Starting Up an Advocacy Organization

Summary:

Advice about the requirements when setting up an organization that is focused on advocacy.

Answer:

On 01/19/01 someone asked about this subject in CharityLaw (see http://www.charitychannel.com). Adam H. Kerman of Chicago answered:
Q: Myself and two others are forming a national political action committee that
will focus on animal welfare issues. I know that we must register with the
Federal Election Commission,

A: Call the FEC, 800 424-9530, and ask for the book on separate segregated funds.
It's quite thorough.

But why do you have to file with the FEC? Unless will be making campaign
contributions to congressional candidates, they won't regulate your activities.
If you'll only be lobbying, they won't be involved.

Q: And file regular income and expense reports,

A: Depending on what you'll be doing, you may need to seek recognition as a
Section 501(c)(4) organization (Form 1024) or a Section 527 organization, with
that new registration form whose number I forget. But that registration would
occur only if you try to influence an election in a way that FEC doesn't
regulate (soft money).

Q: But does anyone know if it is necessary that we incorporate? And if not, are
there good reasons why we should/should not incorporate?

A: To protect yourselves.

Q: I am assuming that if we do incorporate we can do so as a nonprofit in any
state in which one of us is located?

A: Not-for-profit corporation.

Use a separate segregated fund for each of your activities, lobbying, federal
campaign contributions, state campaign contributions. It makes required
disclosure more straightforward.

Questions about starting a nonprofit organization are discussed in the "Start-up" section of the NONPROFIT FAQ; see the index at http://www.idealist.org/en/faqcat/21-74 .

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In December 1999, there was this more technical discussion of the rules about advocacy in the same discussion forum:
If a
501(c)(3) has a legislative program (develops ideas for legislation, writes
language for proposed bills, works with other organizations to promote
their
legislative agenda, and engages in grass roots and direct lobbying) which
operates with the 501(h) lobby limits, do they run the risk of becoming an
"action" organization and thereby lose there exempt status?

Barnaby Zall offered this reply:
Can a c3 which is abiding by the 501(h)/4911 limits still be an action
organization? This is an interesting question, which the IRS has never
answered definitively.

The answer should be no, since Congress clearly intended to permit a c3 to
maintain its status if it abided by the limits. The IRS WANTS charities to
elect to be governed by the 501(h)/4911 mechanical tests, and probably
wouldn't (as a general rule) want to discourage more charities from electing.

But there is another answer, based on the statute and regs, which provide
that an action organization is one whose exempt purpose can ONLY be achieved
by legislation -- such as reform of tax legislation or an organization which
seeks only to enact a particular legal code -- and which does something to
attain that goal. If an organization's goal can only be achieved by
legislation, it is an action organization, no matter how much it spends on
lobbying, so long as it does something to advocate the legislation it needs
for its goal.

This seeming paradox is explained by the fact that the regulations were
adopted in two different eras. In the earlier, pre-501(h) era, lobbying was
considered excessive if it made up a "substantial part" of the charity's
activities. Never defined, it was widely surmised to be about 5% of budget.
But the IRS constantly disclaimed any reliance on actual expenditure figures
as a general rule -- preferring a case-by-case approach. Thus, under the
non-expenditures view, it is the organization's actions and goals, not its
expenditures, which matter.

501(h) & 4911, on the other hand, were always intended as mechanical
expenditure tests, easy to compute and comply with (and easy for the IRS to
manage). If you were within the "numbers," you retained your exemption;
consistently over the numbers, you lost it.

These two tests still live in uneasy proximity, but their occaisional overlap
causes heartburn for those who have to give a "simple" answer.

And I have been on both ends of this argument: convincing an IRS agent that
the first answer is true, and being unable to convince another that an
organization which conducted litigation and other activities was not an
action organization because the organization was also seeking a global
legislative solution -- in other words, it didn't matter that the
organization wasn't spending much money on lobbying, because it's goal could
only be achieved by legislation and the organization was doing
non-legislative things to achieve its goal (we eventually compromised on
language in the application that made him happy).

So there is no simple answer. There are two answers based on the logic of two
unrelated provisions in the regs, and both are right under their own logic,
and wrong under the others.

But if I had to guess, I'd say most Service personnel would want the abiding
org. not to be an action organization. So if you get, as I did, a curmudgeon
unchanged since the '70's, kick the question upstairs to get a more informed
opinion (of course, be aware that most long-time Service personnel know how
to couch those requests for technical assistance to show your organization in
the worst possible light).

Barnaby Zall
Law Offices of Barnaby Zall
7018 Tilden Lane
Rockville, MD 20852
301-231-6943

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Posted 4/28/01 -- PB