The new lobbying regulations: a federal definition of "fund raising." (part 1 of a two-part series) (Legal/Legislative Guide) (column)

The new lobbying regulations: a federal definition of "fund raising"

The federal government has, for the first time, adopted a definition of the term "fund raising." This definition appears in the recently issued lobbying regulations that are potentially applicable to certain public

The new lobbying regulations provide rules for applying the so-called "expenditure test," which imposes sliding scale percentage limitations on the amount of permissible expenditures (with a maximum of $1 million) for legislative purposes by eligible public charities. Public charities that are not embraced by these rules have their lobbying limitations set by pre-existing law -- termed the "substantial part test" -- which is that no more than an insubstantial portion of their activities can consist of lobbying.

The percentages are applied to the base amount of a charitable organization's "exempt purpose expenditures." The determination of these expenditures is critical, in that lobbying outlays (whether direct or grass roots) in excess of the applicable percentage can lead to the levying of a 25 percent excise tax or loss of tax-exempt and charitable donee status. A charity's allowable level of lobbying expenditure is termed the "lobbying non-taxable amount."

Exempt Purpose Expenditures

In general, an expenditure is an "exempt purpose expenditure" for a tax year if it is paid or incurred by an electing public charity to accomplish the organization's exempt purposes. These expenditures include 1) those expended for a "charitable" purpose, including most grants made for charitable ends; 2) amounts paid as employee compensation (current or deferred) in furtherance of a charitable purpose; 3) the portion of administrative expenses allocable to a charitable purpose; 4) all lobbying expenditures; 5) amounts expended for nonpartisan analysis, study or research; 6) amounts expended for examinations of broad social, economic and similar problems; 7) amounts expended in response to requests for technical advice; 8) amounts expended pursuant to the "self-defense" exception; 9) amounts expended for communications to members, that are not lobbying expenditures; 10) a reasonable allowance for straight-line depreciation or amortization of charitable assets; and 11) certain "fund raising" expenditures.