Daniel DelRe
05/02/2005
Philanthropists have long had to think twice about giving to public charities that lobby for government support or policy changes. The tax laws were so unclear as to whether lobbying invalidated the charities’ tax-advantaged status that the IRS itself was, at best, inconsistent. Indeed, two years ago, the IRS called off the audit of a group of charities after pleas from other concerned nonprofits, which argued the tax code does not penalize public charities that conduct a degree of lobbying.
The IRS has finally cleared up this uncertainty in a letter issued to Charity Lobbying in the Public Interest (CLPI). In it, the IRS states that private foundations can make tax-exempt grants to 501(c)(3) public charities that lobby, “provided such grants are not earmarked in whole or part for lobbying.” Foundations can protect themselves by stating in grant awards that “there is no agreement, oral or written, that directs that the grant funds be used for lobbying activities.”
Elizabeth Heagy, president of CLPI, has struggled for years to encourage public charities to lobby for legislative support of their social service programs, and is heartened by the IRS clarification. “The letter should dispel the myths about charities being able to lobby,” she says.
Private foundations may continue to engage in policy-related activities, such as offering technical advice or nonpartisan analysis to legislative bodies. They can also publicly express their views on legislation. “We feel the clarification affirms what is already in practice, and hope it will encourage other foundations to participate in shaping public policy,” says Ellen Dadisman, vice president at the Council on Foundations.
Michael and Mary Ellen Fox, who run a family foundation in
their names, are among those philanthropists who consider politicking an
important part of their work. Michael, chairman and founder of ME Fox & Co.,
a beverage distributor in San Jose, Calif., says the IRS confusion did not
discourage him when his foundation helped Jerry Doyle, president of EMQ Children
and Family Services, petition the California Assembly to provide funds for
treating emotionally and mentally challenged children.
Fox contributed more than money. “Jerry and I walked the halls of Sacramento for years to get government support for EMQ’s program,” he recalls. Fox introduced Doyle to a prominent California legislator, Jim Cuneen, who later sponsored a provision in the budget for the children’s services in the state assembly.
“Lobbying has enabled us to move from program to policy,” Doyle explains.
“It’s allowed us to impact so many more kids than otherwise would have been possible.” Since Fox and Doyle began their lobbying efforts in the early 1990s, government funding for the organization has increased annually—nearly tripling from $17 million in 1999 to more than $46 million in 2003.
Audrey Alvarado, executive director of the National Council of Nonprofit Associations in Washington, warns that even though the IRS recommendation relieves foundations of the burden of auditing grant recipients to learn if they engage in lobbying, it does not absolve them of all responsibility. “A message has been sent through the community of foundations that they need to be vigilant about making sure their funds are being used in a lawful manner,” she says. Foundations should request a copy of the budget proposed for their grants, and monitor the annual reports, financial statements and press releases of their grant recipients.