LOBBYING BY PUBLIC CHARITIES.

SEC. 1307. LOBBYING BY PUBLIC CHARITIES. (a) Loss of Exempt Status.— (1) Loss of exempt status because of substantial lobbying.— Section 501 (relating to exemption from income tax) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: “(h) Expenditures by Public Charities To Influence Legislation.— “(1) General rule.— in the case of an organization to which this subsection applies, exemption from taxation under subsection (a) shall be denied because a substantial part of the activities of such organization consists of carrying on propaganda, or otherwise attempting, to influence legislation, but only if such organization normally— “(A) makes lobbying expenditures in excess of the lobbying ceiling amount for such organization for each taxable year, or “(B) makes grass roots expenditures in excess of the grass roots ceiling amount for such organization for each taxable year. “(2) Definitions.— For purposes of this subsection— “(A) Lobbying expenditures.— The term ‘lobbying expenditures’ means expenditures for the purpose of influencing legislation (as defined in section 4911(d)). “(B) Lobbying ceiling amount.— The lobbying ceiling amount for any organization for any taxable year is 150 percent of the lobbying nontaxable amount for such organization for such taxable year, determined under section 4911. “(C) Grass roots expenditures.— The term ‘grass roots expenditures’ means expenditures for the purpose of influencing legislation (as defined in section 4911(d) without regard to paragraph (1)(B) thereof). “(D) Grass roots ceiling amount.— The grass roots ceiling amount for any organization for any taxable year is 150 percent of the grass roots nontaxable amount for such organization for such taxable year, determined under section 4911. “(3) Organizations to which this subsection applies.— This subsection shall apply to any organization which has elected (in such manner and at such time as the Secretary may prescribe) to have the provisions of this subsection apply to such organiza-90 STAT. 1721tion and which, for the taxable year which includes the date the election is made, is described in subsection (c)(3) and— “(A) is described in paragraph (4), and “(B) is not a disqualified organization under paragraph (5). “(4) Organizations permitted to elect to have this subsection apply.— An organization is described in this paragraph if it is described in— “(A) section 170(b)(1)(A)(ii) (relating to educational institutions), . “(B) section 170(b)(1)(A)(iii) (relating to hospitals and medical research organizations). “(C) section 170(b)(1)(A)(iv) (relating to organizations Supporting government schools), “(D) section 170 (b)(1)(A)(vi) (relating to organizations publicly supported by charitable contributions), “(E) section 509(a)(2) (relating to organizations publicly supported by admissions, sales, etc.), or “(F) section 509(a)(3) (relating to organizations supporting certain types of public charities) except that for purposes of this subparagraph, section 509(a)(3) shall be applied without regard to the last sentence of section 509(a). “(5) Disqualified organizations.— For purposes of paragraph (3) an organization is a disqualified organization if it is— “(A) described in section 170(b)(1)(A)(i) (relating to churches), “(B) an integrated auxiliary of a church or of a convention or association of churches, or “(C) a member of an affiliated group of organizations (within the meaning of section 4911(f)(2)) if one or more members of such group is described in subparagraph (A) or (B). “(6) Years for which election is effective.— An election by an organization under this subsection shall be effective for all taxable years of such organization which— “(A) end after the date the election is made, and “(B) begin before the date the election is revoked by such organization (under regulations prescribed by the Secretary). “(7) No effect on certain organizations.— With respect to any organization fora taxable year for which— “(A) such organization is a disqualified organization (within the meaning of paragraph (5)), or “(B) an election under this subsection is not in effect for such organization, nothing in this subsection or in section 4911 s’ all be construed to affect the interpretation of the phrase, ‘no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.’ under subsection (c)(3). “(8) Affiliated organizations.— “For rules regarding affiliated organizations, see section 4911(f),”. (2) Status of organization which ceases to qualify for exemption under section 301(c)(3) because of substantial lobbying.— Part I of subchapter F of chapter 1 (relating to general rules as to exempt organizations) is amended by adding at the end thereof the following new section: 90 STAT. 1722 “SEC. 504. STATUS AFTER ORGANIZATION CEASES TO QUALIFY FOR EXEMPTION UNDER SECTION 501(c)(3) BECAUSE OF SUBSTANTIAL LOBBYING. “(a) General Rule.