, you alie unable to make such a determination based on your review of the written in ejerials, you have agreed to have an in-person meeting with us and to consider ad itional information and arguments. We appreciate your consideration of this matter. (20% Jeffery L. Yablon Sincerely, Co-?Couns el: Torn Jose?alc . Jason Torchinsky Michael Bayes I-Iioltzman Vogel Josefiak PLLC 4.5 Nofth Hill Drive, Suite 100 Wairenton, VA 20186 Telephone: 540-341-8808 acsimile: 540-341 -8 809 Alvin Dunn :elphen S. Asay llsbury Winthrop Shaw Pittman LLP 1200 Seventeenth Street, NW Washington, DC 20036 . Telephone: 202?663-8000 Facsimile: 202?663-8007 This docume ht was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) 501(c) Insteac rules t< of Apj: it will justify we hig hlight just two fundamental errors, each relating to timing: I. recognized GPS as tax-exempt. The Service misapplied its own facts-and-circumstance timing above all other factors and effectively creating a classi?ed as campaign intervention activity, even when This docume SUMMARY We are here because the Service did not follow its own rule K4) social welfare organizations, rules that GPS relied upon i l, the Service ignored its own rules, created new rules, and a; 3 GPS. The Service also made ?ndings of fact that are demo eals objectively applies the Service?s published revenue rulii conclude that GPS is entitled to recognition of tax-exempt st 1er set forth in detail in protest materials, the Service ng its conclusion that GPS is not exempt under Code sectior The Proposed Adverse Letter considered only ?r fact that the Service requested, and GPS provided, exter subsequent time periods. Looking at the complete ?le activities in the Service?s possession, even witho errors made by the Service and applying that ?awed am under which any advocacy advertisement that appears vs election and that mentions an Of?ceholder who is also a a current legislative matter. The proper application of t] circumstances test (which includes nothing even remote wt was obtained and uploaded by the Center for Resp 3 governing Code section conducting its activities. Jplied these never-before-seen nstrably untrue. If the Of?ce 1gs to each GPS expenditure, atus. made numerous errors in 501(c)(4). In this summary, st taxable year, despite the information pertaining to information regarding ut correcting any of the other tlysis, the Service would have 5. test, elevating the factor of per se eleven-week rule, zithin eleven weeks of an candidate is automatically the advertisement pertains to 1e Service?s facts-and- ly suggesting a per se eleven- onsive Politics (OpenSecrets.org) If your recogni new, ur preorda of GPS unlawfl interest 2014)( I. limited to ?rst taxable year. tion of tax?exempt status. Because each of these two errors, at its core, involves the Se "Revised Protest?) at 1, 19-20; Supplemental Submission at week rule), compels recognition of tax-exempt sta Office corrects just one of these two clear errors, it will deter announced rules to GPS, it seems apparent that the Service?: ined.l This conclusion is bolstered by the known facts ab0u1 ?5 application from its substantial delays in considering GP 11 leak of application to the media, and to its inapprop groups urging the Service to deny application. GPS he Service Impropeer Limited Its Review of AC1 tus, even if the inquiry is mine that GPS is entitled to ?vice creating and applying adverse determination was :the Service?s mishandling S?s application, to its riate contacts with outside Revised Protest (February 28, 3-7. :ivities to First Year of Operations GPS ?8 regardi of any i signi?c 1g activities after its ?rst year. This approach is unpr ant relevant information about an organization. 1 The emplc critics review therea detem Subm We st was ission?) at 8-10. ress, however, that GPS should be recognized as tax-exempt under Code :peatedly mistreated by the Service but because it clearly quali?es under This docume The Service requested and received voluminous information Eirst year of operations, but it failed to incorporate in its anal: ather case in which the IRS requested, received, and then del uincly available record shows that Director of Exempt Organizations Lo yees to deny application and prepare an adverse determination letter shortly after meeting with of GPS, apparently without actually ever reviewing application 11 ver of the application did not begin drafting the adverse determination, un fter, a committee of Service personnel close to Ms. Lerner apparently de iihation Ms. Lerner had demanded. GPS Supplemental Submission (Ma covering activities beyond Isis any information ecedented. We are not aware iberately chose to disregard is Lerner directed Service laterials. It appears that the initial til directed to do so. At some point cided to issue the proposed adverse 7, 2014) (?Supplemental Section 501(c)(4) not because it the law. nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) had in 2011, on info Form 9 during tax-exe Service for and Service inform first tw every 0 engage the Ser i gnorec that it Htsed to reach its determination regarding ?rst-year act have to flawed activiti welfare This docume Moreover, in its Proposed Adverse Letter the Service did now itsi possession but chose not to consider information on 1e end of ?rst ?scal year. The Service stated only tha rmation GPS provided in connection with its application for 1 90 for the taxable year ending May 31, 2011. Proposed Adv In essence, the Service conducted an audit, which