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Lobbying for Your Agency: Avoiding the Tax and Legal Pitfalls George Constantine. July 22, 2010. Review existing law & new changes. Topics for Today. Wait a Minute, My Agency Can Lobby? Tax Rules Lobbying vs. political activities “No substantial part” test 501(h) election

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lobbying for your agency avoiding the tax and legal pitfalls george constantine

Lobbying for Your Agency: Avoiding the Tax and Legal PitfallsGeorge Constantine

July 22, 2010

© 2010 Venable LLP

review existing law new changes
Review existing law & new changesTopics for Today
  • Wait a Minute, My Agency Can Lobby?
  • Tax Rules
    • Lobbying vs. political activities
    • “No substantial part” test
    • 501(h) election
  • Lobbying Disclosure
    • Who must be registered under the LDA
    • Semiannual reports by lobbyists under the LDA
    • States
  • Gift Rules
    • Federal legislative branch
    • Federal executive branch
    • States
  • Conclusion/Questions

© 2010 Venable LLP

wait a minute i can lobby i thought 501 c 3 s couldn t do that
Wait a Minute, I Can Lobby? “I thought 501(c)(3)s couldn’t do that.”

© 2010 Venable LLP

tax rules for lobbying
Tax Rules for Lobbying
  • There is a common misperception about 501(c)(3) lobbying—501(c)(3) organizations are permitted to engage in lobbying, though there are limits.
  • Internal Revenue Code and Regulations do not use the term “lobby”—rather, the act is generally referred to as “carrying on of propaganda” and “attempting to influence legislation.”
  • Code Section 501(c)(3) says limit is “no substantial part” of the activities may be carrying on of propaganda or otherwise attempting to influence legislation.
  • BUT—careful about use of grant money for lobbying!

© 2010 Venable LLP

tax rules for lobbying5
Tax Rules for Lobbying
  • Stark line drawn between lobbying activities and political campaign activities—501(c)(3) organizations are absolutely prohibited from engaging in political campaign activities.
  • Political campaign activity is generally giving of support for the election or defeat of a candidate for office.
  • In practice, IRS views this more broadly than federal election law.

© 2010 Venable LLP

tax rules for lobbying6
Tax Rules for Lobbying
  • Two options if you want to lobby as a 501(c)(3)
    • Go the “no substantial part” route
    • Go the “501(h) election” route

© 2010 Venable LLP

tax rules for lobbying7
Tax Rules for Lobbying
  • No substantial part
    • Subjective
    • Vague definition—includes “attempting to influence legislation by propaganda or otherwise” and advocating “proposing, supporting, or opposing of legislation.”
    • IRS applies on a case-by-case basis
    • One benefit to this approach is IRS may be less likely to pursue given the vague statutory and regulatory backdrop

© 2010 Venable LLP

tax rules for lobbying8
Tax Rules for Lobbying
  • 501(h) election
    • Expenditure test
    • Gives more clarity to the taxpayer
    • Definitions of what constitutes lobbying are specific, do not encompass a broad range of activities
    • Establishes limits for overall lobbying expenditures

© 2010 Venable LLP

tax rules for lobbying9
Tax Rules for Lobbying
  • 501(h) election (continued)
    • Direct lobbying tied to attempts to influence legislations with government officials or employees
    • Grassroots lobbying tied to attempts to influence general public or segment thereof on legislative matters
    • Exceptions for self-defense, non-partisan analysis, examinations and discussions of broad social, economic and similar problems
    • Limits
      • Sliding scale 20% to 5% (of exempt purpose expenditures)
      • Hard cap of $1,000,000
      • Grassroots can only be 25% of permitted lobbying expenditures

© 2010 Venable LLP

two part test
TWO PART TESTWhat is a Lobbyist?
  • More than one lobbying contact

AND

  • More than 20% of time on lobbying activities

© 2010 Venable LLP

lobbying contact
Lobbying Contact
  • Any oral or written communication (including an electronic communication) to a covered executive branch official or a covered legislative branch official that is made on behalf of a client with regard to—     
    • the formulation, modification, or adoption of Federal legislation (including legislative proposals);    
    • the formulation, modification, or adoption of a Federal rule, regulation, Executive order, or any other program, policy, or position of the United States Government;    
    • the administration or execution of a Federal program or policy (including the negotiation, award, or administration of a Federal contract, grant, loan, permit, or license); or    
    • the nomination or confirmation of a person for a position subject to confirmation by the Senate.