— An organization which— “(1) was exempt (or was determined by the Secretary to be exempt) from taxation under section 501(a) by reason of being an organization described in section 501(c)(3), and “(2) is not an organization described in section 501(e)(3) by reason of carrying on propaganda, or otherwise attempting, to influence legislation, shall not at any time thereafter be treated as an organization described insection501(c)(4). “(b) Regulations To Prevent Avoidance.— The Secretary shall prescribe such regulations as may be necessary or appropriate to prevent the avoidance of subsection (a), including regulations relating to a direct or indirect transfer of all or part of the assets of an organization to an organization controlled (directly or indirectly) by the same person or persons who control the transferor organization. “(c) Churches, Etc.— Subsection (a) shall not apply to any organization which is a disqualified organization within the meaning of section 501(h)(5) (relating to churches, etc.) for the taxable year immediately preceding the first taxable year for which such organization is described in paragraph (2) of subsection (a).”. (3) Rules of interpretation.— It is the intent of Congress that enactment of this section is not to be regarded in any way as an approval or disapproval of the decision of the Court of Appeals for the Tenth Circuit in Christian Echoes National Ministry, Inc. versus United States, 470 F. 2d 849 (1972), or of the reasoning in any of the opinions leading to that decision. (4) Disclosure.— Section 6033(b) (relating to information required to be furnished annually by certain exempt organizations) is amended by striking out “and” at the end of paragraph (6), by striking out the period at the end of paragraph (7) and inserting in lieu thereof “, and”, and by adding at the end thereof the following: “(8) in the case of an organization with respect to which an election under section 501(h) is effective for the taxable year, the following amounts for such organization for such taxable year: “(A) the lobbying expenditures (as defined in section 4911 (c) 1)), . “(B) the lobbying nontaxable amount (as defined in section 4911(c)(2)), “(C) the grass roots expenditures (as defined in section 4911(c)(3)),and “(D) the grass roots nontaxable amount (as defined in section 4911(c)(4)). For purposes of paragraph (8), if section 4911(f) applies to the organization for the taxable year, such organization shall furnish the amounts with respect to the affiliated group as well as with respect to such organization.”. (b) Taxes on Excess Expenditures To Influence Legislation.— Subtitle D (relating to miscellaneous excise taxes) is amended by inserting before chapter 42 the following new chapter: 90 STAT. 1723 “CHAPTER 41— PUBLIC CHARITIES “Sec. 4911. Tax on excess expenditures to influence legislation. “SEC. 4911. TAX ON EXCESS EXPENDITURES TO INFLUENCE LEGISLATION. “(a) Tax Imposed.— “(1) In general.— There is hereby imposed on the excess lobbying expenditures of any organization to which this section applies a tax equal to 25 percent of the amount of the excess lobbying expenditures for the taxable year. “(2) Organizations to which this section applies.— This section applies to any organization with respect to which an election under section 501(h) (relating to lobbying expenditures by public charities) is in effect for the taxable year. “(b) Excess Lobbying Expenditures.— For purposes of this section, the term ‘excess lobbying expenditures’ means, for a taxable year, the greater of— “(1) the amount by which the lobbying expenditures made by the organization during the taxable year exceed the lobbying non-taxable amount for such organization for such taxable year, or “(2) the amount by which the grass roots expenditures made by the organization during the taxable year exceed the grass roots nontaxable amount, for such organization for such taxable year. “(c) Definitions.— For purposes of this section— “(1) Lobbying expenditures.— The term ‘lobbying expenditures’ means expenditures for the purpose of influencing legislation (as defined in subsection (d)). “(2) Lobbying nontaxable amount.— The lobbying nontaxable amount for any organization for any taxable year is the lesser of (A) $1,000,000 or (B) the amount determined under the following table: “If the proposed expenditures are— The lobbying nontaxable amount is— Not over $500,000 20 percent of the exempt purpose expenditures. Over $500,000 but not over $1,000,000 $100,000, plus 15 percent of the excess of the exempt purpose expenditures over $500,000. Over $1,000,000 but not over $1,500,000 $175,000 plus 10 percent of the excess of the exempt purpose expenditures over $1,000,000. Over $1,500,000 $225,000 plus 5 percent of the excess of the exempt purpose expenditures over $1,500,000. “(3) Grass roots expenditures.