Advocacy & Lobbying: Rules for Public Charity Grantees of Private Foundations — Course Transcript
Maya: Hi, my name is Maya, and I am a program officer at a private foundation that cares about making positive change in the world. This is Alex.
Alex: Hi, I am the executive director of a public charity here in the U.S. We would like funding from Maya’s foundation to support a new advocacy campaign that may include some lobbying.
Narrator: Hi, Maya and Alex! I’ll guide you along the way. Maya: Oh…hello! I’m so glad you’re here to help.
Alex: Yes, thanks for helping me navigate these rules! I’m a little confused about what a private foundation can and cannot fund.
Narrator: Not a problem! This course is designed for folks like you from U.S. public charities and their equivalents, who either need a refresher about the lobbying rules or are new to seeking funding from a private foundation to support advocacy work. I’ll help you understand when your activities might involve a specific kind of advocacy, known as lobbying, and explain how private foundations can fund public policy work. This training consists of the four modules listed on your screen.
Narrator: As possible legal issues come up, you should always seek help from the person at your organization responsible for legal compliance. Your legal advisor can help you analyze each situation and determine what steps you must take to follow the rules while accomplishing your goals.
Maya: That sounds terrific!
Narrator: Now, before we get started, if you’re taking a LearnFoundationLaw.org course for the first time, it’s best that you start by clicking the Course Navigation button on the bottom of your screen to learn how to control your training experience.
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Module 1: What is Advocacy?
Alex: Hi, this is Alex. (Hand over the phone, whispers, “It’s Maya.”) Sure, I can meet tomorrow to discuss our proposal. I was just working on revising it. Talk to you tomorrow!
(Hangs up phone and says to Narrator … )
Hello? Are you there?
Narrator: Hi Alex…
Alex: You have great timing! I really am glad you are here. Can you give me some help thinking through my proposal?
Narrator: Sure, it’s important to know when your work involves advocacy, and particularly when it involves a special type of advocacy known as lobbying, because lobbying activities are regulated by a variety of local, state, federal and international laws.
Narrator: Here’s a basic definition of “advocacy.” We all engage in a variety of activities that involve supporting or defending someone or something in our communities. By supporting advocacy work by organizations, like yours, the private foundation can help more people, for a greater period of time-beyond a single grant cycle.
Alex: Yes, advocacy helps us address problems at their root, beyond the direct services we provide.
Narrator: Let’s look at some examples of the types of activities your organization engages in to start to see how we might classify them.
Alex: Sure, we educate the public and members of our community about the issues we are working on.
We also educate policymakers like our mayor and other elected representatives about these same issues, sometimes we ask them to support legislation that we think will address these issues.
We mobilize members of our community to speak out about these issues when they affect them, as well as gather together leaders, unions, businesses and others to support these issues.
We write letters to the editors of our local papers and have a blog to let people know what we’re working on.
We also conduct research and put out reports about the issues we care about.
We don’t get involved in elections, but some of our coalition partners, like unions, have supported or opposed candidates.
Narrator: You all are doing great work! Maya’s foundation, like all private foundations, can fund an unlimited amount of non-lobbying advocacy activities – those that appear in green on your screen – as long as the activities further the foundation’s charitable purposes.
Narrator: Lobbying activities – the yellow item on your screen – are a specific type of advocacy that is highly regulated.
Alex: So would things like attempting to change regulations and gathering and analyzing data to inform policymakers and the public count as lobbying?
Narrator: No, there’s a lot of public policy work, like the activities you just mentioned, that do not meet the IRS definition of lobbying. We will explore the IRS definitions in the next segment.
Narrator: One word of caution about the list you gave us earlier: the IRS says Section 501(c)(3) charities – that means both private foundations and public charities – cannot support or oppose political candidates. Ever! The rules are different for non-c3s, like the unions, you mentioned.
Alex: Phew! I’m so glad we’ve have stayed away from that.
Narrator: We won’t be covering interaction with candidates in more detail in this course. If you have questions about electioneering you should ask your legal advisor. In addition, you can view the course on Electioneering Rules for Private Foundations and Public Charities by clicking the button on your screen. Click Next when you’re ready to continue.
Narrator: As you know, the IRS is the regulatory agency that collects taxes in the United States. It sets rules for tax exempt organizations like private foundations and public charities. Public charities generally have many donors and rely on support from the general public or from fees charged for charitable services. The primary activity of a public charity is to conduct charitable activities.
Narrator: Private foundations, on the other hand, generally have one or a limited number of donors and rely on investment income to support their work. Most are grantmakers.
