501(c)(3) questions

A 501(c)(3) is not allowed to be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities. So, if a 501(c)(3) takes in grant money as one group, then calls itself another group name, and funnels the money to themselves as that group which does actively attempt to influence legislation as its prime directive, is that legal? Or is it money-laundering and cheating the system?

Or in other words if "Humboldt Watershed Council" is a 501(c)(3) that takes in $125,000 (or $325,000), and then Mark Lovelace, the "President" of "Humboldt Watershed Council" sets up a new group, (a "project"), and uses the money to pay himself, Mark Lovelace, acting as the second group, actively working to, and acting solely to, affect and influence legislation, is that legal?

He submits his own plans for the Gounty General Plan for God's sake: Healthy Humboldt Letter to Board of Supervisors
"...it seems prudent to investigate further the possibilities of a truly city-centered plan, as proposed by the Healthy Humboldt Coalition..." and he also came up with his own plan to deal with the TPZ/Palco issue(s).

Tax Information for Charitable Organizations
Exemption Requirements
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Political and Lobbying Activities

Measuring Lobbying Activity: Substantial Part Test
...Whether an organization’s attempts to influence legislation constitute a substantial part of its overall activities is determined on the basis of all the pertinent facts and circumstances in each case. The IRS considers a variety of factors, including the time devoted (by both compensated and volunteer workers) and the expenditures devoted by the organization to the activity, when determining whether the lobbying activity is substantial.

Under the substantial part test, an organization that conducts excessive lobbying activity in any taxable year may lose its tax-exempt status, resulting in all of its income being subject to tax. In addition, a religious organization is subject to an excise tax equal to five percent of its lobbying expenditures for the year in which it ceases to qualify for exemption.

Further, a tax equal to five percent of the lobbying expenditures for the year may be imposed against organization managers, jointly and severally, who agree to the making of such expenditures knowing that the expenditures would likely result in the loss of tax-exempt status.

Related:
Resources Legacy Fund Foundation
Lovelace's funding
NCJ This week's Town Dandy