Message: 4
Date: Wed, 21 Jan 2004 09:37:19 -0500
From: "HC Covington" <[email protected]>
Subject: Washington, DC - The Lobbying Law is More Charitable Than They
Think - The Washington Post - November 30, 2003
The Lobbying Law is More Charitable Than They Think
____________________________________________________
By Jeffrey M. Berry - The Washington Post - November 30, 2003
Washington, DC - The leaders of the nation's nonprofits domany things well, but representing their clients' interestsbefore government is not one of them.
In the course of a major research study that includedinterviews with the chief executives of tax-deductiblenonprofits, I found them remarkably ill-informed about theprimary law that governs their operations.
When it comes to their rights to lobby, many believe theyhave no rights at all. "I have to wait until a legislatorcontacts us," said one executive director. Another statedunequivocally, "We're not allowed to lobby. We're notallowed to influence public policy."
Such views are not merely wrong, they're harmful. Not onlycan charitable nonprofits engage in more lobbying than iscommonly accepted, they can lobby extensively if they takeadvantage of a 1976 law that the Internal Revenue Serviceseems to have no interest in publicizing.
Nonprofits that can offer donors a tax deduction for theircontributions play a special role in American society, andthat role is growing.
There are more than 900,000 nonprofits now registered withthe IRS, more than three times the number 25 years ago. Mostare small, with no presence in Washington. Among those largeenough to file a tax return (about 210,000), roughly halfare either health care or social service providers.
They are the foot soldiers in a largely private system thatdelivers critical services to the disadvantaged.
They are often closer to the problems -- and the solutions-- than the policymakers in city halls, state capitals andWashington.
Yet the fear of an IRS audit, no matter how unlikely, hasdeprived many nonprofits of their voice and has hurt thevery constituencies that they intend to serve.
To gather systematic evidence on the role of nonprofits inthe public policymaking process, my research team and Isurveyed more than 1,700 tax-deductible nonprofits drawnrandomly from IRS records.
The results demonstrate that most charitable nonprofitssharply limit their advocacy before state legislatures andCongress because they worry about violating the lobbyingprovisions of the Internal Revenue Code. (The largestcharitable nonprofits, such as the American Cancer Societyand the American Heart Association, are sophisticated enoughnot to be intimidated by the law, but thesemega-organizations are a sliver of the nonprofit world.)
A few definitions might be helpful here. Charitablenonprofits, whose tax-deductible status is an enormousbenefit for their fund-raising efforts, are often referredto as 501(c)(3)s, after that portion of the IRS Code.Nonprofits that cannot offer a tax deduction to theircontributors -- such as labor unions and trade associations-- are regulated under different provisions of section501.
These 501(c)(5)s and 501(c)(6)s are free to engage inunlimited lobbying.
We found that the typical executive director of a 501(c)(3)has little understanding of what the law actually says.
Almost half of those surveyed are so ignorant of the lawthat they don't even believe their organization has theright to take a public stand on federal legislation(perfectly permissible), while 45 percent believe they arenot allowed to sponsor a debate featuring candidates runningfor public office (they can't support a candidate, but acandidate forum is just fine).
There's good reason why many nonprofit leaders have troubleunderstanding what they can and cannot do in the publicpolicymaking process. The law is a patchwork of confusing,contradictory and unworkable provisions. The heart of theproblem is that 501(c)(3) says that nonprofits may lobby butnot to any "substantial" degree. Despite repeated requestsover the years, the IRS resolutely refuses to define whatqualifies as "substantial." Nonprofits are left to guess.
Yet, nonprofits are allowed to educate legislators andstaffers without constraint. So leaders of nonprofitsbelieve they can "educate" substantially, but not "lobby"substantially. For political scientists, this is apreposterous distinction. To educate policymakers is tolobby.
The inconsistencies and contradictions under 501(c)(3) arebreathtaking -- they're a logician's nightmare.Nevertheless, it is difficult to simply get rid of thisregulatory framework. A nonprofit that receives atax-deductible donation is getting an indirect governmentsubsidy. The dollars that the Treasury loses to nonprofitsmust be made up through higher taxes on all of us. No onewould argue that nonprofits should be able to do whateverthey want with charitable donations.
Although regulation is necessary, this particular set ofrestrictions is strikingly discriminatory. No other sectorof the interest group universe is as constrained in itsadvocacy as are 501(c)(3)s. This creates a huge imbalance.The so-called Gucci crowd on K Street can lobby as much asit wants and spend as much as it wants in representing tradeassociations or corporations before government. Yet, legallyspeaking, disability groups, hospices, community health
centers and other 501(c)(3)s are regarded as something of athreat to the integrity of our political process. This is too large a price to pay for tax deductibility.