Alex: Ok, I understand the difference. Since public charities and private foundations are both 501(c)(3)s, I just need to understand the lobbying rules that apply to my organization, right?
Narrator: Actually, the IRS lobbying rules apply differently to public charities and private foundations. This can be confusing, but I’m here to help.
Narrator: When we talk about lobbying, we say that public charities, like yours, may lobby within limits prescribed by the IRS. By comparison, private foundations, like Maya’s, may not engage in any lobbying itself through its staff; and may not designate (or earmark) funds specifically for lobbying through its grantmaking activities. If you’d like to learn more about earmarking, click on the button to read more. You may also download a chart explaining the differences between public charities and private foundations. Click the Next button when you’re ready to move on.
Alex: In summary, not all advocacy activities involve lobbying, but all lobbying involves advocacy. Private foundations can fund public charities to engage in advocacy work, but we need to understand when that work might involve lobbying because of special rules that regulate that work. Is that right?
Narrator: Right! Being able to distinguish between lobbying and non-lobbying advocacy work will help you and your funders advance your mission and stay compliant with the IRS rules.
Module 2: Lobbying Under the IRS Rules
Alex: So, how do I know if what I’m doing involves lobbying?
Narrator: Let me try to explain when advocacy activities may involve lobbying.
Alex: Excuse me. Hello? Oh, hello, Senator. Great to hear from you. [A voice like adults from Charlie Brown is heard] A meeting? Thursday? To discuss the upcoming Farm Bill? Drafting proposed language? Change the world? I’d love to…
Alex: Huh? Oh, hold the phone, Senator… What? I’ve been waiting for a call like this! I’m excited to let Maya know that we’re going to be doing this!
Narrator: Watch your step here, Alex… before you commit, you’d better know a little more about the lobbying rules.
Alex: Ah, right! Oh, Senator – can I call you right back? [hangs up] Okay, tell me what I need to know! How do I know when it’s advocacy or lobbying? What’s the difference?
Narrator: Funding and engaging in advocacy are powerful tools available to public charities and private foundations for creating long-lasting policy change. Private foundations can fund a wide variety of advocacy activities, but Maya and her foundation are prohibited by the IRS from earmarking funds for lobbying activities or engaging directly in lobbying activities. I will provide more information on earmarking later in the training.
Narrator: Now, let’s look at what constitutes lobbying under the IRS rules. The IRS defines lobbying in two ways: Direct and grassroots.
Keep in mind that to qualify as lobbying, a communication must satisfy all of the elements of these definitions. If one of the elements is missing, it’s not lobbying. Think of it like a mental checklist!
In addition, the IRS has also identified certain activities that look like lobbying but that the IRS specifically will not consider to be lobbying if you meet the requirements of the exceptions. These exceptions are available to public charities and private foundations. We will discuss these exceptions in Module 4: Maximizing Limits.
Alex: Ok, I’ll keep that in mind.
Narrator: The IRS definitions of lobbying apply to public charities and private foundations, no matter where in the world they’re active. So lobbying activities can actually be domestic or international. Let’s look at the definitions of Direct and Grassroots lobbying.
Narrator: According to the IRS, direct lobbying is a communication with a legislator, legislative staff member, or any government official participating in the legislative process that refers to and expresses a view about specific legislation. To review what the IRS considers a “Communication” or who the IRS considers “Legislators,” click the term. You can also click on the term “specific legislation” to learn more about what is considered a legislative proposal for lobbying purposes. Click the Next button when you are ready to continue.
Alex: Got it, so now I understand that my conversation with the Senator earlier might need a closer look to see whether we had a conversation I should count as lobbying.
Narrator: That’s right – anytime you are communicating with a legislator or their staff you should think about whether that communication involves lobbying, so that if it does, you can count it as part of your lobbying activities. Now, let’s look at the definition of grassroots lobbying.
Narrator: With grassroots lobbying our audience changes. This is a communication with the general public that refers to and expresses a view about specific legislation or a specific legislative proposal, and it has one more special ingredient: a call to action. To review what the IRS considers a “call to action,” click the term. Click the Next button when you are ready to continue.
Alex: Ah, I see. When we send out emails about bills we are working on and ask folks to call their legislators, that would be a grassroots lobbying communication.
Narrator: You’ve got it!
Narrator: Here I want to also point out that while we’re talking about the IRS rules in this course, there are separate rules on the international, federal, state, and local levels, like the Federal Lobbying Disclosure Act, that may require registration and reporting of lobbying activities. Keep that in mind when you are evaluating your activities.
Alex: So to recap… it sounds like I need to get assistance if I think my work or activities might raise any lobbying issues. I should also seek assistance to find out about any local, state, federal, or international rules that might affect my work.
