Lobby, But Be Careful
By Jack Murray, CPA, HoganTaylor Lead Nonprofit Partner
When it comes to lobbying, there are a myriad of perceptions, rightly or wrongly, about what a 501(c)(3) organization can or cannot do. Because of the lack of clarity, many organizations simply avoid lobbying altogether. However, nonprofit organizations have a right to express their positions through informing legislators of their views on budgetary and legislative issues and organizing and informing their supporters of issues of importance to the organization. If nonprofit organizations don’t participate in the legislative process, an important voice will be lost when public policy or law is drafted and passed that affects nonprofits.
In Oklahoma, it is hard to pick up a paper or read an internet news feed without seeing the effects of the budget crisis on the most vulnerable members of society as well as important functions of a state such as educating our people. I saw a story about the Oklahoma Teacher of the Year receiving his award. Much of the article was discussing how he was leaving Oklahoma for a job in Texas at double the take home pay. Other articles have discussed the high number of emergency certified teachers to fill a shortage in public schools. Emergency certifications allow individuals to be employed as teachers before they complete the education or training requirements for regular or alternative certification. Some are certified teachers who lack certification in the subject matter or grade level in which they are needed, but the vast majority are newcomers to education. While emergency certifications are allowed to fill positions, the high number is an indicator of a systemic issue in hiring and retaining well qualified, trained teachers in such an important job of educating our future leaders.
There was an article in the Sunday paper about an outreach coordinator with a local mental health association who walks the streets meeting homeless individuals to encourage them to take advantage of housing opportunities as a base to receive help for the mental health or substance abuse issues that have resulted in their lack of consistent housing. The stories of the individuals he has helped will bring a tear to your eye as they discuss their joy at keeping a job, the improvement in their self-worth and the societal benefits of assisting these people to become contributing members of our communities. Just a few days ago I saw a news story on television where individuals from the same mental health agency were discussing the impact that the latest budget hole will have on their agency’s ability to serve those with mental health issues. The reduction in funding will cause some of these programs to be cut, along with individuals employed by the agency, or searching for private funding to continue these important programs.
The Oklahoma legislature started their regular session this year with a budget hole in excess of $900 million. The attempt to close the last of that budget hole late in the regular session was overturned by a Supreme Court decision that determined the cigarette tax was unconstitutional. This tax would have generated over $200 million in state funding for Oklahoma Department of Human Services, Oklahoma Health Care Authority, and the Oklahoma Department of Mental Health and Substance Abuse Services. As of the date of writing this article, the special session has been unsuccessful in addressing this funding gap, which will actually result in a $500 million reduction in funding for these agencies when federal matching funds are taken into consideration. The budget impact on these agencies range from 7% to 23% of their annual budget. These agencies serve some of our most vulnerable citizens, homeless, elderly, children and those with mental health and substance abuse issues. No matter where your political views lie, seeing Oklahoma lag states in funding for these services as well as education, corrections and infrastructure is not how we want to be portrayed in the national media nor indicative of how we as Oklahomans care for these members of our state.
Accordingly, nonprofits must stay abreast of issues that are being legislated and discussed at the state and federal level to ascertain the impact on their organizations and to communicate the results of decisions our legislators make on the services they provide. The rules for nonprofit organizations allow 501(c)(3)’s to engage in lobbying activities as long as this activity is not a substantial part of its activities. An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation, or if the organization advocates the adoption or rejection of legislation, also known as direct lobbying. Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their exempt status.
Organizations can also elect the expenditure test under section 501(h) as an alternative method for measuring lobbying activity. Under the expenditure test, the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided its expenditures, related to such activity, do not normally exceed an amount specified by the IRS. Generally, an organization can spend 20% of the first $500,000 of exempt purpose expenditures on lobbying, 15% of the next $500,000 of expenditures, 10% of the next $500,000, 5% of expenditures over $1,500,000 up to $17,000,000 and capped at $1,000,000 in total for organizations whose program expenditures exceed $17 million. Organizations electing the expenditure test must file Form 5768 at any time during the tax year for which it is to become effective. The election remains in effect for succeeding years unless it is revoked by the organization.
All nonprofits have a responsibility to understand how decisions made by state and federal legislative bodies affect their organizations and the constituents they serve. They also can and should inform those legislators of the impact these bills will have and suggest alternatives for your representatives to consider.
Most nonprofits do not spend near the lobbying thresholds and can simply complete the direct and grassroots lobbying disclosures on their 990 to stay in compliance. However, it is very important that nonprofits consult with their tax service providers to understand their limits and what activities they can participate in without jeopardizing their exempt status. HoganTaylor is well-versed in the lobbying rules for nonprofits and stand ready to assist you.