February 1, 2001
Mr. Mark Levin
Landmark Legal Foundation
445-B Carlisle Drive
Herndon, Virginia 20170
Re: Lobbying Activities By Tax-Exempt Organizations
Dear Mr. Levin:
The United States Code and the Internal Revenue Code (IRC) place certain lobbying restrictions on tax-exempt organizations, such as 501(c)(4) and 501(c)(3) groups. Among other things, lobbying activities intended to influence the appointment of any individual to a federal office, such as the recent confirmation battle over John Ashcroft's nomination to be attorney general, is considered political activity that must be reported to the IRS. Section 501(c)(4) and 501(c)(3) organizations that engage in this kind of lobbying may be subject to a 35% maximum corporate rate.
Title 26. Section 527(f)(l) of the United States Code states:
If an organization described in section 50 1(c) which is exempt from tax under section 50 1(a) expends any amount during the taxable year directly (or through another organization) for an exempt function (within the meaning of subsection (e)(2)), then, notwithstanding any other provision of law, there shall be included in the gross income of such organization for the taxable year, and shall be subject to tax under subsection (b) as if it constituted political organization taxable income, an amount equal to the lesser of,
(A) the net investment income of such organization for the taxable year, or;
(B) the aggregate amount so expended during the taxable year for such an exempt function.
An "exempt function" is described as follows:
The term "exempt function" means the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. Such term includes the making of expenditures relating to an office described in the preceding sentence which, if incurred by the individual, would be allowable as a deduction under section 162(a). 26 U.S.C. §527(e)(2).
501(c)(4) organizations are permitted to engage in lobbying activity, However, expenditures that are designed to attempt to influence the appointment of an individual to federal office may be subject to taxation under section 527(f). Like 501(c)(4) organizations that engage in this type of activity, 501(c)(3) organizations must complete an IRS Form. 1 120-POL. The 1120 reports the specific amounts spent by the 501(c)(4) organization on, among other things, lobbying on appointments to federal office. Moreover, by engaging in this conduct, a 501(c)(4) organization is ineligible for federal funds in the form of an award, grant or loan.
Title 2. Section 1611 of the United States Code:
An organization described in section 501(c)(4) of title 26 which engages in lobbying activities shall not be eligible for the receipt of Federal funds constituting an award, grant, or loan." 2 U.S.C. §1611.
The United States Code defines "lobbying activities" as follows:
Any lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others. 2 U.S.C. §1602(7).
A "lobbying contact" is defined as:
Any oral or written communication (including an electronic communication) to a covered executive branch official or a covered legislative branch official or a covered legislative branch official that is made on behalf of a client with regard to; (iv) the nomination or confirmation of a person for a position subject to confirmation by the Senate. 2 U.S.C. 1602(8)(A)(iv).