Narrator: Yes! We’ve covered the IRS definitions of direct and grassroots lobbying. Now it’s your turn to drive. Click Begin to complete your first knowledge check.
Module 3: Funding Options
Alex: Great! Now I’m ready to finish writing my proposal. We’ve got this fabulous plan to make change in our community and we’re going to engage legislators to help pass a bill that will fix a major problem for our schools. I’m excited to talk to Maya tomorrow about how her foundation can help. I hope they’ll support the legislative plan!
Narrator: Whoa, hold on there, Alex! Alex: What am I missing?
Narrator: Well, as we discussed earlier, the rules say that private foundation funds can’t be earmarked for lobbying. So, you need to know about the types of grants private foundations, like Maya’s, can make before you talk to her.
Alex: Ok! I’ve heard that there are different types of grants. Does it matter which one we get? Can’t the foundation just give us money?
Narrator: First, the structure of the grant matters. It’s a little more complicated than just giving you money to support your work.
Narrator: The IRS recognizes two kinds of grants that private foundations can provide to public charities who lobby or have projects that involving lobbying: general operating support and specific project grants using a special process called the project grant rule. Of course, a private foundation may also fund projects that do not involve lobbying. We are only going to discuss in this course the funding options when a project does involve lobbying.
Alex: Ok, our project will involve some lobbying, so we need to understand those options.
Narrator: The first legal option for supporting an organization that lobbies is a general operating support grant. This is a grant to an organization that is not restricted to any particular project or activity. So long as there is no agreement between the private foundation and the organization as to how the funds should be spent, the organization can use the money for any purpose, including lobbying. For example, they could use it to pay all their operating expenses (in other words, to keep the lights on!). This type of grant is only available to 501(c)(3) public charities and their foreign equivalents.
Alex: Great, general operating support sounds wonderful! I’ll explore this with Maya when we meet.
Narrator: Just a minute, Alex. You can learn more about the general support grant by click the button on your screen. Click the Next button when you are ready to continue.
[More About General Operating Support Grants]
Narrator: These grants provide more legal protection but less programmatic control for foundations. A foundation making a general operating support grant does not need to examine the extent of the public charity’s lobbying activities or intentions. General operating support is a great means for a foundation to support public charities that engage in advocacy, including lobbying. Each foundation has different internal rules about when they are willing to give out those grants.
Narrator: Have you already told Maya you want her foundation to help fund your legislative campaign?
Alex: No, we’ve only talked generally about the public education and organizing work we’re doing. We haven’t gotten into specifics about the legislative work yet.
Narrator: Remember that private foundations, like Maya’s, cannot earmark a grant for lobbying, meaning you should not have any oral or written agreement that would cause you to spend the foundation’s money to lobby.
Alex: Great. I will do that.
Narrator: The IRS also provides a second legal option for private foundations to support a project by a public charity that includes lobbying without risking the foundation being on the hook for having earmarked funds for those lobbying activities. In order to give grants in this way, a private foundation must use special procedures known as the Project Grant Rule.
Let’s see what that means. First you need to know the total budget for the project, which is, say, $100,000 Next, the grantee needs to identify the total cost of lobbying activities in the project. Let’s say that’s $40,000. That leaves $60,000 of project expenses that are non-lobbying. Note that this project is funded with a private foundation grant and other funding. So long as the amount of the foundation’s grant does not exceed the non-lobbying portion of the project, the foundation can show its grant is not earmarked for lobbying. This example illustrates the Project Grant Rule.
You may also review the Advocacy & Lobbying Course for more information on allocated budgets and the Project Grant Rule. Click the Next button when you are ready to continue.
[Project Grant Rule Additional Requirements]
Narrator: Once you know the breakdown between lobbying and non-lobbying, you need to be sure you have more than one source of funds for the project. A private foundation may only fund an amount that does not exceed the non-lobbying portion of the project budget.
Finally, the private foundation must have no reason to doubt the accuracy of your representations. For this reason, it’s important to review the amounts you allocate to lobbying and non-lobbying expenses to make sure they are credible. Some foundations may require a certification from an officer of your organization about the accuracy of the budget projections.
Narrator: Now that we’ve discussed the two different types of grants, general operating support and specific project grants, be sure to keep in mind that all communication between you and Maya could be considered earmarking, no matter what form it’s in.
Ok, ready for your final knowledge check? Click Begin to get started.
Module 4: Lobbying Exceptions
Alex: I really want Maya’s foundation to be able to support our work. Is there work that we can do that isn’t considered lobbying though it involves public policy work?
