The federal tax law provides considerable latitude for private foundations to participate in the formation of public policy. Although special restrictions apply to influencing legislative decisions and to election-related activities, much room remains for private foundations to play a significant role in the formation of public policy, through specific type of work they support or conduct themselves.

The "Lobbying" Restriction: Basic Rules

All charities are subject to revocation of their tax-exempt status if a "substantial part" of their activities is "lobbying." Private foundations, however, are subject to an additional, tighter rule that prohibits them from spending any funds on lobbying. Despite these restrictions, the law allows foundations to play a significant role in the formulation of legislative policy. How is this possible? First, the federal rules define "lobbying" very narrowly to exclude many activities that can affect legislative decisions. Second, the law contains robust safe harbors that permit foundations to make grants to public charities that lobby without having the grantee's lobbying attributed back to the foundation.

What Lobbying is Not

Whether an activity is lobbying under the foundation rules depends on the content of the communication and the identity of the recipient. Hence, the law applies an objective "magic words" test to determine whether an activity violates the no-lobbying prohibition. It is what the foundation says that matters, not the organization's subjective intent in making the communication.

• If the recipient of a communication is a government official, a communication is "lobbying" only if it "refers to" and "reflects a view" on "specific legislation." Consequently, for example, the law allows foundations to communicate with legislators about matters of broad social concern-- as distinct from specific legislation-- even if those matters are, or will be, addressed in legislation. This rule has enabled private foundations and their grantees to exercise significant influence on issues as diverse as funding for medical research, criminal sentencing, and education reform.

Similarly, the lobbying restrictions in no way impede foundations' attempts to influence decisions by judges or actions by executive and administrative agencies such as the promulgation of regulations or the prosecution of enforcement actions. Thus, for example, foundations and their grantees were able to convince the Clinton administration to protect millions of acres in our National Forests as "roadless areas." Now that efforts are underway to reverse this policy, foundations are again relying on the latitude they have to minimize the changes. Similarly, foundations are making grants to support a national public charity's efforts to make sure that the Department of Agriculture keeps conservation a priority when the agency implements the new provisions of this year's Farm Bill.

In addition to the broad avenues open to foundations to participate in administrative and judicial decisions, the federal law also offers significant, though more narrowly defined, opportunities for work concerning specific legislation. Significantly, several exceptions to the general ban on foundation lobbying provide valuable tools for working with government officials to influence legislative action.

The rules are even more favorable for communications directed to the general public. In this context, foundations can conduct and support activities -- including web pages, email alerts, media advertisements -- espousing a particular view on specific legislation without violating the restriction on lobbying. Generally, the federal tax law permits foundations to communicate (or fund a grantee's communication) with the public about specific legislation as long as the communication does not encourage the audience to contact a government official about the legislation. Consequently, subject to one relatively minor qualification, a foundation can safely pay for a radio or television message that criticizes or endorses a piece of pending legislation without contravening the tax law, so long as the message does not include a "call to action" encouraging listeners to contact a government official about the legislation.

Working with grantees to influence legislation

Because public charities are able to engage in a significant amount of lobbying, they can generally be more effective advocates for, or against, legislation than the foundations that fund them. Hence, for most foundations, the principal means of participating in the legislative process is by supporting public charities that are working to achieve changes the foundation favors. The federal rules provide two safe harbors for foundation grants to public charities that prevent attribution of the grantee's lobbying to the foundation even if the grantee, in fact, uses the foundation's funds in lobbying. These safe harbors have enabled foundations to safely fund national advocacy campaigns opposing legislation that would weaken our environmental laws and promoting amendments that reform the funding of political campaigns.

Nonpartisan voter education and get out the vote activities

Federal law prohibits private foundations and other charities exempt under section 501(c)(3) from intervening in any political campaign on behalf of (or in opposition to) any candidate for public office. In contrast to the bright-line rules that distinguish lobbying from permitted advocacy, the prohibition against campaign intervention involves a vaguer "facts and circumstances" analysis. Nonetheless, the IRS has identified a number of nonpartisan voter education activities that foundations may safely support or conduct themselves. Specifically, charitable organizations, including foundations, can sponsor candidate debates, publish candidates' responses to questionnaires, and distribute candidate voting records. Detailed restrictions apply to each of these activities, intended to ensure that the event or publication is strictly neutral among the candidates. Finally, private foundations can fund nonpartisan "get out the vote drives" and, under more stringent requirements, voter registration drives.

Conclusion

Private foundations are subject to special restrictions that limit their ability to lobby and participate in election campaigns. Despite these restrictions, foundations can and do play a significant role in formation of public policy. In particular, foundations can support a wide array of activities that -- while not "lobbying" under the federal foundation rules -- have a direct and important impact on the legislative process. Moreover, the foundation rules include broad safe harbors that allow foundations to fund public charities conducting the relatively narrow set of lobbying activities. Finally, the special rules that bar all charities from attempting to influence election results need not constrain foundations from promoting nonpartisan issue agendas even during the campaign season. Thus, foundations willing to invest the effort necessary to understand the legal rules that govern them can safely include seeking policy change as a potent means of furthering their charitable objectives.

This material is excerpted from Private Foundations and Policymaking: Latitude Under Federal Tax Law (May 2002), by Thomas A. Troyer and Douglas Varley of Caplin & Drysdale, Chartered. The original research paper was commissioned by The Center on Philanthropy and Public Policy (CPPP) at the University of Southern California for its 2002 Forum, "," under its Foundations and Public Policymaking project, funded by The David and Lucile Packard Foundation. The materials are made available here by kind permission of the authors and publisher.