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Private Foundations and Policymaking: Penalities for Foundation Lobbying
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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. |
Private foundations are subject to a 10 percent penalty tax on any expenditure for an attempt to influence legislation at the federal, state or local level.*
Making a lobbying expenditure also triggers an obligation to "correct" the violation-- that is, to recover the expenditure if possible and take whatever additional corrective action the IRS requires. Failure to meet this correction obligation results in a larger second level penalty tax.
A private foundation may lose its tax-exempt status under section 501(c)(3) if attempting to influence legislation constitutes a "substantial part" of its activities during any tax year. As far as the authors are aware, this more draconian sanction has never been imposed on a private foundation and, since 1976, only very rarely on public charities.
*See IRC § 4945(d)(1).