An Oct. 12 report from Senate Finance Committee Ranking Member Max Baucus (D-MT) examines interactions between five tax-exempt organizations and disgraced lobbyist Jack Abramoff and his associates, finding instances of serious abuse. The report recommends a broad expansion of the definition of lobbying, increased disclosure requirements and enhanced penalties for violations. Its recommendations for further action by federal agencies with investigative and enforcement authority has received national attention. Receiving less media attention, however, is committee chair Charles Grassley's (R-IA) call for a more comprehensive examination of the role of nonprofits in lobbying and politics. Nonprofits thus will need to pay close attention to future committee action that could substantially affect nonprofit advocacy rights.

In September 2005, following revelations from a Senate Indian Affairs Committee investigation into problematic transactions between lobbyist Jack Abramoff and some conservative nonprofit organizations, the minority staff of the Senate Finance Committee launched an investigation that reviewed emails, news reports, IRS Form 990 data, and other materials. The report found that five organizations took contributions from Abramoff and "undertook actions on Mr. Abramoff's clients' behalf." The organizations investigated are:

• Americans for Tax Reform (ATR): a 501(c)(4) organization headed by anti-tax activist Grover Norquist
• Citizens Against Government Waste (CAGW): a 501(c)(3) organization established in 1984 to eliminate inefficiency in government
• Council of Republicans for Environmental Advocacy(CREA): a 501(c)(4) organization created in 1997 by Grover Norquist, former Interior Secretary Gale Norton and Italia Federici
• National Center for Public Policy Research(NCPPR): a 501(c)(3) conservative think tank established in 1981 that seeks free market solutions to public policy problems.

Noting that "some officers of these organizations were generally available to carry out Mr. Abramoff's requests for help with his clients in exchange for cash payments," the report details activities that appear to be unrelated to the groups' tax-exempt mission and provide benefit to private individuals, which are not permitted by nonprofit 501(c) groups. These include:

• disguising the source of funds by accepting payments and passing them through to other groups, sometimes after subtracting a substantial fee
• accepting payment for writing op-eds and press releases favorable to Abramoff clients
• facilitating introductions between Abramoff clients and government officials, and
• accepting payment from Abramoff clients to act as front organizations sponsoring trips by members of Congress and their staff.

The central problem with the activities described in the report is that they were unrelated to the organizations' tax-exempt purpose, and benefited organizational insiders or individuals associated with Abramoff, rather than the general public. The report notes that this behavior "amounted to profit-seeking and private benefit behavior inconsistent with their tax-exempt status," calling it "a fraud on other taxpayers." It concludes that, if it is found that a substantial part of the organizations' activities have benefited a for-profit entity or private individuals, the groups could lose their tax-exempt status and the individuals that approved and participated in the activities could be subject to civil and criminal penalties.

The report recommends that the Finance Committee "consider legislation clearly addressing the practices exposed in this report." The following "options for discussion" are listed:

• Expand the definition of lobbying for 501(c)(3) organizations to include payment for travel, meals "and similar expenses" for government officials if the group has a registered lobbyist that is a substantial contributor or holds a position of influence in the organization. This would not require that any specific legislation be discussed.

• Expand the definition of lobbying for 501(c)(3) organizations to include "lobbying of the Executive branch (including administrative agencies) and lobbying with respect to federal appointments"

• Require 501(c)(3) organizations that pay travel costs of government officials to disclose corporate donors and contributions for registered lobbyists

• Increase tax penalties for excess lobbying by 501(c)(3) organizations

• Deny a percentage of the tax deduction for donors to 501(c)(3) organizations that mirrors the percent of the group's budget spent on lobbying, and require the groups to inform donors of this amount

• Consider new rules for groups with members of Congress who are founders or "exercise control" of a 501(c)(3) organization

• Make corporate contributions to 501(c)(4) organizations that lobby non-deductible as business expenses or treat them as taxable unrelated business income of the organization

• Treat all contributions to 501(c)(4)s that have any "expectation of a quid pro quo" as taxable unrelated business income

• Require disclosure of all corporate donors to 501(c)(4)s that lobby, and

• Subject managers of 501(c) organizations that "knowing accept and disburse contributions" that provide private benefits to excise taxes.

The proposed reforms will require close scrutiny by, and significant discussion within, the nonprofit sector. For example, substantial expansion of the definition of lobbying by 501(c)(3) organizations without a corresponding expansion in the dollar limits on these activities will severely reduce the overall permissible advocacy allowed these organizations. Moreover, as research indicates many nonprofit leaders are confused about what constitutes lobbying - and that confusion leads to less engagement, and expanding that definition will add to the chilling effect on participation. This raises the question of whether abuse by five organizations justifies such changes for the over one million 501(c)(3) organizations recognized by the IRS.

The charities listed in the report should be fully investigated. Following the report's release, the National Committee for Responsive Philanthropy issued a statement calling on the IRS to conduct a thorough investigation. A statement from Independent Sector expresses deep concern with the findings, and promises to "work closely with Congress to ensure that any legislation ...preserves the ability of charitable organizations to engage with lawmakers on policy matters on a nonpartisan basis."