It’s a Trap: How Admiral Ackbar’s Legendary Warning is a Helpful Lesson on the 501(h) Definition of Direct Lobbying
If you’ve ever attended a training led by a Bolder Advocacy attorney, you’ll notice each person brings a dash of their personality and interests to the curricula, which can be helpful in translating complex concepts of tax and campaign finance laws into something a bit more comprehensible. On this Star Wars Day, where the fandom celebrates May the Fourth — as in “May the Fourth Be With You” — (honestly, I did not make this up), let’s raise a glass of blue milk in a toast to the galaxy far, far away while learning about lobbying rules.
Suppose a meeting on Coruscant…
A trustee of the Mos Eisley Foundation — a private foundation well-known for its philanthropic grantmaking on the desert planet of Tatooine — has a meeting scheduled with Senator Bail Organa to discuss the state of moisture farming technology on arid planets, along with the success the foundation’s grantees have had to protect the very precious and limited water resources of the very arid planet.
As the meeting is set to conclude, Senator Organa asks the trustee, “I understand Senator Mothma has circulated a proposal that would exempt all purchases of moisture farming equipment, including Bocce-speaking protocol droids, from taxation on arid planets. I haven’t decided whether to support such a resolution before the Senate — you are clearly the experts, so what do you think?”
Immediately, legendary Mon Calamari Admiral Ackbar bursts through the door and croaks loudly, “It’s a TRAP!”
Admiral Ackbar is a little dramatic here, but ultimately correct.
First, a quick reminder on the definition of direct lobbying for charities that make the 501(h) election and private foundations. The definition is important because public charities are limited in how much lobbying they can engage in, while private foundations are subject to a hefty excise tax if they engage in or earmark funds for lobbying. Direct lobbying is a communication to a legislator, expressing a view on specific legislation. Typically, the element that is most important is whether the subject matter constitutes specific legislation.
A public charity or a private foundation representative can have unlimited conversations with legislators on any topic that isn’t supporting or opposing legislation. This can be a powerful form of advocacy itself, such as urging the legislator to use their oversight powers over executive branch agencies, or educating the lawmaker on complex scientific principles that can broadly inform them on a topic without advocating for any specific legislation. This is an understandable tactic for private foundations considering the consequences of a steep excise tax if they engage in lobbying. Some public charities operate under grants with restrictive clauses that prohibit lobbying, so a broad-based conversation with a legislator allows them to use those funds without breaching their grant agreement.
So, it’s not only possible to meet with legislators and not lobby, but also commonly done.
Let’s revisit where we last left our rebel Admiral and his highly-memed observation. The foundation trustee has been communicating with a legislator up to that point but has not communicated a position on any legislation pending before the Galactic Senate. However, if the trustee were to answer Senator Organa’s question, the circle is now complete and the trustee will have communicated support (or opposition) of the tax legislation before the Senate, engaging in direct lobbying under IRS rules. This would expose the foundation and the trustee themself to a potentially hefty excise tax. And since there is no (for lack of a better term) “but they started it” exception, Admiral Ackbar’s timely warning may very well have saved the trustee and the foundation from dire consequences.
So, it’s not really a trap, but the meme’s a helpful reminder.
Perhaps it’s a little overblown to suggest a reasonable question from a legislator that probably isn’t up-to-speed on lobbying rules for 501(c)(3)s is a trap on par with the third act of Return of the Jedi. However, the consequences for a private foundation that falls into this situation are certainly unsavory and easily avoidable.
It’s also why I carry a 1983 Kenner Admiral Ackbar action figure in my pocket to use as a reminder of this lesson during lobbying seminars. Just in case.