Narrator: Yes, there is, and as we talked about in Module 1, there’s a lot of public policy work that does not meet the definition of IRS lobbying, such as attempts to change regulations or gathering and analyzing data to inform policymakers and the public. In addition, there are three common exceptions to lobbying used by public charities and private foundations. If you plan to rely on any of these exceptions, you should note that in your proposal to the foundation. This is helpful background information for the private foundation staff that will read your proposal.
For a deeper discussion of the exceptions and especially if you are planning to rely on them in your project, click Discuss Exceptions. Alternatively, for a quick refresher, you may instead click the name of the exception you would like to review or move on to the next Module.
[Review Exception 1]
Narrator: The first exception is for nonpartisan analysis, study, or research.
[Review Exception 2]
Narrator: The second exception is for written requests for technical advice. The rules for this exception appear on your screen.
[Review Exception 3]
Narrator: The second exception is for written requests for technical advice. The rules for this exception appear on your screen. When you are ready to proceed, click the Next button.
Narrator: The first exception is for nonpartisan analysis, study, or research. To use the exception, you must meet the following requirements: The work product should contain a full and fair exposition of the issues, including all sides, and not just in the executive summary, so that a reader could reach the opposite conclusion. The work product must be broadly disseminated to show that the primary purpose is educational, and not lobbying. If you meet these requirements, then you may include a viewpoint on specific legislation and indirectly call readers to action without incurring lobbying expenses.
Alex: What is an indirect call to action?
Narrator: Good question, in a nonpartisan report, you may identify any legislator who will vote on the legislation and is opposed to the organization’s view, undecided about the legislation, a member of the committee considering the legislation, or the legislative representative of the person receiving the communication. You should consult with knowledgeable counsel before relying on this exception, especially if you plan to conduct any grassroots lobbying with the report after the initial distribution because there are other rules to know.
Alex: Great, I’ll be sure to consider this. If we decide to rely on this exception, should I let Maya’s foundation know?
Narrator: Yes, if you plan to rely on this exception, you should note that in your proposal to the foundation. This is helpful background information for the private foundation staff that will read your proposal.
Narrator: The second exception is for written requests for technical advice. These requests must be in writing on behalf of a government body, committee or subcommittee, not from a single legislator. Your response to the request must be made available to the entire body who requested it and stick to the scope of the request. Knowledgeable counsel can work with you and the interested legislators to craft a request that allows you to rely on this exception.
Alex: Will the foundation need to see the letter requesting our assistance if we rely on this as part of our proposal?
Narrator: Maybe, some foundations may request a copy for the file. Regardless, it is important to say in your grant proposal that you are relying on this exception. For example, you could say “Our organization has received a technical assistance request letter from ABC Committee for our advice on AB 1454, the land use bill.”
Narrator: The third exception is for examinations or discussions of broad social, economic, and similar issues. These communications must address the public, members of legislative bodies, or governmental employees, about general subjects. These issues may also be the subject of specific legislation, but you may not refer to the specific legislation or directly encourage recipients to take action – indirect calls to action like with the nonpartisan analysis are allowed.
Alex: How should I let Maya know that we won’t be lobbying but instead discussing these sorts of issues?
Narrator: If you aren’t lobbying because you are only discussing broad social or economic issues, you should clarify that in your grant proposal. You can simply say that you will not be discussing any specific legislative proposals in your meetings.
Alex: Okay – these exceptions will come in handy!
Alex: This has been great! I’m going to quickly write down the main points that I need to keep in mind.
- Lobbying is a form of advocacy, but not all advocacy is lobbying.
- IRS lobbying rules apply differently to public charities and private foundations
- The IRS defines two types of lobbying: Direct and Grassroots. Each type has special elements that must be met to be considered lobbying.
- There are 3 exceptions to lobbying that are most commonly used.
- Private foundations can support public charities that lobby.
- The structure of a grant matters to the public charity and the private foundation when lobbying may be involved: general operating support or specific project grant using the project grant rule.
- Seek assistance early when a lobbying question comes up to ensure compliance requirements are met.
Narrator: I think those are great takeaways, Alex.
Alex: I’m ready to finish writing my proposal and will be able to have my conversation with Maya feeling confident that I have a general understanding of the rules…I’ll also call the Senator back to see if we can clarify how we can provide assistance. And most importantly, I understand that my legal advisor will be a great resource to help me accomplish our mission.
Narrator: It’s been great talking with you today, Alex. I’m glad you found this helpful. And remember that your legal advisor is always available to help you with your questions.
Alex: I’ll remember that. Thanks again!
Narrator: You’re very welcome, Alex.
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