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IRS rules put limits on political activity by tax-exempt organizations

By GERALD ARCHIBALD
Non-Profit Management
Rochester Business Journal
September 7, 2012

"The life you have led doesn't need to be the only one you have."
       -Anna Quindlen
 
Mitt Romney, Barack Obama, Paul Ryan, Joe Biden. What do they have in common? Apparently, not much-unless and until you read this column.

The opportunity to analyze and assess our presidential election process occurs just once every four years. Thankfully, from my perspective, it is not more frequent. In fact, I believe the country would be better off, given today's political gridlock, with a six-year term.
 
Before you scream, remember that U.S. senators have served a six-year term since the beginning of our experiment in democracy. It is also interesting to know that until the 17th Amendment passed in 1913, state legislatures elected U.S. senators from each state. Future President James Madison was the only Constitutional Convention representative who favored election of senators by popular vote. Some might call him a visionary in this regard.
 
My book recommendation for this month may seem obscure. However, its contents are particularly relevant in this presidential election year. The book is "Dark Horse: The Surprise Election and Political Murder of President James A. Garfield." Garfield wasn't even running for president at the Republican Convention of 1880. The favored nominee was none other than Ulysses S. Grant, who would be running for a third term after four years out of office. The book details a fascinating sequence of events that resulted in Garfield being drafted and nominated on the 37th ballot of the convention, the longest nominating process in history. Unfortunately, the rancor created by the divided Republican Party also led to Garfield's assassination soon after his inauguration.
 
If you read the book, it is remarkable to think how little has changed in American politics in well over a century.
 
Before I challenge conventional wisdom by demonstrating the political similarities of the above candidates, it is important for all tax-exempt organizations to be aware and knowledgeable regarding the regulatory restrictions on charitable organizations and political or lobbying activities.
 
Internal Revenue Code Section 501(h) provides regulatory guidance and has been the subject of a previous column. As always, tax and legal advisers should be consulted if you have questions in this area.
 
To avoid a political lobbying problem for your tax-exempt organization, I provide the following 15 examples for your consideration. Remember that the IRS considers both direct lobbying and grass-roots lobbying subject to the regulatory requirements of section 501(h).
 
Activities not considered lobbying:
1. A visit to Capitol Hill by staff to meet with legislators on issues relevant to the organization's mission. The topics discussed, however, must not currently be the subject of any legislative proposal.

2. If invited, testifying before a legislative committee on the merits of the provisions of a pending bill;
 
3. Membership newsletters that provide updates related to pending legislation of interest to the organization's mission, programs and services;
 
4. A public advertisement that may recommend the enactment of a particular bill and recommend that readers support that bill;
 
5. Lobbying an administrative body regarding proposed regulations.
 
Activities considered direct lobbying expenditures:
1. Testifying before a legislative committee, at a senator's request, on the merits of a pending bill;
 
2. Contacting members of Congress in an attempt to influence the Senate confirmation of a judicial or executive branch nominee;
 
3. Training given to the exempt organization's staff on how to effectively influence members of Congress;
 
4. A newsletter to members of the organization that describes recent lobbying efforts and encourages contact with legislators;
 
5. A public advertisement that specifically indicates the exempt organization's position on a referendum that will be voted on by the public.
 
Activities the IRS considers grass-roots lobbying:
 
1. A public advertisement that recommends enactment of a particular bill and identifies the applicable legislators to be contacted by the readers;
 
2. Any payments to a lobbying firm to influence the public regarding pending legislation;
 
3. Any time spent by employees of the exempt organization in developing or preparing a non-member mailing list for a grass-roots lobbying communication;
 
4. An organization newsletter that updates members on the status of pending legislation regarding issues affecting the exempt organization and urging newsletter recipients to get involved;
 
5. Employee salary costs and out-of-pocket costs associated with preparing and distributing a membership newsletter that encourages members to directly contact specific legislators about pending legislation.
 
As you can see, very subtle nuances are involved in determining which activities of an exempt organization are lobbying.
 
Once you have a clear understanding of allowable political activities for exempt organizations, you can confidently move on to legitimate participation in the political campaign between now and the first Tuesday of November. Keep in mind that our eyes and ears will be inundated with political rhetoric.
 
Here are my top 10 socio-economic considerations to help you separate the rhetoric from reality.
1. Government can create jobs, but they cannot be sustained without economic demand. Stimulating or priming the pump for job creation is usually a desperate attempt by government when all else has failed.
 
2. American jobs normally are created when the quality, wages and productivity of employees are superior to what the employer can find in other countries.
 
3. Artificially low interest rates and borrowing costs create far more opportunity for the wealthiest 1 percent or 10 percent of the population. If you can't qualify for a loan, the interest rate is irrelevant.
 
4. Federal monetary policy (i.e., artificially low interest rates) often creates market bubbles. Ask yourself whether it makes sense that the U.S. stock market as measured by the Dow Jones Industrial Average is within five percentage points of its all-time high.
 
5. Medicare in its current form is not sustainable because 64 million baby boomers, retiring an at average rate of 10,000 per day for the next 17 years, will swamp the program unless benefit, eligibility and access restrictions are adopted.
 
6. With regard to access to care, assuming human mortality is a continued reality, it is fiscally impossible for a government-funded program like Medicare to replace elderly joints or transplant organs without some consideration of an individual's life expectancy.
 
7. The Affordable Care Act, also known as Obamacare, is a step forward in addressing why the United States spends twice as much on health care as most other industrialized nations with poor outcomes.
 
8. Rather than repeal Obamacare and kick the health care problem down the road, future legislation to deal with the inevitable concerns resulting from the program will be far more effective and cost-efficient.
 
9. There is a macro-economic reason why the largest employers in most metropolitan areas are governmental entities, health care providers and educational organizations.
 
10. The political gridlock we have experienced has long-term negative implications for non-profit charitable organizations that have benefited from more than 50 years of a relatively desirable government funding environment.
 
As a non-profit board or management team member, what should you do now? In my view, your No. 1 priority is strategic assessment and positioning. In the most simplistic terms, answer this question: What do we need to do to maintain long-term fiscal viability to support our organizational mission and purpose?
 
Start by assuming a dramatic reduction in current government funding and discuss your organizational strengths and weaknesses in the following areas: private-sector fundraising and development; cost-effective delivery of services; affiliation or merger strategies, as in every other American industry sector; recruitment and retention of the best talent available at a competitive rate of compensation; the rewards of buying lottery tickets to sustain the organization.
 
With the exception of playing the lottery, the challenges are enormous, but the opportunities are endless.
 
Gerald J. Archibald, a CPA, is a partner in charge of management advisory services at the Bonadio Group and is known for expertise in non-profit and tax-exempt accounting, management and governance. He can be reached at (585) 381-1000 or garchibald@bonadio.com. Download podcasts of his articles at http://viewpoints.bonadio.com. 9/7/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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