Idaho Freedom Foundation’s charitable status scrutinized
BOISE – In the ornate public gallery of the Idaho House of Representatives, lobbyist Erik Makrush of the Idaho Freedom Foundation leaned over to a reporter sitting next to him and whispered, “If you have any questions, you can ask me.”
The House was debating one of 11 bills that would trim the powers of urban renewal agencies in the state, a hot political issue in Idaho’s 2011 legislative session. Makrush said he’d written all of them.
A year later, Idaho Freedom Foundation President Wayne Hoffman persuaded a House committee chairwoman to pull a bill he opposed just as debate was about to start on the floor.
Both episodes illustrate the raw political power of a nonprofit charity that some believe is abusing its lucrative tax-free status. Although charitable organizations are allowed to do some lobbying without risking their tax benefits, the Idaho Freedom Foundation actively pushes and opposes legislation on dozens of issues every session in ways that more closely resemble a full-on lobbying group.
“If Wayne Hoffman can call a committee chairman and have a bill pulled, that’s pretty remarkable clout,” said House Minority Leader John Rusche, D-Lewiston.
At issue is whether taxpayers should be subsidizing its activities.
As a charity organized under Internal Revenue Code section 501(c)(3), contributions to the Idaho Freedom Foundation are tax deductible. Contributions to lobbying groups organized under section 501(c)(4), such as the Sierra Club or the National Rifle Association, are not.
In its scant five years in existence, the IFF has become one of the most active and influential groups in Idaho’s Statehouse.
“We have good relationships,” Hoffman said of his group’s activities. “So they (lawmakers) take our calls, they listen to us, they read our emails.”
“They’re pretty darn active,” said Sen. Cherie Buckner-Webb, D-Boise. “They’re visible in every committee room I serve on.”
Hoffman maintains it’s really not a lobbying group and that it does only a small amount of lobbying. He reported spending just $13,000 on lobbying in 2012, out of $447,108 in total expenses. In 2011, he reported just $10,290 spent on lobbying; in 2010 and 2009, he reported that the group spent zero to influence legislation.
“We’re an education organization,” said Hoffman, who was paid $99,645 by the group in 2012. “Our biggest focus is the education of policymakers.”
However, experts say IFF likely is underreporting its lobbying under federal tax laws, which potentially could endanger its tax-free status. “I think there’s a serious yellow flag here,” said Lloyd Hitoshi Mayer, a nationally known expert on nonprofit tax law and a law professor at the University of Notre Dame.
This year, IFF had three registered lobbyists, was a constant presence in the Capitol and led the opposition to the governor’s biggest legislative proposal of the session, the bill creating a state-based health insurance exchange. It rated 150 bills against its agenda, assigning positive or negative scores, and tracked lawmakers’ votes. The group writes legislation, testifies to committees, sponsors lectures and tours for legislators, conducts polls, publishes reports and sends out emails, and its lawmaker scores have been prominently featured in campaign ads.
IFF also operates an online news site, Idahoreporter.com, and a government transparency website that posts salaries of public employees at the local and state level, but most of its work focuses on influencing public policy. It doesn’t disclose its donors.
Asked what the organization has accomplished, Hoffman touts a long list of victories over the past five years in passing and defeating legislation on everything from wolves to tanning beds.
“They’re trying to influence the outcome of legislation,” Rusche said. “Isn’t that what you would consider lobbying? I do.”
Mayer said, “I think there’s a question regarding whether it’s appropriately operating as a (c)(3), whether it’s engaging in too much lobbying.”
Direct lobbying, Mayer said, is defined as “any attempt to influence any legislation through communication with any member or employee of the legislative body, if the communication refers to specific legislation, and reflects a view on such legislation.”
There are exceptions, he noted, and they’re complicated. But, he said, “Most organizations that do this kind of stuff form themselves as (c)(4)s, so they avoid these issues.”
But 501(c)(4) organizations lack lucrative tax benefits for contributors.
Rep. Luke Malek, R-Coeur d’Alene, who worked with the Freedom Foundation on a bill this year, said, “I do appreciate that they are passionate about what they do. They do work their issues hard.” He added, “I would have assumed their budget was more for lobbying, just because they do have several lobbyists.”
Many lawmakers compare IFF’s lobbying activity to that of the Idaho Association of Commerce and Industry, a long-standing business group that touts itself as “The Voice of Business in Idaho” and long has been an influential and highly visible lobbying force.
