This is a wonderful question because it raises so many issues. The short answer is “yes.” The longer answer explains why and why, in my opinion, you should be happy to do so.

Your organization has received a contribution from your board member because it is a gift to “or for the use of” your organization. Such contributions should be reported on line 1 of the revenue statement in Part VIII on page 9. If your trustee paid directly for new office furniture, you would normally record the cost of the furniture as a contribution and as a non-cash contribution. Ordinarily you cannot report the value of contributed services or use of facilities, such as pro bono lawyering or free rent, on the 990, even though each may meet the criteria for inclusion in your audited GAAP financial statements. But this lobbying is not a donated service. The lobbyist is being paid for the work and is not making a personal contribution. You should report the amount paid for these services as a contribution on line 1. And you should report it even though your trustee may not claim a charitable deduction because she can’t claim a deduction for a gift earmarked for lobbying. (Thanks to Helen Martin and Jimmy Mo of EisnerAmper in Philadelphia for help in clarifying these reporting issues.)

The question itself (which is also question 47 in Part VI on the Form 990-EZ) does not ask about how you pay for the lobbying.  It only asks whether you “engage” in lobbying. You would have to report the lobbying activity even if it were contributed as a service by the lobbyist and not reportable in line 1. 

But I am not sure why you would want to hide it. If you want to explain that the cost is specifically donated outside your normal solicitation activity, you can do so on Schedule O. But if you don’t think it is part of your mission, why are you doing it? I suspect you are doing it because you want to support legislation that will help the ultimate beneficiaries of your work, or to oppose legislation that will harm them. Most charities know that good or bad legislation can have a huge impact on what they do. I would think you would want your donors to know you are trying to have an impact in those areas.

I am nerdy enough to look at 990s specifically to see if a charity is engaged in lobbying activity. In my view, if a charity isn’t lobbying, it probably isn’t doing its job.