A general support grant by a private foundation to a public charity is generally not a taxable expenditure if the grant is not earmarked to be used in an attempt to influence legislation.
Example: A public charity that has received a general support grant informs the grantor foundation that, as an insubstantial part of its activities, it attempts to influence the state legislature with regard to changes in mental health laws. The use of the grant is not earmarked for the legislative activities of the public charity. The grant is not a taxable expenditure even if it is later used by the recipient charity in its legislative activities.
If the public charity later loses its section 501(c)(3) tax-exempt status due to its attempts to influence legislation, the grant is still not a taxable expenditure if the following conditions are met:
The grant meets the requirements of the rules relating to general support grants and specific project grants;
The grantee had received a ruling or determination letter that it is a public charity;
Notice of a change in the grantee's status has not been made to the public, and the private foundation has not acquired knowledge that the Service has notified the grantee of a change in its status; and
The grantee is not controlled by the private foundation.