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Private Foundations and Policymaking: The "Lobbying" Restriction
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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, "Leveraging Philanthropic Assets For Public Problem Solving," 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. |
NOTE: This article does not discuss state laws that may apply to foundations that conduct or support advocacy activities. Nor does it cover the federal Lobbying Disclosure Act, which defines "lobbying" differently from the tax law, and may require foundations active in the policy-making arena to register with Congress.
All public charities exempt from federal income tax by reason of section 501(c)(3) of the Internal Revenue Code are prohibited from engaging in "substantial" attempts to influence legislation. Private foundations -- a subcategory of section 501(c)(3) organization -- must, however, obey a stricter rule.
In contrast to public charities, which can conduct a considerable amount of legislative work, foundations are prohibited from funding or engaging in any "lobbying" at all.* Although this prohibition is absolute, it is also narrow and very clearly defined.
In drafting the laws that restrict foundations' work in this area, Congress and the Treasury Department have taken considerable care to ensure that foundations, and their charitable grantees, can spend their resources on a broad array of activities that improve the quality of the legislative process. In addition, it bears emphasis that the federal limitations on lobbying in no way impede foundations' ability to influence actions by executive or administrative branches of governments. Nor do they restrict foundations from litigating in support of policies they favor.
Hence, while there are certain kinds of legislative activity that foundations are strictly prohibited from supporting, there is much room for advocacy work that can affect legislation and other policy outcomes. In addition, by relying on special safe harbor rules, foundations can make grants to like-minded public charities that are engaged in lobbying activities foundations could not conduct themselves. Thus, foundations frequently can have an even greater impact on the legislative process as funders than they can achieve directly. By paying close attention to the rules discussed here, foundation executives and staff, as well as their legal advisors, can help their organizations advocate government policies that advance charitable objectives while complying fully with their obligations under the federal foundation laws.
*As used here, the term "private foundation" or "foundation" refers to organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code that are not "public charities." Public charities are section 501(c)(3) organizations that qualify for more favorable tax treatment because of the activities they conduct or the diversity of their contributors. Both private foundations and public charities are "charities" as that term is used here.