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Lobbying Guidelines for AGI and its Member Societies

(Posted 12-2-03)


This memo was originally sent out as an e-mail message to the presidents and executives of AGI's member societies as well as to their AGI Member Society Council and AGI Government Affairs Advisory Committee representatives and to the AGI Executive Committee.

This memo is a slightly revised version of one prepared six years ago at the request of the AGI Government Affairs Program Advisory Committee and several member society executive directors. That memo set down some basic guidelines for lobbying by AGI and its member societies, addressing limitations placed on lobbying by the Internal Revenue Service, congressional registration requirements, and limits on gifts to Congress and the executive branch. It was distributed to the presidents and executives of AGI's member societies, Member Society Council representatives, AGI Government Affairs Program Advisory Committee representatives, and AGI's Executive Council. It was also put on the program's web site (http://www.agiweb.org/gap), where it has received considerable use as a reference. This revised memo will replace it on our site.

The Washington Post ran an excellent article on November 30, 2003 on the subject of non-profit lobbying, entitled "The lobbying law is more charitable than they think," and we encourage all society leaders to give it a look. The article is available on the Post's web site:
http://www.washingtonpost.com/ac2/wp-dyn/A20633-2003Nov29?language.
If you have trouble accessing the article, contact Linda Rowan (rowan@agiweb.org; 703 379 2480 x228) for a copy.

The legal framework has not changed much in the intervening years since AGI's original memo, and the basic conclusion remains the same: all of AGI's member societies can engage in and support more lobbying than they do now. The only significant change is some relaxation of the House gift ban this past January, allowing groups to send food to House offices at the rate of $50 per person rather than $50 per office (what was formerly known as the "pizza rule" is now the "lobster rule"). Also, Members of Congress can once again have their travel and lodging financed by a non-profit group, albeit through a circuitous route. Those changes are described in the final section on Gift Restrictions.

During the course of preparing the original 1997 memo, the first author attended several seminars and pored through a sizable stack of information in an effort to understand what does and does not apply to AGI and its member societies. The exercise was yet another reminder of why lawyers roam freely about our land and particularly within the Washington Beltway. Because we are not lawyers, however, we encourage you to consult with your legal counsel if you or your society is at all unsure about anything in this memo. Also, we would be happy to provide you with any of the very helpful materials listed at the end of the memo for additional information and greater detail.

Societies that, like AGI, file under Section 501(c)(3) of the Internal Revenue Code of 1986 as non-profit charitable organizations are allowed to engage in lobbying activities so long as those activities do not represent a "substantial" amount of the organization's expenditures. The very murkiness of what constitutes "substantial" has led many organizations to avoid all lobbying activities even though they are well within their rights to do so. It is well worth noting that the American Chemical Society, whose government affairs program has a staff of 20 and a budget of over $1 million, is a 501(c)(3) organization. This memo discusses the controversy surrounding the definition (or lack thereof) of "substantial," changes to the tax code -- election under Section 501(h) -- that allow for greater clarity, and the proscription on political campaign activities. For those member societies that file under Section 501(c)(6) as trade associations, the lobbying restrictions are considerably looser and some political campaign involvement is allowed, but taxes must be paid on those activities.

Does your society need to register as a lobbying entity with Congress? This memo also addresses an entirely separate set of lobbying disclosure requirements and gift rules passed by Congress in 1995 that apply equally to all organizations, regardless of their tax status. The registration requirement hinges on three questions: Does your society spend more than $20,000 in a six-month period on lobbying activities? Do you make multiple lobbying contacts? Does anyone on your staff spend more than 20 percent of their time lobbying? If you answer yes to all three, then you have to register your organization. It is highly unlikely that any of the member societies without full-time Washington representation come close to the time and monetary thresholds for disclosure. It is also worth noting that volunteer activities such as Hill visits by a public affairs committee are specifically exempted from the registration requirements.

