IRS Clarifies Rules on Funding of Advocacy
On July 29, 2009, the IRS issued a Private Letter Ruling that allowed a public charity to take advantage of several “safe harbors” commonly available to private foundations involving advocacy by grantee organizations. Although the private letter ruling specifically states that other organizations may not rely on or cite the ruling as precedent, it nevertheless gives a good indication of the approach the IRS will take when evaluating public charities’ grantmaking activities when lobbying is implicated.
The letter ruling provides the following guidance:
- General support grants to other 501(c)(3) groups will not be treated as lobbying expenditures so long as the grant funds are not earmarked for lobbying.
- A grant restricted for use within a specific project of a public charity is not, by virtue of that restriction, solely earmarked for lobbying, even if the specific project includes lobbying.
- So long as the total amount of support for a project during the year does not exceed the non-lobbying portion of the budget of the funded project and the granting organization does not doubt, or have reason to doubt, the budget information provided by the grant recipient, it may assume that its funding was not used to support lobbying and it does not have to treat its grants as lobbying expenditures.
The IRS cautioned that if project grants to a public charity exceed the non-lobbying portion of the project budget, then the granting organization must treat the amount by which its grants exceed the non-lobbying amount of the budget as a lobbying expenditure.
Charities that make grants to other organizations, or that fund lobbying, are required to make certain disclosures on their Form 990. Because there is always the potential for such a disclosure to lead to IRS scrutiny, charities are well-advised to be deliberate in how they handle these grants.
For more information on funding projects that include lobbying or advocacy, or to discuss how this ruling might apply to your organization, please call Allen Bromberger at (212) 889-0575.
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