by de?niti a speci?c taxable year. Yet the Service?s consideration of a1 status, in the normal course, addresses proposed activiti unilaterally delays its consideration of an application for tax receives extensive additional information covering a broadei must consider the materials in its possession. In this case, tl iti?on regarding activities from its inception through A taxable years. This approach is logical and fair, and has be ase until now. Revised Protest at 41-44. Ignoring activities after its ?rst taxable year made a :l in extensive legislative advocacy activities after its ?rst tax its own guidance and applied its ad hoc per se eleven-week conclude that GPS is entitled to recognition of tax-exempt brand-new standards (as re?ected in the Proposed Adverse I es would result in a ?nding that GPS devoted more than 65% activities and less than 35% to campaign intervention activi ht was obtained and uploaded by the Center for Resp even acknowledge that it activities after May 31, it based its detennination tax-exempt status, and in its erse Letter at 1-2. on concerns past actions Form 1024 application for as. Where, as here, the ?exempt status and then asks period, at the very least the 1056 materials included pril 30, 2012, more than its en followed by the Service in igni?cant difference. GPS able year, nearly all of which vice would have to categorize as social welfare activities. Thus, even if the Service rule to all of activities vities, the Service would tatus. Applying the Service?s .etter) to all of I of its expenditures to social ties during the period onsive Politics (OpenSecrets.org) covered proper]: more 10 75% of interv er Expendithres through April 30, 2012). approac exempt even if and-Cir: GPS ?5 1 II. by the material in the Service?s possession. Revised Protest I apply its facts-and-circumstances test to those same activiti psided. From its inception through April 30, 2012, GPS in f. its expenditures to social welfare activities and approximate] tion activities. Revised Protest at 14-16, 44, 67 (Appendix We stress, however, that while considering the totality of GP that approach is not required to determine that GPS is cut] I status. As GPS demonstrated in its protest materials, such re 31:16 looks only at operations in its ?rst taxable year ar :dmstances test. Revised Protest at 26-28, 33?35, 37?41, 65 Expenditures through May 31, 2011). The Service Failed to Applv the Established Facts-and-C at 44. If the Service were to es, the numbers are even act devoted approximately 25% to campaign 3: Table of S?s activities is the correct tied to recognition of tax- :cognition is appropriate 1d properly applies the facts- Appendix B: Table of ircumstances Test to Activities organiz of that 1 facts-ar timing critical Moreox mentior eleven of the Since at least 2002, the Service?s facts-and-circumstances te atiions governed by Code section 501(c)(4Its act1v1t1es. The Servrce, however, n< Ld-circumstances test in this case. Instead, the Service elevat 3f; advertisements over all others. Treating timing 0 factor above all others has never been suggested in any prior 7er, the Service created and applied a new rule classifying an is an incumbent elected of?cial who is also a candidate for wieeks of an election as campaign intervention activity, regar . . omlnumcatlon. at has provided guidance to efully applied the elements )t properly apply its own ed a single factor the communications as the guidance from the Service. communication that (1) ffice and (2) is made within dless of the actual substance This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) the regulations, or the Service?s published guidance. Revised Protes 6, 2004 ?coincic 0011111111] in Rev. [an] ele states th campaig The ?shortly speci?c because commu electior phrasin nothing eleven C386 that GP fhis new implicit rule a per se eleven?week rule has abso 1 CB. 328, states that if the timing of a communication that [e 1i Rul. 2004-6 describes an ?advocacy communication . . . [tha Rev. Rul. 2004-6 (emphasis added). Rev. Rul. 2007 ;n intervention? is ?[w]hether the statement is delivered clos? :6 relevant examples (again, ?Situations?) describe a commu before an election.? Id. (Situations 14-16). One of these ex ity regarding timing and describes a communication that is it ?takes place in the month before the election. Id. (Situa Thus, the Service?s only guidance regarding the timing facto nication ?coincides? with an electoral campaign, is delivered 9 or appears ?shortly? before an election. One example ind gs refer to communications distributed ?in the month before . . in elther Revenue Ruling that even remotely suggests that tl weeks before an election.? But that is the meaning the ServiLn'd only for this case. Domg so made a crltical d1 Adopting and applying this new per se eleven-week rule, the 2010 television advertisements together and concluded that a ran within eleven weeks of the 2010 general election was i with an electoral campaign,? that timing is a factor that cation was for campaign intervention. Each of the six exan luter no basis in the Code, tat 21-23. Rev. Rul. 2004- mentions a candidate ould ?tend to show? that the aples (?Situations?) set forth t] appears shortly before -41, 2007-1 CB. 1421, at one of the ?key factors in determining whether a communication results in political 3 in time to the election.? nication that is made amples provides greater shortly before the election? tion 16) (emphasis added). 