IACI President Alex LaBeau said his group is no charity. It’s a 501(c)(6) organization, a designation for business groups and chambers of commerce that allows unlimited lobbying. “The donations to a 501(c)(6) are not tax deductible because we are directly involved in lobbying, not just information,” LaBeau said. “We make no bones about the fact that we’re a full-on lobbying organization.”
Other charitable organizations in Idaho also do some lobbying, such as Catholic Charities of Idaho and the Idaho Conservation League. But it’s only a small part of what Catholic Charities does; the group operates charity services across the state, including counseling, parenting classes, after-school programs, social ministry work and citizenship classes.
The Idaho Conservation League reported spending $56,275 on lobbying in 2012, out of its total expenditures of $1.55 million. That’s nearly five times as much as IFF reported, but the conservation group, despite having four registered lobbyists that year, was much less active in the Statehouse, limiting its attention to specific environmental issues.
“Most of what we do on any given day is not related to lobbying,” said Rick Johnson, the ICL’s executive director. A separate group, Conservation Voters of Idaho, formed by some of ICL’s founders, has a (c)(4) arm that can lobby and a political action committee that participates in campaigns.
Some lawmakers were surprised to learn that IFF operates as a tax-exempt charity, rather than a political group. “I’m taken aback,” said Buckner-Webb, the Boise Democratic senator. “I don’t view them at all as nonpartisan, and I think I’m pretty broad-minded. … I see their focus being on conservative legislators … holding conservative legislators accountable.”
Federal tax laws generally allow up to 20 percent of a 501(c)(3) charity’s expenditures to go for lobbying. That includes lobbying the public on ballot measures, because in that case the public is the legislative body making the decision.
“Lobbying is a very specific thing,” Hoffman said, adding that he believes as long as any of his group’s communications stop short of saying “vote yes” or “vote no,” they haven’t crossed the “bright line” between education and lobbying.
However, Mayer said, “Mr. Hoffman is confusing federal election law with federal tax law. More specifically, he is confusing the rules relating to whether a communication is ‘express advocacy’ for purposes of the federal election law with the rules relating to whether a communication is lobbying for the purposes of the federal tax laws. The federal tax laws defining lobbying are much broader … and reach essentially any communication that mentions specific legislation and reflects a view on that legislation, whether expressly or less directly.”
Hoffman said in his view, even writing bills isn’t lobbying. “As I understand it, that is not lobbying because what you are doing is you are working on helping lawmakers divine good public policy, which is what we do anyway,” he said. “It’s educational.”
He has the same view of the town meetings, literature and pre-election robocalls his group sponsored when Shoshone County had a measure on the ballot in May to form a new urban renewal agency, though he boasts that after IFF’s efforts, the measure failed by a 3-1 margin. “That was just an education effort,” he said.
Mayer said the robocalls likely qualify as direct lobbying because they asserted that the measure would drive up taxes and take away people’s ability to vote on future projects. “The lack of ‘vote against’ or similar language does not control,” he said.
He noted, “A communication can be both educational and lobbying; the terms are not mutually exclusive.” A lobbying communication might also be “informative,” he said.
IFF was formed in November 2009; at its first legislative session in 2010, its employees testifying to legislative committees insisted they were not lobbying, just providing information. Numerous legislative committee chairmen didn’t buy it and questioned them closely about the positions they were taking on bills they addressed.
“It was frustrating,” Hoffman said. “We only intended to educate.”
At the end of that session, IFF filed for the 501(h) election, notifying the IRS it would be lobbying but staying under the 20 percent expenditure limit.
“Do we lobby? Yes, and I am very, very glad that at least somebody over there is speaking out on behalf of taxpayers and the average, ordinary citizen who is looking for somebody to defend their pursuit of economic opportunity,” Hoffman said. “I would never apologize for that. … We take a close look at it and determine whether our activities constitute lobbying. The bright line is always ‘vote yes,’ ‘vote no.’ ”
Hoffman said about the only thing he reports on his Form 990 as lobbying is his own time spent telling legislators to vote one way or another, or sending emails or writing letters with that message. “It’s time that I spend testifying in committee,” he said, and reflects “very little” of his other employees’ time. IFF has eight full-time employees plus a handful of interns and independent contractors.
Hoffman said his vision for the group is “to be the most influential organization in the state – we want lawmakers and other policymakers to call us up and ask what constitutes good public policies, and then act accordingly.
“Most of what we do is educational. That’s what a 501(c)(3) is supposed to be about,” he said. “We educate legislators. Who else would do that if we weren’t there?”