Report on request for Access Ready Inc Nonprofit Board of Directors Action
Title, Election of IRS 501(h) lobbying status
(Note, we apologize for the length of this request, but we believe the subject requires some detailed explanation.)
Issued on 05-07-2021.
Honorable members of the Access Ready Inc. Board of Directors,
Under the bylaws Article VII Section 9 as Chair, I am requesting that you vote on the following agenda electronically.
A simple response to the Chair-CEO by email will be registered by the Chair-CEO and then filed with the corporate Secretary.
A notice of this action will then be placed on the Consent Agenda and included in the Board package for the next formal meeting.
Your vote in this format does have the force and effect of an action in a formal board meeting. The Consent Agenda vote is a formality intended to give the Board a second look at actions taken electronically. Please reply to all when responding.
The voting on this agenda will be open until 5 pm on 05-20-2021.
A failure to respond will automatically register as an affirmative or yes vote on the agenda.
May it please the Board, the Chair-CEO respectfully requests that Access Ready Inc currently a 501(C)3 charitable-educational tax-exempt organization be filed as a 501(H) organization.
Last week’s speech by the President was empowering, as far as it went. His only mention of disability though was in relation to expanded Medicaid. This is great but is a “let us take care of you approach.” We had hoped that the infrastructure section would call for the technological infrastructure to be accessible along with the traditional facilities to be built and rebuilt.
This lack of expression on the Presidents part has demonstrated to us that we need to step up our game in Washington, hopefully in conjunction with other disability rights organizations and accessible technology providers.
This is the reason for the request to file a 501(H) election.
The plan is to seek donations and grants to support this effort to the limit possible under the 501(H) election.
By way of explanation some of the facts are presented below and the attached document Published by the Alliance for Justice
How To Use the 501(h) Election to Maximize Effectiveness
A Handbook for Funders and Grantees
Worry-Free Lobbying For Nonprofits
The 501(h) Election
This is the step which 501(c)(3) organizations take to tell the Internal Revenue Service they want to take advantage of the clear definitions and generous limits on lobbying that were added to the Internal Revenue Code in 1976. These rules are sometimes called the expenditure test. Only organizations which make the election can benefit. Those which do not must abide by the older, less clear, and less generous limits. Eligible organizations which make the election do so without changing their 501(c)(3) status.
Making the election is simply a matter of filing Form 5768, Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures to Influence Legislation.
The single-page form calls for the organization’s name, address, and first tax year to which it wants the election to apply. It requires only the signature of an authorized officer, usually the president or treasurer.
The election can be revoked at any time and can be easily reinstated, as well.
Lobbying Is Legitimate, Encouraged, and Protected
Congress has stated that influencing legislation is an appropriate and legitimate activity for charitable organizations. In 1976, it passed legislation giving public charities the right to lobby up to defined percentages of their annual expenditures. Section 501(h) and its companion, Section 4911, also enacted that year, set specific dollar limits on the amount electing public charities may spend to influence legislation, without incurring penalty taxes or losing their exempt status. Those limits are substantially in excess of the very small percentages to which many 501(c)(3) organizations, absent definite guidance, now limit themselves.
Frequently Asked Questions About the 501(h) Election
- What is 501(h)?
501(h) is a section of the Internal Revenue Code that outlines one of two tests for measuring an eligible 501(c)(3) organization’s lobbying expenditures. Sometimes called the expenditure test or the 20% rule, 501(h) was enacted in 1976 to clarify the much-criticized insubstantial part test that the IRS has used since 1934. 501(h) establishes specific dollar limits that are calculated as a percentage of a charity’s total exempt purpose expenditures (tax-exempt budget). Under 501(h), a charity may use up to 20% of the first $500,000 of its exempt purpose expenditures to lobby. For organizations with larger budgets, this dollar amount increases, on a sliding scale, to a maximum of $1 million.
Exempt purpose expenditures are typically the organization’s budget minus some fundraising and capital costs.
The total lobbying expenditures limits under the 501(h) test are:
20% of the first $500,000 of exempt purpose expenditures, plus
15% of the next $500,000 of exempt purpose expenditures, plus
10% of the next $500,000 of exempt purpose expenditures, plus
5% of the remaining exempt purpose expenditures up to a total cap of
As you can see, only organizations with exempt purpose expenditures in excess of $17 million will reach the $1 million cap. Not only is the 501(h)-expenditure test clear and easy to calculate, but it also provides other significant benefits over the insubstantial part test:
- Why should a 501(c)(3) elect 501(h) status?