— The term ‘grass roots expenditures’ means expenditures for the purpose of influencing legislation (as defined in subsection (d) without regard to paragraph (1)(B) thereof). “(4) Grass roots nontaxable amount.— The grass roots non-taxable amount for any organization for any taxable year is 25 percent of the lobbying nontaxable amount (determined under paragraph (2)) for such organization for such taxable year. “(d) Influencing Legislation.— “(1) General rule.— Except as otherwise provided in paragraph (2), for purposes of this section, the term ‘influencing legislation’ means— “(A) any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof, and 90 STAT. 1724 “(B) any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of the legislation. “(2) Exceptions.— For purposes of this section, the term ‘influencing legislation’, with respect to an organization, does not include— “(A) making available the results of nonpartisan analysis, study, or research; “(B) providing of technical advice or assistance (where such advice would otherwise constitute the influencing of legislation) to a governmental body or to a committee or other subdivision thereof in response to a written request by such body or subdivision, as the case may be; “(C) appearances before, or communications to, any legislative body with respect to a possible decision of such body which might affect the existence of the organization, its powers and duties, tax-exempt status, or the deduction of contributions to the organization; “(D) communications between the organization and its bona fide members with respect to legislation or proposed legislation of direct interest to the organization and such members, other than communications described in paragraph (31 and “(E) any communication with a government official or employee, other than— “(i) a communication with a member or employee of a legislative body (where such communication would otherwise constitute the influencing of legislation), or “(ii) a communication the principal purpose of which is to influence legislation. “(3) Communications with members.— “(A) A communication between an organization and any bona fide member of such organization to directly encourage such member to communicate as provided in paragraph (1)(B) shall be treated as a communication described in paragraph (1)(B). “(B) A communication between an organization and any bona fide member of such organization to directly encourage such member to urge persons other than members to communicate as provided in either subparagraph (A) or subparagraph (B) of paragraph (1) shall be treated as a communication described in paragraph (1)(A). “(e) Other Definitions and Special Rules.— For purposes of this section— “(1) Exempt purpose expenditures.— “(A) In general.— The term ‘exempt purpose expenditures’ means, with respect to any organization for any taxable year, the total of the amounts paid or incurred by such organization to accomplish purposes described in section 170(c)(2)(B) (relating to religious, charitable, educational, etc., purposes). “(B) Certain amounts included.— The term ‘exempt purpose-expenditures’ includes— “(i) administrative expenses paid or incurred for purposes described in section 170(c)(2)(B), and 90 STAT. 1725 “(ii) amounts paid or incurred for the purpose of influencing legislation (whether or not for purposes described in section 170(c)(2)(B)). “(C) Certain amounts excluded.— The term ‘exempt purpose expenditures’ does not include amounts paid or incurred to or for— “(i) a separate fund raising unit of such organization, or “(ii) one or more other organizations, if such amounts are paid or incurred primarily for fund raising. “(2) Legislation.— The term ‘legislation’ includes action with respect to Acts, bills, resolutions, or similar items by the Congress, any State legislature, any local council, or similar governing body, or by the public in a referendum, initiative, constitutional amendment. or similar procedure. “(3) Action.— The term ‘action’ is limited to the introduction, amendment, enactment, defeat, or repeal of Acts, bills, resolutions, or similar items. “(4) Depreciation, etc., treated as expenditures.— In computing expenditures paid or incurred for the purpose of influencing legislation (within the meaning of subsection (b)(1) or (b)(2)) or exempt purpose expenditures (as defined in paragraph (1)), amounts properly chargeable to capital account shall not be taken into account. There shall be taken into account a reasonable allowance for exhaustion, wear and tear, obsolescence, or amortization. Such allowance shall be computed only on the basis of the straight-line method of depreciation. For purposes of this section, a determination of whether an amount is properly chargeable to capital account shall be made on the basis of the principles that apply under subtitle A to amounts which are paid or incurred in a trade or business. “(f) Affiliated Organizations.— “(1) In general.