Natalya Attestatova, CPA

“Substantial” Lobbying Test for 501(c)(3) Organizations

An organization will not qualify for exemption under the 501(c)(3), unless NO substantial part of the organization’s activities is carrying on propaganda, or otherwise attempting to influence legislation. So, two questions arise:

1. What constitutes “influencing legislation”? and

2. When does lobbying become substantial part of the organization’s activities?

The regulations attempted to clarify that such influence is exerted when the organization:

• “contacts legislators or urges the public to contact them to propose, support or oppose legislation, or advocates the adoption or rejection of legislation” OR
• if the organization’s primary objective is such that may be attained only by legislation or the defeat of proposed legislation (e.g. repeal of taxes or promotion of constitutional amendment permitting prayer in the schools). I.e. there is no other way to achieve the goal of the organization but by legislation.

Treas. Reg. 1.501(c)(3)-1(c)(3).

Thus, if the organization is substantially involved in any of the activities above, it will not qualify for the exemption under the 501(c)(3).

Now, to the second question, when is lobbying substantial? There is no clear guidance, but the courts devised a subjective “balancing” test, under which all facts and circumstances are considered in the context of the objectives and circumstances of the organization.” Haswell v. US, 500 F.2d 1133 (Ct. Cl. 1974). The factors which will be considered include:

1. the percentage of an organization’s budget (or employee time) spent on lobbying;
2. the continuous or intermittent nature of the organization’s legislative involvement;
3. the nature of the organization and its aims;
4. and the controversial nature of the organization’s position and its visibility.

So, in plain language, before deciding to engage in any political activity, the organization should consider whether such activity would fall under the two-prongs of prohibited political activities. If it does, the organization should apply the four factors enumerated above to determine if the activity could be considered “significant.”

2 comments February 22nd, 2010

First-Time Homebuyer Credit Documentation

The IRS has revised its regulations and provided additional clarification regarding documentation requirements on the First Time Homebuyer Credit. First of all, the taxpayer claiming the credit WILL NOT be able to file the return electronically. Moreover, the taxpayer must attach a signed closing statement (HUD-1) to the return. And in states where taxpayers are not required to sign HUD-1s, like California, the IRS still recommends the taxpayers to sign the statement prior to attaching it to the return.

1 comment February 19th, 2010

Tax Update – Lunch and Learn

Please join us for the Lunch and Learn Federal Tax Update for 2009 Tax Season. Read more on the Events page and register today!

Add comment February 3rd, 2010

About

Welcome to Natalya Attestatova, CPA’s blog! This is the place to ask questions and get answers to the latest tax developments and changes. Of course, do not rely on this information when making any kinds of decisions. This site is not intended to replace our professional advice, which could vary greatly depending on your specific circumstances.

Add comment February 3rd, 2010