Lobbying & Grants to Non-501(c)(3) Entities: Know The Rules


Although many people think otherwise, 501(c)(3) public charities are in fact permitted to engage to lobbying activities, provided such activities are an insubstantial amount of their overall activities. They are also generally permitted to fund any work of other entities, including non-public charities, that they could engage in themselves, including lobbying activities.  However, when a public charity makes grants to an entity that is not another 501(c)(3) public charity (such as a taxable entity or an individual), there are specific rules regarding how lobbying expenditures and activities of the non-public charity grantee are attributed to the grantor organization.  These types of grants may be particularly common for public charities engaging in preapproved grant relationship fiscal sponsorship or for community foundations.

These specific rules are set forth in a Treasury Regulation that essentially states that, in such a situation (which is distinguished from when the same grantor is making grants to other public charities), a grant to a non-public charity that engages in lobbying activities will be treated as a lobbying expenditure or as lobbying activity for the grantor and will count against the grantor’s lobbying limits.

For example, if a public charity were to make total grants in a given year of $50,000 to a non-public charity grantee and that grantee itself spent $25,000 on lobbying activities during the year, the public charity would have to count $25,000 of its grant as its own lobbying expenditure or activity for the year, even if the funds the grantee actually used to lobby were funds other than those granted by the public charity.

Moreover, when a public charity has made the election under Section 501(h) (which we recommend that most public charities do), its lobbying activities are divided into direct lobbying (generally a lobbying communication with a legislator or staff member or with members of the public where the public is the decision maker, like with ballot measures) and grassroots lobbying (a communication with the general public that refers to specific legislation, reflects a view on that legislation, and contains a call to action) activities.  A 501(h)-electing organization may spend no more than 25% of its maximum total lobbying expenditure limit (based on its total exempt purpose expenditures) on grassroots lobbying.

Under the Regulation, where the grantmaking public charity has made the Section 501(h) election, the lobbying expenditures made by the grantee will be presumed to be grassroots lobbying expenditures. These amounts will be counted towards the grantor’s lower grassroots lobbying limit unless the amount of the grant exceeded the grantee’s actual grassroots lobbying expenditures, in which case any excess may be attributed to direct lobbying expenditures up to the extent of the grantee’s actual direct lobbying expenditures.  If the amount of the grant from the public charity to a grantee exceeds the grantee’s grassroots and direct lobbying expenditures combined, then the excess amount of the grant will not be treated as a lobbying expenditure for the public charity.

Using the example above, if the grantee’s $25,000 in lobbying expenditures was comprised of $20,000 in grassroots lobbying and $5,000 in direct lobbying, that would be how the grantmaking public charity would attribute it for purposes of its own expenditures.  If, however, the grantee had actually spent $60,000 on lobbying during the year and $55,000 of it was on grassroots lobbying, then the full amount of the $50,000 grant would count towards the public charity’s own grassroots lobbying limit.

Because of these attribution rules, it will be important for any 501(c)(3) public charity making grants to non-public charity entities or individuals who engage in lobbying activities to have a clear understanding of its own lobbying limits, as well as a process for grantees to track and report their grassroots lobbying, direct lobbying, and total lobbying activities and expenditures.

There is, however, an exception to the attribution rule set forth in the Regulation for “controlled grants”, which are grants as to which “the donor limits the grant to a specific project of the recipient that is in furtherance of the donor’s (nonlobbying) exempt purposes; and … maintains records to establish that the grant is used in furtherance of the donor’s (nonlobbying) exempt purposes.”  If the public charity grantor makes a controlled grant following this definition, then the lobbying conducted by the grantee will not be attributed to the grantor for purposes of its limits. Accordingly, it may be advisable for most grants from 501(c)(3) public charities to non-public charities to be structured as controlled grants unless the grantmaking organization intends for such grant to in fact be used for lobbying activities.