The rules and regulations most likely to affect member society public affairs committees or others visiting Washington are those restricting gifts and free meals for federal employees. Different rules apply to the Senate, the House, and to federal agencies, but the restrictions are easily adhered to and the burden lies on the recipient not the giver.

IRS LOBBYING ALLOWANCES FOR CHARITABLE ORGANIZATIONS

Regulations on the books since 1934 have held that charitable organizations may retain their fully tax-exempt status so long as no "substantial part" of their activities consist of attempts to influence legislation. That remains the test for 501(c)(3) tax-exempt status, which applies to educational, scientific, and religious organizations, and the IRS has made no effort to clarify what level of activity constitutes "substantial". An oft-quoted rule of thumb is five percent of revenue, but the IRS has never officially ruled on that percentage and other qualitative factors such as volunteer efforts, the importance of the issues, and whether lobbying is a primary thrust of the organization can be taken into consideration. In 1976, Congress enacted an alternative provision to clarify the situation, but it was not until 1990 that final regulations were promulgated as section 501(h) of the tax code. In the vast majority of cases, election under these new regulations is advantageous in terms of certainty, simplicity of filing, and potential penalties. Election is made by filing the one-page IRS Form 5768.

By electing under section 501(h), as AGI has done, organizations have much clearer thresholds beyond which they must not go as well as less stringent penalties should that threshold be passed. The allowance follows a sliding scale: 20% for the first $500,000 of exempt-purpose expenditures, 15% for the second $500K, 10% for the third $500K, and 5% of all remaining expenditures. This limit applies to "direct" lobbying of the legislative branch on specific legislation and "grassroots" lobbying, defined as efforts to sway public opinion on specific legislation. No more than a quarter of the total limit may be spent on "grass-roots" lobbying. Note that "grassroots" does not include communications back to members of the organization, only those to the general public urging them to take a position on a specific bill or issue.

If a 501(c)(3) organization electing under 501(h) exceeds either the total limit or the "grass-roots" portion of it, then it must pay a 25% excise tax on the excess. It can only lose its 501(c)(3) status if either limit is exceeded by more than 150% over a four-year period. By contrast, those choosing not to elect 501(h) status face revocation of 501(c)(3) status for any violation of the vague "substantial" test. Currently, AGI's entire government affairs program budget represents less than two percent of the Institute's total expenditures, and lobbying is only a few percent of the program's spending. Under section 501(h), AGI could spend up to eight percent of expenditures, or $480,000, on lobbying activities. We don't come close.

All of the materials that have been put out by the American Society of Association Executives, Independent Sector, and other trade groups urge 501(c)(3) organizations to choose election under section 501(h). Those that do not elect under 501(h) must file a detailed list, description, and schedule of their expenditures on legislative activities as part of Schedule A of their 990 Form. An organization electing 501(h) must simply report the total of its lobbying expenditures, the portion of the total that went to grass roots expenditures, and the total expenditure allowances applicable to it under the statute. According to the recent Washington Post article: "The IRS has also issued formal guidelines indicating that the [501(h)] election is not a red flag for an audit and it appears to have kept its word."

501(c)(3) Organizations May Not Engage in Partisan Political Activity

Lobbying activities should not be confused with partisan political activity, or electioneering, which is prohibited under section 501(c)(3). Qualifying organizations may "not participate in, or intervene in ... any political campaign on behalf of (or in opposition to) any candidate for public office." What does this mean? You can lobby a senator or representative on how they should vote but you cannot tell your membership for whom to vote nor can your society make political contributions. Although it is acceptable under certain circumstances to provide information on candidates' voting records or positions on issues, such practices are best avoided because any hint of partisanship would be a violation. Stay away from campaigns except as a non-partisan convener of debates or the like. If your 501(c)(3) society wants to engage in political activities, it is possible to create a political action committee (PAC) or other separate entity whose charter and tax status allows them. An example would be the creation of SAFE (Save All Fossils for Everyone) by the Society of Vertebrate Paleontologists. SAFE is a 501(c)(4) organization specifically formed to lobby on fossil legislation and regulations.