1' focuses on whether a ?close in time to the [cates that these various an election.? There is iese phrases mean ?in the :e applied, at least for this fference. Service grouped all of my television advertisement ?or campaign intervention This document was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) purpose interveTtion activity a group of social welfare television advertisemt three-w 2010 gt 53 days (Appen televisi electior of those campai Service televisi welfare time to factors interve Interve them c< at best, exempt 5. Proposed Adverse Letter at 12?13. In so doing, the Servi eek period that stated more than two-and-a-half months (or i? as social welfare activity, because, in addition to the tim 5 advertisements warranted such treatment. Revised Protest gm intervention activity based on a full and fair assessment 0 ntion Television Advertisements). These critical facts are well-documented. The Service, how This docume nleral election (and constituted ?rst public broadcast (or almost two months) before the 2010 general election. dix B: Table of Issue Advocacy and Social Welfare 1 Such treatment by the Service was improper and consequent an advertisements it ran in during this timeframe long befo Likewise, GPS classified the television advertisements that in its facts-and-circumstances test. GPS began running thes on advertisements eleven days after it aired the last of the a? television advertisements. GPS recognized that it aired thes an election? (late September - October 2010). That timing 1 regarding the content of the advertisements, caused GPS to ition activity. Revised Protest at 121-128 (Appendix F: Tat )mpletely. Worse, the Service set forth facts regarding timin misleading in order to reach its preordained determination t] status. The Service used its new result-oriented eleven-wee :e treated as campaign :nts that GPS aired during a eleven weeks) before the :ommunications) and ended evised Protest at 95-101 ?elevision Advertisements). ial. GPS classi?ed the re ?the month before the mg factor, the actual content at 9-11, 26-28. ran after this time frame as the factors set forth by the campaign intervention Drementioned group of social advertisements ?close in ?actor, along with other ?lassify them as campaign ale of Campaign ever, appears to have ignored that were simply wrong or, rat GPS is not entitled to tax- rule to avoid undertaking nt was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) the detail GPS its at 9-16. analysis faithful the wor publish with th< found an commu advertis Revisec the Ser indicate candida misclas the Ian; own Rt reach tl 31 F1 is a painstaking, tedious process. But it is what the Service 3? ed guidance. 1 . Service?s new and subjective standards for social welfare 0 ywhere in its guidance, including supposed requirements tli n1 cations must discuss issues ?suf?ciently? or in a particular ing satisfy the reviewers? judgments as to what constitutes ?Protest at 28-31. In rigidly applying this new eleven-week test to issue vice also ignored its own detailed examples in its two contro I I that pre-election advocacy communications may, in fact, re s1fled as campaign intervention activities certain GPS adven gU [age and form of illustrative social welfare communication: :venue Rulings. Revised Protest at 26-28, 33?35. In sum, the Service grossly misapplied its own facts-and-cir 16 result of denying application. The proper applicati 7 ed item-by-item analysis that is required by Rev. Rules 20C tf performed when conducting and carefully tracking its ow 'om real-world experience, we understand that an item-by-i did. The Service cannot now take shortcuts and apply nev it requires of taxpayers or to dictate a result based upon A proper application of the Service?s facts-and?circumstance 6?4 and 2007-41 and that activities. Revised Protest tem facts-and-circumstances has mandated and what GPS .1 standards to avoid doing nething other than its 3 test must also dispense ammunications that are not at issue advocacy amount of detail, and that effective? issue advocacy. advocacy advertisements, [ling Revenue Rulings, which fer to a candidate and the 3?s policy positions and still qualify as social welfare activity. As a result, the Service isements that closely tracked set forth in the Service?s cumstances test in order to on of the facts-and- This documenl was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org) circumst exempt re?ected will den GPS has This docume ances test to varied activities requires that the Seivice recognize GP S?s tax? tatus, whether the Service looks only at ?rst taxable year'or all of activity in the record. CONCLUSION A fair and objective review of the factual record and the Service?s own long-held rules Lonstrate that GPS is entitled to exemption under Code sectian 501(c)(4). At all times, darefully followed the Service?s rules as they currently exist. I Respectfully submitted this 20th day of May, 2015. . ablon Pil 8 my inthrop Shaw Pittman LLP 1200 Seventeenth Street, NW Washington, DC 20036 Telephone: 202?663?8441 Facsimile: 202?663-8007 Tom ose?ak Jason Torchin'sky Michael Bayes Holtzman Vo gel Jose?alc PLLC 45 North Hill Drive, Suite 100 Warrenton, VA 20186 Telephone: 540-341?8808 Facsimile: 540-34l~8809 Alvin Dunn Stephen S. Asay Pillsbury Winthrop Shaw Pittm 1200 Seventeenth Street, NW Washington, DC 20036 Telephone: 202?663-8000 Facsimile: 202?663-8007 an LLP Counsel for Crossroads Grassroots Policy Strategies ht was obtained and uploaded by the Center for Responsive Politics (OpenSecrets.org)