— Except as otherwise provided in paragraph (4), if for a taxable year two or more organizations described in section 501(c)(3) are members of an affiliated group of organizations as defined in paragraph (2), and an election under section 501(h) is effective for at least, one such organization for such year, then— “(A) the determination as to whether excess lobbying expenditures have been made and the determination as to whether the expenditure limits of section 501(h)(1) have been exceeded shall be made as though such affiliated group is one organization, “(B) if such group has excess lobbying expenditures, each such organization as to which an election under section 501(h) is effective for such year shall be treated as an organization which has excess lobbying expenditures in an amount which equals such organization’s proportionate share of such group’s excess lobbying expenditures, “(C) if the expenditure limits of section 501(h)(1) are exceeded, each such organization as to which an election under section 501(h) is effective for such year shall be treated as an organization which is not described in section 501(c)(3) by reason of the application of 501 (h), and “(D) subparagraphs (C) and (D) of subsection (d)(2), paragraph (3) of subsection (d), and clause (i) of subsec-90 STAT. 1726tion (e)(1)(C) shall be applied as if such affiliated group were one organization. “(2) Definition of affiliation.— For purposes of paragraph (1), two organizations are members of an affiliated group of organizations but only if— “(A) the governing instrument of one such organization requires it to be bound by decisions of the other organization on legislative issues, or “(B) the governing board of one such organization includes persons who— “(i) are specifically designated representatives of another such organization or are members of the governing board, officers, or paid executive staff members of such other organization, and “(ii) by aggregating their votes, have sufficient voting power to cause or prevent action on legislative issues by the first such organization. “(3) Different taxable years.— If members of an affiliated group of organizations have different taxable years, their expenditures shall be computed for purposes of this section in a manner to be prescribed by regulations promulgated by the Secretary. “(4) Limited control.— If two or more organizations are members of an affiliated group of organizations (as defined in paragraph (2) without regard to subparagraph (B) thereof), no two members of such affiliated group are affiliated (as defined in paragraph (2) without regard to subparagraph (A) thereof), and the governing instrument of no such organization requires it to be bound by decisions of any of the other such organizations on legislative issues other than as to action with respect to Acts, bills, resolutions, or similar items by the Congress, then— “(A) in the case of any organization whose decisions bind one or more members of such affiliated group, directly or indirectly, the determination as to whether such organization has paid or incurred excess lobbying expenditures and the determination as to whether such organization has exceeded the expenditure limits of section 501(h)(1) shall be made as though such organization has paid or incurred those amounts paid or incurred by such members of such affiliated group to influence legislation with respect to Acts, bills, resolutions, or similar items by the Congress, and “(B) in the case of any organization to which subparagraph (A) does not apply, but which is a member of such affiliated group, the determination as to whether such organization has paid or incurred excess lobbying expenditures and the determination as to whether such organization has exceeded the expenditure limits of section 501(h)(1) shall be made as though such organization is not a member of such affiliated group.”. (c) Disallowing of Deduction for Contribution To Influence Legislation.— Section 170(f) (relating to disallowance of charitable contribution deductions in certain cases) is amended by striking out paragraph (6) and inserting in lieu thereof the following: “(6) Deductions for out-of-pocket expenditures.— No deduction shall be allowed under this section for an out-of-pocket expenditure made by any person on behalf of an organization described in subsection (c)(other than an organization described in section 501(h)(5) (relating to churches, etc.)) if the expendi-90 STAT. 1727ture is made for the purpose of influencing legislation (within the meaning of section 501(c)(8)).”. (d) Technical Amendments.— (1) Amendments conforming to new section 501(h).