Can tax-exempt nonprofit organizations lobby?

Is it legal for the Frosty Drew Observatory, Charlestown Land Trust and Westerly YMCA to lobby the town?

By Will Collette

All three of these organizations are organized under section 501(c)(3) of the tax code. Their 501(c)(3) tax status is the most prized of all the various tax-exempt categories because not only are they exempt from federal income and corporate taxes, but they can also offer donors the opportunity to write off their gifts as charitable deductions.

The price such organizations pay for this prized tax status is their agreement to sharply curtail their political activities. For example, 501(c)(3) organizations may not endorse, give donations to or make public statements in support of any political candidates. 

Tax-exempt charities may also engage in some limited amount of lobbying. Recent political action by the Observatory for the passage of the dark-sky lighting ordinance is definitely lobbying.

Non-profit tax-exempt organizations are allowed a lot of leeway to engage in “policy advocacy.” For example, there is no restriction on Frosty Drew from promoting the general idea of preserving the dark sky or on the Charlestown Land Trust for promoting the general concept of preserving pristine open space. The YMCA can advocate for its Christian values and to recommend that young people join the Y to use its services.

But lobbying for specific legislative actions – and the Charlestown Town Council is a “legislative body” under IRS definitions – is subject to IRS limitations and reporting requirements. Passage of a Town Council ordinance or resolution are specific legislative acts.

The actions of the Charlestown Land Trust and the Westerly YMCA to con $475,000 out of Charlestown for the shady Y-Gate land transaction could also be deemed lobbying by IRS, although it is less clear-cut than Frosty Drew’s lobbying for Ordinance #347, the lighting ordinance. The Land Trust and the Westerly Y are more likely to get into trouble with other law-enforcement bodies than the IRS.

All of these organizations should file Schedule C reports when they file their IRS-990 annual report and declare their political activity. They will need to put a dollar value on their activities, such as the cost for staff to attend, the cost of any reports or communications they have with the town to push their agenda, and other communications costs and then complete the IRS formula to determine whether they have exceeded the permissible limits. 

If they exceed the limits, they may have to pay an excise fee to IRS or, if the offense is severe, they could lose their tax-exempt status.

None of these organizations will be permitted to get involved for or against candidates in the 2012 town elections. Since this kind of electoral advocacy is strictly forbidden, the penalty is generally loss of tax exempt status.

Most organizations that do not normally engage in political activism don’t really understand the limits on those activities or their responsibilities to exercise care and report their activities in detail. But as the old cliché goes, “Ignorance of the law is no excuse.”