Looser Rules Govern Societies Filing as 501(c)(6) Trade Associations

Several of AGI's member societies file as Section 501(c)(6) trade associations rather than 501(c)(3) charitable organizations. These organizations -- donations to which do not qualify for charitable deductions -- can engage in substantial lobbying related to their respective exempt purposes without endangering their tax-exempt status. Unlike 501(c)(3) organizations, they can seek to advance their goals principally through lobbying and may engage in political activities so long as they are not the primary means of accomplishing the organization's exempt purposes. The only catch is that lobbying activities are subject to tax.

CONGRESSIONAL REGISTRATION

When the 104th Congress began in 1995, the new Republican majority brought with it a trail of promises to reform the way that Congress does business. They passed the Lobbying Disclosure Act of 1995 (Public Law 104-65) to increase public disclosure requirements for lobbyists. The Lobbying Disclosure Act provisions apply equally to both chambers and to the executive branch.

Lobbying Disclosure

It is important to note that organizations, not individuals, must register under the congressional lobbying disclosure rules. Does an organization need to register? Only if the answer to all three of the following questions is answered in the affirmative:

1. Did anyone in the organization make a lobbying contact with a covered legislative or executive branch official?
2. Does anyone in the organization spend more than 20% of their time on lobbying activities?
3. Does the organization spend more than $20,000 on lobbying activities in a semi-annual period?

Covered executive branch officials generally include all political appointees, senior executive service positions, and those in a policy-making capacity. Covered legislative branch officials include virtually all staff in committees and personal offices along with the senators and representatives themselves. Because AGI can answer yes to the first two questions, we chose to register as a lobbying organization just to be safe even though we do not meet the monetary threshold for lobbying activities. Every six months, we are required to file a report disclosing specific issues for which we lobbied, a list of congressional entities and federal agencies contacted, the names of qualifying lobbyists, and a good faith estimate of AGI's total expense for lobbying activities during the semiannual period rounded to the nearest $20,000. Reports are due on February 14th and August 14th. Both of us are listed on the registration form as employees qualifying as lobbyists. Also on the registration form, we are required to disclose any affiliated organization that provides more than $10,000 in a six-month period and in whole or in major part, plans, supervises, or controls the lobbying activities at issue. None of the member societies meet this dual test, and none are listed on our form.

If you are at all unsure of whether you may run afoul of these limits or have questions about the lobbying law, you can contact the Senate's Office of Public Records (202-224-0758; http://sopr.senate.gov/) or the House Legislative Resources Center (202-226-5200; http://clerk.house.gov/pd/index.php) for additional guidance.

What Activities Are Considered Lobbying? Two Definitions

Throughout the above discussion, a rather crucial question to ask is what constitutes a lobbying activity. The trouble is that the IRS defines lobbying activities one way and Congress another. The IRS definition of lobbying focuses on the legislative branch, defining it in Section 501(h) as "influencing legislation" at any level of government, including foreign. Lobbying activities are defined as either direct or grass roots communications and must involve the expression of views on a specific legislative proposal. Direct communications include contacts with legislators, their staff, and related government officials. Grass roots communications also must refer to a specific legislative proposal and must encourage the public to contact legislators. The definition excludes non-partisan analysis and research, self-defense, technical assistance, and discussions of broad social issues.

In contrast, the Lobbying Disclosure Act governing registration includes lobbying contacts with covered legislative and executive branch officials (see above for who is considered "covered") as well as all preparatory efforts in support of such contacts. These contacts may concern the formulation, modification, or adoption of Federal legislation; the formulation or modification of Federal rules, regulations, executive orders, or other policy positions; the negotiation, award, or administration of a Federal program, policy, contract, grant, loan, permit, or license; and nominations subject to Senate confirmation. There are exemptions for testimony before a congressional committee, responses to Federal Register notices or questions from Congress, and a number of other types of communication. Overall, however, the congressional definition is much broader than the IRS definition. Consequently, it is important to note that charitable organizations electing under Section 501(h) may use the IRS definition for purposes of calculating the monetary threshold for congressional registration. Those 501(c)(3) organizations not electing under 501(h) and all 501(c)(6) organizations must use the broader congressional definition.