— (A) Section 501(c)(3) is amended by striking out “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation” and inserting in lieu thereof “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h))” (B) The following sections are amended by striking out “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation,” each place it appears and inserting in lieu thereof in each such place “which is not disqualified for tax exemption under section 501 (c)(3) by reason of attempting to influence legislation,”: (i) section 170(c)(2)(D) (relating to the definition of charitable, contributions); (ii) section 2055 (a)(2) (relating to transfers for public, charitable, and religious uses); (iii) section 2106(a)(2)(A)(ii) (relating to transfers for public, charitable, and religious uses); (iv) section 2522(a)(2) (relating to charitable and similar gifts of citizens or residents); and (v) section 2522(b)(2) (relating to charitable and similar gifts of nonresidents). (C) Sections 2055(a)(3) and 2106(a)(2)(A)(iii) (relating to transfers for public, charitable, and religious uses) are amended by striking out “no substantial part of the activities of such trustee or trustees, or of such fraternal society, order, or association, is carrying on propaganda, or otherwise attempting, to influence legislation,” each place it appears and inserting in lieu thereof in each such place “such trust, fraternal society, order, or association would not be disqualified for tax exemption under section 501(e)(3) by reason of attempting to influence legislation,”. (2) Amendments conforming to new chapter 41.— (A) Paragraph (6) of section 275(a)(denying deductions for certain taxes), as amended by this Act, is amended to read as follows: “(6) Taxes imposed by chapters 41, 42, 43, and 44.” (B) Section 6104(e)(1)(B) (relating to notification of state officers regarding taxes imposed on certain exempt organizations), is amended by striking out “chapter 42” and inserting in lieu thereof “chapter 41 or 42”. (C) Section 6161(h) (relating to extensions of time for paying tax) is amended— (i) in paragraph (1) by striking out “12” and inserting in lieu thereof “12, 41”; and (ii) in the second sentence by striking out “42,” and inserting in lieu thereof “41, 42.”. (D) Section 6201(d) (relating to assessment authority) is amended by striking out “chapter 42, and chapter 43 taxes” and inserting in lieu thereof “and certain excise taxes”. 90 STAT. 1728 (E) Section 6211(a)(defining deficiency) is amended by striking out “chapters 42” and inserting in lieu thereof “chapters 41. 42,”. (F) The following sections are amended by striking out “chapter 42” each place it appears and inserting in lieu thereof in each such place “chapter 41, 42,”; (i) subsections (a) and (b)(2) of section 6211 (defining deficiency); (ii) section 6212(a) (relating to notice of deficiency); (iii) section 6213(a) (relating to restrictions applicable to deficiencies and petitions to Tax Court.); (iv) subsections (c) and (d) of section 6214 (relating to determinations by Tax Court); (v) section 6344(a)(1) (relating to cross references); (vi) section 6501(e)(3) (relating to limitations on assessment and collection); (vii) subsections (a) and (b)(1) of section 6512 (relating to limitations in case of petition to Tax Court); and (viii) section 7422(e) (relating to civil actions for refund). (G) Section 6212 (relating to notice of deficiency) is amended— (i) in subsection (b)(1) by striking out “chapter 42” each place it appears and inserting in lieu thereof in each place “chapter 41, chapter 42”; and (ii) in subsection (c)(1) by striking out “of chapter 43 tax for the same taxable years,” and inserting in lieu thereof “of chapter 41 tax for the same taxable year, of chapter 43 tax for the same taxable year,”. (H) The headings of section 6214(c) (relating to determinations by Tax Court) and 6601 (c) (relating to interest on underpayments, etc.) are amended by striking out “Chapter 42” and inserting in lieu thereof in each such place “Chapter 41, 42”. (3) Amendments to tables of chatters and sections.— (A) The table of chapters for subtitle D is amended by inserting before the item relating to chapter 42 the following: “Chapter 41. Public charities.” (B) The table of sections for part I of subchapter F of chapter 1 is amended by adding at the end thereof the following: “Sec. 504. Status after organization ceases to qualify for exemption tinder section 501(e)(3) because of substantial lobbying.” (e) Effective Date.— The amendments made by this section shall apply— (1) except as otherwise specified in paragraph (2), in the case of amendments to subtitle A, to taxable years beginning after December 31, 1976; (2) in the case of the amendments made by subsection (a)(2), to activities occurring after the date of the enactment of this Act; (3) in the case of amendments to chapter 11, to the estates of decedents dying after December 31, 1976; (4) in the case of amendments to chapter 12, to gifts in calendar years beginning after December 31, 1976; 90 STAT. 1729 (5) in the case of amendments to subtitle D, to taxable years beginning after December 31, 1976; and (6) in the case of amendments to subtitle F, on and after the date of the enactment of this Act.