- a) Because 501(h) provides more generous lobbying limits than the insubstantial part test.
- b) Because the 501(h) test is clear and easy to calculate.
- c) Because there are clear definitions of various kinds of lobbying communications.
- d) Because volunteer and other efforts that do not cost the organization money will not count toward the exhaustion of the lobbying limits.
- e) Because an electing charity cannot lose its exemption for a single year’s excessive expenditures, while a non-electing charity can.
- f) Because there is no personal penalty for individual managers of an electing charity which exceeds its lobbying expenditure limits.
- How does a 501(c)(3) charity elect 501(h) status?
Completing the single page form, IRS Form 5768 Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures to Influence Legislation, does the job.
It requires only the organization’s name, address, and the first tax year to which the election will apply. A copy of Form 5768 is on page 10 of the attached document.
- Will foundations suffer consequences if their grantees exceed lobbying limits? No. Foundations will not be penalized for grantees that make the election and exceed their lobbying limits.
Three principal points to keep in mind are:
- Private foundations must not earmark (designate) or direct a grant to a public charity for lobbying. However, foundation knowledge that a grantee engages in lobbying does not mean that a grant is earmarked for lobbying.
- Private foundations may make general support grants to charities whether or not the charities are currently lobbying, have lobbied in the past, have made the 501(h) election, or even use the grant for lobbying purposes. The grants will not be taxable expenditures by the foundation as long as they are not earmarked for lobbying. The regulations do not require a private foundation to seek information about a charity’s lobbying budget when the charity applies for a general support grant.
- Private foundations can give specific project grants to fund projects that include lobbying, so long as an individual foundation’s total grants for the same project and year do not exceed the amount the grantee had budgeted for the non-lobbying portion of the project. In making this determination, foundations may rely upon the budgets provided by grantees.
- Under 501(h), what is lobbying?
Briefly, lobbying consists of communications that are intended to influence specific legislation. For electing charities, there are two kinds of lobbying communications – direct and grass roots. They are distinguished mostly by whether the organization is acting on its own behalf or asking members of the public to speak out. More detailed information can be found on pages 6-7 of the attached document along with applicable exceptions and expenditure limits.
- How much can a charity spend on lobbying under 501(h)?
As noted in the answer to Question 1, up to 20% of the first $500,000 of its exempt purpose budget can be spent on direct and grass roots lobbying combined. Grass roots lobbying expenditures are capped at one quarter of the organization’s overall combined lobbying limit, regardless of how much it actually spends on direct lobbying. Thus, an organization with a $100,000 exempt purpose budget can spend up to $20,000 on direct and grass roots lobbying combined, but no more than $5,000 on grass roots lobbying. See pages 4 and 5 for more details.
- Will election of 501(h) status increase the likelihood of an IRS audit?
Absolutely not. IRS Exempt Organizations Division Director Marcus Owens says: Some concern has been expressed that making the election under section 501(h) will increase the possibility that a charitable organization will be examined by the Internal Revenue Service. I can state emphatically that is not the case.? See also page 12 of the attached document for the comments of a number of distinguished tax practitioners on the topic.
- Will our paperwork increase if we elect 501(h) status?
No. In fact, it may diminish. All public charities, regardless of status, with receipts greater than $25,000 file Form 990. If your organization lobbies, you also already complete Schedule A of Form 990. This will not change with 501(h) election, but you will no longer need to track and report volunteer lobbying activities and, with the clear definitions of lobbying activities provided by 501(h), you will be more confident about the expenditures which must be reported.
- What about losing a tax exemption for excessive lobbying expenditures under 501(h)?
Only electing organizations that exceed their limits over a 4-year period run the risk of losing their tax exemption. The IRS considers an electing charity’s lobbying expenditures as a moving average over a four-year period, while a non-electing group could lose its exemption for a single year’s excessive expenditures.
Elizabeth Campbell Yes
Gust Dean Doulou Vice-Chair, yes without objection
Stephen M. Handschu Yes
DR Martin G. Lewis Yes without objection
Matthew Michaelis Yes without objection
Paul R. Michaelis PHD Yes without objection
William (Chip) Smith Yes
Mariano Tan Yes without objection
Carol Westlake Yes
Gabrielle Ward Yes
Board of Directors Actions completed by 05-20-2021
Certified Corey R. Saur