GIFT RESTRICTIONS

Also in 1995, the new congressional majority revised rules restricting gifts to lawmakers and their staffs. Because the gift rules are internal to each chamber, there are a number of significant differences between House and Senate, and an entirely separate set of rules covers federal agency employees.

House of Representatives
In general, gifts above a nominal value (i.e. not including ball caps or mugs) are prohibited in the House of Representatives. There is an exemption for informational materials in general and specifically for publications put out by the organization offering it (for example, AGI could offer a free subscription to Geotimes but not to Time). For both houses, receptions complete with food and beverages are exempted and meals can be paid for if the person is being asked to speak or if the event in question is otherwise "widely attended" (a somewhat discretionary term representing a number greater than twenty and implying some diversity among the attendees, i.e. not all from one company).

At the start of the 108th Congress in 2003, the House of Representatives adopted a new set of House Rules, including some that weakened the so-called “gift ban.” Previously, Members and their staff could only be given gifts, including meals, that were under $50 and could accept no more than $100 worth of gifts from a single person or entity in a year. That is still the case, except for meals. Meals sent to an office were considered a gift to the Member and subject to the $50 rule, which became known as the “pizza rule” as lobbying groups would routinely send pizza to offices working late into the night on legislation. Now, groups can provide meals for an entire office as long as they spend $50 or less on each person. So, if a Committee has 20 people, an organization can now provide a $1,000 dinner for the entire office. Now it's the "lobster rule."

A corporation can still pay for a fact-finding trip, including meals -- only the free rounds of golf are out (except for Members or their staff if the greens fees are under $50). Under the change in rules, a charity can now finance a Member’s attendance at an event with donations from lobbyists and other special interests as long as the proceeds from the event go to a nonprofit group.

United States Senate
The Senate’s rules on gift-giving have not changed. In the Senate, there is a one-time $50 allowance and cumulative allowance of $100 for gifts. Gifts under $10, however, do not count toward the total, so a lobbyist can take a Senator or Senate staffer to as many $9.99 lunches as they please. There are plenty of exemptions, the most stunning of which involves travel. Senators can also attend all-expenses-paid fact-finding trips.

Executive Branch
Over in the Executive branch, gift restrictions are also fairly strict. Executive branch employees may only accept de minimis gifts below $20 per gift or $50 per year from a single source. Gifts from personal friends and family are exempted as are socia l invitations to meals. As with Congress, meals can be provided at events where the employee participates (i.e. as a speaker) or those that are "widely attended". There are also large exemptions for travel-related payments and for honoraria.

Sources
Berry, Jeffrey M., 2003, The lobbying law is more charitable than they think. The Washington Post (11-30-03)
Independent Sector, 1991, Lobby? You? Yes, Your Nonprofit Organization Can! It Should! (Washington DC)
Internal Revenue Service, 1990, Final regulations: Lobbying by public charities, lobbying by private foundations. Federal Register, page 35579 (8-1-90).
Timmer, Barbara, ed., 1996, Compliance with Lobbying Laws and Gift Rules Guide (Glasser LegalWorks: Little Falls, NJ).
Troyer, Thomas A. and Amy R. Segal, 1994, A review of rules governing lobbying and political activities of charities. Association Law and Policy (2-1-94).
Webster, George D., 1992, Nonprofit lobbying. Association Management, pages 106-107 (March issue).



Memo prepared by David Applegate and Emily M. Lehr, AGI Government Affairs Program

Please send any comments or requests for information to the AGI Government Affairs Program.

Posted December 2, 2003


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