The lobbying restriction for nonprofits has its origins inTreasury Department regulations issued in 1919. Congressstrengthened these regulations in 1934, adopting languagethat equated attempts to influence legislation with"carrying on propaganda." Included in the 1934 law, for thefirst time, was the stipulation that any nonprofit engagedin "substantial" lobbying could not retain itstax-deductible status. This law, with its definition oflobbying as propaganda, remains in effect today.
Many of our interviewees told us they believed that the IRSwas vigilantly monitoring their political activity. On anumber of occasions we heard the story of how the IRS bustedthe Sierra Club for its lobbying. The venerableenvironmental group infuriated a powerful member ofCongress, Democratic Rep. Wayne Aspinall of Colorado, bytaking out newspaper ads ridiculing a proposal to flood partof the Grand Canyon. The day after the ads ran, the IRSrevoked the Sierra Club's tax-deductible status. Ourrespondents spoke knowingly of this episode, as if ithappened recently.
It took place in 1966.
That the Sierra Club case still reverberates today istestament to how scared nonprofits are of the IRS. This isironic because the modest, cobwebby Tax Exempt Office at theIRS hardly has the resources to engage in anything more thansymbolic oversight of nonprofits. Contrary to what manynonprofit leaders believe, the IRS is not on the lookout forevidence of any form of lobbying. Only the visible signs ofexcessive lobbying -- activity that presents a challenge tothe substantial" standard – has drawn the agency'sinterest.
If the IRS has a coherent strategy, it seems to be selectiveenforcement. Agency officials know that audits of a smallnumber of nonprofits send shock waves throughout theirlarger communities. Most worrisome is that the office willundertake a review based on the complaints of anorganization's rivals.
Compounding the problem of an ambiguous law and erraticenforcement is the passivity of nonprofit CEOs. By failingto learn the law, they are willing accomplices. Too often,when they do lobby, they pretend otherwise. One executivedirector told me that "We harass our state legislator allthe time," while insisting that her organization did notbelong in our study because "we are not involved in publicaffairs."
The irony in all of this is that there is a solution alreadyin place that allows nonprofits to lobby without having toworry. In 1976 Congress passed a tax bill that included aspecific accounting mechanism so that nonprofits no longerwould have to guess what divides substantial frominsubstantial lobbying. This much-needed alternative methodwas then, unfortunately, turned over to the IRS's Tax ExemptOffice to implement. To call its pace in writing theregulations snail-like would be unfair to snails. It took 14years before the office issued regulations.
The 1976 alternative, known as the "H election," is crystalclear in specifying the amounts that a nonprofit can expendon lobbying.
Based on a sliding scale keyed to annual income, a nonprofitcan spend up to as much as 20 percent of its revenues onlobbying.
And because the regulations for the H election definelobbying rather narrowly, very little of what a nonprofit elector does in its advocacy efforts counts as a lobbyingexpenditure. In short, it's difficult for a typicalnonprofit to ever reach the H expenditure ceilings.
The H election is something of a stealth policy. Only about2 percent of all 501(c)(3)s have chosen this option. When weasked the head of one statewide nonprofit association if heknew of the H election, his response was a common one. "I'mcompletely ignorant of it," he confessed.
So what's the catch? There isn't one, really -- only thatthe H election requires nonprofits to keep a record of theirspending so they can prove they haven't exceeded theestablished limits.
The good news is that taking the H election could not beeasier. Form 5768, which can be downloaded from the taxforms box at www.irs.gov, only asks for an organization'sname, address and a signature. It takes no more than 60seconds to fill out. The IRS has also issued formalguidelines indicating that the H election is not a red flagfor an audit and it appears to have kept its word.
Nonprofits are a lifeline for millions -- for batteredwomen, immigrants, homebound senior citizens, AIDS patients,the 43 million Americans without health insurance andcountless other constituencies who all too often fallthrough this nation's safety net.
As government itself grows leaner, it is relying ever moreheavily on nonprofits to do its work. From a standpoint ofgood government, the best policy would promote communicationbetween government and its vendors.
Although it is legal for nonprofits to lobby under the"substantial" standard, it's clear that most are inhibitedby it.
By taking the H election, 501(c)(3)s can maintain their taxdeductibility while becoming more aggressive on behalf ofthe disadvantaged segments of American society who come tothem for social services and health care.
It's unlikely, however, that the H election will ever becomewidely adopted without a firm push from the IRS. As aresult, those most in need of a powerful voice in thepolitical system will continue to receive the leastrepresentation.
The obstacles created by Section 501(c)(3) aren't just bad public policy. They're unjust.
Author's e-mail:[email protected]
Jeffrey Berry is a professor of political science at TuftsUniversity. He is the author (with David F. Arons) of thejust-published "A Voice for Nonprofits" (Brookings Institution), from which this article is drawn
© 2003 The Washington Post Company
source page: http://tinyurl.com/2vt5l
___________________________________________________________
©THE HOMELESS NEWS - H.C. Covington, Editor http://tinyurl.com/2yg2