James A. Kahl
James A. Kahl is a partner at Whiteford, Taylor & Preston LLP in Washington, DC. He is also a member of ASAE’s Government Relations and Advocacy Professionals Advisory Council.
Whether your organization has a long lobbying track record or is starting fresh with a new administration, you need to know how federal lobbying, tax, and gift rules will affect your advocacy work. Here's a primer for beginners and a refresher for veterans.
The election of Donald Trump and a Republican-controlled Congress promises to usher in one of the busiest congressional sessions in years. With major legislative proposals already on the table, many associations and advocacy groups will increase their congressional and executive branch lobbying efforts. Many other nonprofits will register as lobbying organizations and submit lobbying disclosure reports for the first time.
The Lobbying Disclosure Act (LDA), Internal Revenue Code (IRC), and congressional and executive branch gift rules set the legal parameters for nonprofit organizations' lobbying activities. Regardless of whether your organization is new to lobbying or ramping up its existing lobbying capabilities, understanding these laws and rules will help you avoid legal missteps and take advantage of legal flexibilities that can help you achieve your advocacy goals.
Engagement with members of Congress and executive branch officials about proposed legislation, regulations, and policies is a core function for many nonprofit organizations. But not all of this activity qualifies as lobbying.
An organization does not have to register under the LDA unless it meets a two-part test:
If the organization has one or more employees who satisfy these two conditions, then it registers with Congress and identifies the employees as its lobbyists.
The registration test may seem straightforward, but it comes with several important caveats. First, many types of communications with executive and congressional officials are not considered "contacts," including testimony given to a congressional committee, information provided in writing in response to an oral or written request for information, and comments filed in a public proceeding. On the other hand, the 20 percent test measures "lobbying activities"—a broadly defined term that includes direct communications with covered officials, as well as behind-the-scenes activities supporting those contacts, such as preparing briefing papers, developing lobbying strategies, drafting scripts, and similar activities.
Even if an employee meets the two-part test, the organization does not have to register until it spends more than $12,500 on lobbying activities in any calendar quarter. And registration is not required at all if the organization only retains an outside lobbying firm, regardless of how much the firm is paid. (Note that a lobbying firm applies the test for each client. If the two-part test is satisfied for a client, and the firm receives more than $3,000 in fees in a calendar quarter from that client, then it has to file a registration relating to that client.)
Understanding lobbying laws and rules will help you avoid legal missteps and take advantage of legal flexibilities that can help you achieve your advocacy goals.
Some nonprofits may be able to achieve their advocacy goals without triggering the LDA registration requirement—for example, by providing congressional testimony or submitting comments to regulatory agencies. If your organization must register, understand that many other obligations come with that status. Nonprofits should analyze their activities carefully, in consultation with legal counsel, to determine whether LDA registration is necessary.
Once registered under the LDA, the organization and its lobbyists are subject to ongoing reporting requirements. The organization must submit quarterly lobbying reports that, among other things, detail the bills, policies, or other matters that were the subject of lobbying activities and must provide a good-faith estimate of the aggregate lobbying activity expenses in the quarter.
Computing these expenses can be complicated for organizations with a large volume of government affairs activities. The good-faith estimate must include the value of employees' time (including overhead costs) spent on direct contacts with covered legislative and executive branch officials and time spent on supporting lobbying activities. The estimate must also include expenses incurred to support lobbying activities (travel, meals, and printing costs, for example) and payments for outside lobbyists and other consultants who support the organization's lobbying activities.
The LDA permits a registrant to compute its quarterly lobbying activity expenses using either LDA or IRC definitions of lobbying. Most registrants use the LDA definitions. An organization contemplating using IRC definitions should carefully consider the impact of that decision. The IRC definition includes some activities not encompassed by the LDA definition, such as contacts with state officials and grassroots lobbying. Electing to use the IRC definition can significantly inflate the amount of reported lobbying activity expenses in an organization's quarterly report.
The organization and each in-house lobbyist must also file semiannual contribution reports. These reports disclose a wide range of payments, including
By submitting these reports, the organization and the individual lobbyists certify that they have not made any gifts that would violate the congressional gift rules.
Keep in mind that LDA reports are subject to random inspection and audits by the Government Accountability Office. Misreporting or failing to file reports can result in fines of up to $200,000 per offense, and knowing and willful violations can be prosecuted as felonies.
Tax and government ethics laws and rules can also affect nonprofits' lobbying activities.
The tax code permits trade, labor, agricultural, and advocacy organizations to engage in unlimited lobbying activities. However, lobbying cannot be a substantial part of a charitable organization's activities. Most charitable organizations use the IRS safe harbor (called the "501(h) election"), which caps the amount of the organization's annual lobbying expenses based on a sliding-scale percentage of its expenditures. A charitable organization that fails to abide by the limits on lobbying can lose its tax-exempt status.
The IRC requires fundraising solicitations by most trade associations or other noncharitable organizations to include a notice that contributions are not deductible as charitable contributions for federal income tax purposes. These organizations also must provide their members with a "reasonable estimate" of the portion of dues or similar payments that support lobbying-related activities. Those amounts are nondeductible as a business expense by the member. As an alternative to providing the notice, the organization can pay a proxy tax on this amount at the highest corporate tax rate. Consult your accounting or legal professional about the special reporting rules that apply if your reasonable estimate for a year underestimates your actual lobbying expenses.
Finally, federally registered lobbying organizations and their lobbyists are generally prohibited from providing gifts to or paying for the travel of members of Congress and staffers. Gift giving to career government employees is limited by rules of the Office of Government Ethics, which have been substantially revised as of January 1, 2017. The congressional gift and travel rules and the OGE rules have many exceptions. With careful analysis and advance planning, your organization can identify many opportunities to interact with and entertain congressional and executive officials.
Following up on his campaign promise to "drain the swamp" in Washington, President Trump signed an executive order on January 28 outlining the ethics obligations of his appointees. The order kept in place restrictions on appointees accepting gifts from lobbyists, but some provisions are more lenient and others more stringent than the prior administration's ethics rules.
For example, in contrast to President Obama's order, an individual who was a registered lobbyist in the two years preceding appointment can now work for the agency she formerly lobbied. The order also reduces from two years to one year the "cooling-off period" during which certain senior executive branch officials are prohibited from representing others before their former agency. On the other hand, the new order prevents an appointee from engaging in "lobbying activities" with respect to his former agency for five years after leaving service. The order also imposes a lifetime ban on appointees taking on work for foreign governments or foreign political parties that would require registration under the Foreign Agents Registration Act.
It is not yet clear if other lobbying or ethics changes are on the way. President Trump has previously suggested expanding the definition of a "lobbyist" to close loopholes. This might take the form of deleting the "two contacts" or "20 percent" parts of the lobbyist registration test, which would greatly increase the number of organizations required to register under the LDA.
Regardless of the changes to come, understanding the laws and rules that apply to your organization's lobbying activities is an essential component of a successful advocacy program.