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501(c)(6) PPP Loans: Which Lobbying Organizations are Eligible?

Under the Economic Aid Act, trade associations, chambers of commerce and other 501(c)(6) organizations are now eligible to receive PPP loans provided that lobbying is not more than 15% of an applicant’s activities and the cost of its lobbying did not exceed $1 million in the most recent tax year prior to February 15, 2020.  Unfortunately, the law and the SBA’s implementing regulations are silent as to how the term “lobbying” should be defined.  Does an organization measure “lobbying” by applying the federal Lobbying Disclosure Act (LDA) definition or should the definition in the Internal Revenue Code (IRC) be applied?  Thus far, SBA hasn’t issued any guidance on this important eligibility issue. 

As to Second Draw (PPP2) loans permitted under the Economic Aid Act, entities primarily engaged in political or lobbying activities are ineligible for the program.  While this section of the Act is also silent as to how to define “lobbying,” the SBA regulations state that the LDA definition applies.  This would suggest that, for the sake of consistency, a similar approach should be taken with regard to 501(c)(6) eligibility. 

LDA and IRC definitions of “lobbying” vary in many significant respects.  For example, the LDA definition excludes state level lobbying and the IRC definition includes it.  On the other hand, the IRC definition excludes more federal executive branch lobbying activity than the LDA definition.   As a result, it is not unusual for an entity’s LDA and IRC calculations of “lobbying” to vary, and one might exceed $1M and the other might be below this threshold. 

To add further confusion to the issue, PPP funds cannot be used to support “lobbying” activity.  But here, the law applies a third definition that includes state and federal lobbying activities, and is in many ways broader than the LDA and IRC definitions.

So, if an organization had more than $1M in lobbying expenses under the IRC definition, but reported under $1M in its LDA reports, can it apply for a PPP loan and certify eligibility?  The answer is not clear.  But given that the SBA has already used the LDA as the measuring stick in another eligibility context, and in the absence of regulatory guidance, it would be difficult for the government to claim that a loan applicant knowingly violated the law if the IRC or some other definition of lobbying is subsequently adopted by the SBA. There is a glimmer of hope for greater clarity.   Based on our conversations with SBA officials, we understand guidance on this point may be forthcoming.

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