Occupy Wall Street: A Charity? Really? (Part 1)

Per CNN, Occupy Wall Street is now accepting tax deductible donations through a charity called Alliance for Global Justice. According to 26 USC 501(c)(3), organizations that receive tax deductible contributions must be "organized and operated for charitable purposes." Under the operational prong of that test, the charity must actually do charitable work: I can't set up a charity to feed the homeless and then use the funds to build commercial properties, for example. Similarly, I can't set up an organization devoted to educating the public about "alternatives to the unjust domination of governments, global financial institutions and multinational corporations" and then use those funds to lobby the public.

There's an exception to that general rule, however: a charity can lobby, provided that its lobbying activities aren't a substantial portion of its activities. Under existing caselaw, that's around 10-15% of total expenditures. Because these rules aren't clear, though, Congress created a safeharbor: under 501(h) of the code, an organization can spend up to between 5% and 20% of their non-lobbying expenditures on lobbying and still be safe from having their exemption being revoked. Per their Form 990 for fiscal year ended 3/31/11, total expenditures were just over $1MM, so under the 501(h) rules they can spend up to $175,000 on lobbying. Since they've taken in and disbursed about $150,000 to OWS in just a matter of days, we can reasonably infer that they'll be well over their 501(h) limit in just a few days, and should be subject to excise tax of 25% on the excess. This all assumes that the OWS expenditures constitute lobbying, a point to which we'll turn in part 2.