© 2010 Venable LLP

covered legislative branch officials
COVERED LEGISLATIVE BRANCH OFFICIALSOther Definitions
  • Anyone in Congress – from Members to the receptionist
  • President, Vice President, & Executive Office of the President
  • Levels 1 through 5 of the Executive schedule (cabinet & some below)
  • Certain military officers
  • Schedule C political appointments

COVERED EXECUTIVE BRANCH OFFICIALS

© 2010 Venable LLP

lobbying activity
LOBBYING ACTIVITYOther Definitions
  • Contacts and efforts in support of such contacts, including preparation and planning activities, research and other background work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.

© 2010 Venable LLP

overview of reporting
Overview of Reporting
  • Quarterly Reporting
  • Semiannual Lobbyist Report

© 2010 Venable LLP

contents of quarterly reports
Contents of Quarterly Reports
  • Amount spent on lobbying
    • Minimum amount to report $5,000 (instead of $10,000)
    • Rounded to nearest $10,000 (instead of $20,000)
    • LDA or IRC
  • Individuals who act as lobbyists
    • 20 year look back for covered officials
  • Issue areas lobbied
  • Agencies/houses of Congress lobbied

© 2010 Venable LLP

ld 203
LD-203
  • Semiannual disclosure of “political” contributions
  • Each organization with in-house lobbyist must complete form
  • Each registered lobbyist must complete the form
  • Includes certification of Gift Rule compliance
  • Online system

© 2010 Venable LLP

don t forget the states
Don’t Forget the States
  • Virtually every state has some type of registration and reporting regime; know your state’s requirements before lobbying
  • See, for example, Florida Statutes 11.045
    • Lobbyist is a person who is employed and receives payment …for the purpose of lobbying.

© 2010 Venable LLP

legislative gift rules
Legislative Gift Rules

© 2010 Venable LLP

for non lobbyists
FOR NON-LOBBYISTSCongressional Gift Rule
  • Basic Rule:
    • Gifts of up to $49.99
    • Total for year of up to $99.99
  • Unless:
    • There is an applicable exemption
    • Then may give more

© 2010 Venable LLP

for lobbyists
FOR LOBBYISTSCongressional Gift Rule
  • Basic Rule:
    • No gifts or travel from lobbyists or entities that retain or employ lobbyists
  • Unless:
    • There is an applicable exemption
  • Cannot expense “gifts”
    • No reimbursement
    • No deductions
    • May pay using own money if preexisting friendship (discussed below).
  • Does not apply to executive branch gifts
    • $20 limit

© 2010 Venable LLP

congressional gift rule exceptions
Congressional Gift Rule Exceptions
  • Personal Friendship
  • Widely Attended Events
  • Charity Events
  • Receptions

© 2010 Venable LLP

executive branch ethics rules
Executive Branch Ethics Rules
  • The new rules apply to all political appointees:
    • Appointed by President and Vice President
    • Senior Executive Service appointments
    • Schedule C appointments
    • Will eventually include other career agency officials
  • Requires appointees to sign pledge
  • More strict than existing Executive Branch Rules

© 2010 Venable LLP

executive branch gift ban gifts from lobbyists
Executive Branch Gift Ban—Gifts from Lobbyists
  • Bans gifts from registered lobbyists and organizations registered under the LDA
  • Exceptions:
    • Based on personal relationship
    • Discounts and similar benefits
    • Resulting from spouse’s employment
    • Gifts to President or Vice President
    • Authorized by agency regulation or accepted under specific statutory authority

© 2010 Venable LLP

gift rules
Gift Rules
  • Don’t forget the states!

© 2010 Venable LLP

george e constantine iii geconstantine@venable com 202 344 4790 july 22 2010

George E. Constantine, IIIgeconstantine@venable.com202.344.4790July 22, 2010

© 2010 Venable LLP