The LD-203 obviously includes a number of different disclosures. In practice, many reports show very little activity because the categories to be disclosed are fairly narrow. However, the report is filed under penalties of making false statements, so organizations have to know that they did not make any covered payments.

The Whole Company

ChartAs our previous posts have explained, many of the contributions that must be disclosed are not necessarily in the purview of the government affairs department. For example, a corporate philanthropy department might make a contribution to a charity that focuses on hunger relief. But, if a Member of Congress established that charity, it has to be disclosed on the LD-203. Similarly, an executive might ask the company to contribute to a charity active in a community where the company is located. But, again, if the executive were responding to a request from the Congressman’s district director, and that DD serves on the board of the charity, it is a contribution “designated” by a covered official. Continue Reading LD-203 Compliance Tips

The end of the second quarter is a good time to terminate individuals who will no longer serve as lobbyists because they can end their LD-203 obligations with this mid-year report. If the individuals do not have a reasonable expectation of being a lobbyist in the current or next quarter, then the Guidance says that the individual may be terminated. A lobbyist is someone who has made more than one lobbying contact (ever) and spends more than 20 percent of his or her time on lobbying activity in a three-month period. Thus, if an individual is changing roles, or the organization has determined that the person does not (and will not in the next quarter) spend 20 percent of his or her time on lobbying activity, then termination is appropriate. Remember, an organization can always re-list the person if things change. Continue Reading To be a Lobbyist or not to be a Lobbyist

In case it has slipped your mind, the first quarter LD-2 reports are due on Monday, April 22, 2013; hopefully you are just about finished with your report. If you haven’t, remember the first quarter report offers an opportunity to consider which method your organization uses to report lobbying expenses: A, B, or C.

Methods

 

The Lobbying Disclosure Act (“LDA”) provides these options in recognition of the fact that business and nonprofit entities must also track lobbying for tax purposes, and that the lobbying and tax laws do not define lobbying the same way. While using one method might simplify things for some filers, there are other considerations. You must use the same definition for an entire year, so now is the time to choose.

Businesses and Trade Associations: Method A or Method C

Section 162(e) of the Internal Revenue Code prohibits businesses from deducting their expenses related to certain kinds of lobbying activities. In addition, Section 162(e)(3) prevents businesses from avoiding this tax by paying their trade associations do their lobbying. Thus, associations must either (1) notify their members how much of their dues are used for lobbying and therefore are nondeductible or (2) pay a proxy tax on the amount the association spends on lobbying. Unfortunately, the definitions of lobbying under section 162(e) and the accompanying regulations in 26 C.F.R. § 162-29 are not the same as the definitions of lobbying found in the LDA.

To avoid keeping multiple sets of timesheets, books, and records, to determine how much money an organization spends on lobbying, the LDA allows businesses and trade associations to use the 162(e) definition to report the amount spent on lobbying (Method C). This might make life easier, but requires more ongoing involvement with your accounting office and can result in an artificially high amount being reported on the LD-2 report, because it will include things like money spent on state lobbying and on grassroots lobbying (two often very expensive activities that are not reported when using the LDA definitions). This article gets into the weeds on the differences, but the following chart provides a basic overview of how the LDA and 162(e) definitions differ.

Chart

501(c)(3) Charities: Method A or Method B

501(c)(3) organizations have a different set of tax issues to consider: whether a substantial part of their activities are considered to be “carrying on propaganda or otherwise attempting to influence legislation.” If they are, then they can lose their exempt status or face tax penalties. As this article explains, there are several ways organizations can track their lobbying. One of those methods, known as the 501(h) election, provides a concrete set of definitions of lobbying (by statute and regulation), in exchange for specific monetary limits on the amount a 501(c)(3) can spend on lobbying. These definitions differ from the LDA definitions of lobbying.

Like the option for businesses and association to report using their applicable Tax Code definitions, the LDA allows these electing charities to choose to report using the definitions of lobbying they use when making the 501(h) election (found in Section 6033(b)(8) of the Tax Code). Only those entities that have made the 501(h) election are allowed to choose Method B. Those using the general “facts and circumstances test” must use Method A to report.

Considerations

At the end of the day, there are several factors to balance when deciding which method to use when reporting:





Scale3

•    Is most of your lobbying federal legislative branch lobbying? If so, it won’t matter much if you use your applicable tax code method or the LDA method to report, because the numbers will be similar. In that case, you can probably use Method B or C (depending on which is applicable to your organization) to simplify.

•    If your lobbying includes a lot of state lobbying and/or grassroots lobbying, the number you report using the Tax Code will likely be significantly higher than if you report using Method A. You will have to balance the ease of keeping one set of books with the potential public relations issues of having a high lobbying number.

•    If your lobbying involves a lot of executive branch lobbying, using the Tax Code will both produce a lower number and make tracking your lobbying time much easier.

Regardless of the method you choose, remember that a good tracking system should be accurate and easy to use, so that your organization produces accurate tax returns and accurate LDA reports.

As a result of Citizens United and other cases decided in its wake, corporations and unions are now permitted to spend their own funds on ads advocating or opposing candidates, and other types of electoral communications. These court decisions, however, have not deterred critics from seeking ways of discouraging corporate political spending, primarily by compelling more disclosure. The battle is being waged not only through efforts to enact new legislation, but also through the shareholder proxy process.

In the 2011 proxy season we saw a significant uptick in the number of political spending proposals introduced by shareholders. The Manhattan Institute’s Center for Legal Policy’s Proxy Monitor project identified 36 political spending proposals in 2011 (up from just 14 in 2008). Proxy Monitor found that the majority of these proposals—none of which were adopted—were supported by labor-affiliated and social-investing funds.

Unsurprisingly, a record number of political spending proposals were filed during the 2012 proxy season. According to Walden Asset Management, a leading social-investing fund, 127 shareholder proposals targeted corporate political activity. Like the 2011 proxy season, the majority of these proposals focused on requiring the disclosure of political contributions made using corporate funds. However, a new trend has emerged: a significant number of the disclosures called for the disclosure of lobbying expenditures.

While Citizens United had nothing to do with a corporation’s right to engage in lobbying— corporations are permitted to lobby federal officials subject to the Lobbying Disclosure Act’s registration and reporting requirements—the rise in these shareholder proposals shows how opposition to Citizens United is being used to fuel a range of efforts to clamp down on corporate political activity.

Indeed, lobbying disclosure resolutions appear to be gaining traction. According to Walden Asset Management, the proposals that went to a shareholder vote received an average of 24 percent support. Publicly traded corporations that want to avoid the scrutiny that these resolutions often bring should consider taking the following steps:

  • Adopt and disclose internal political spending policies that govern the company’s criteria and procedures for engaging in political activity.
  • Post the company’s lobbying reports on the corporate website.
  • Disclose information about the company’s participation in trade associations that engage in lobbying.