A common misconception is that 501(c)(3) tax-exempt nonprofit organizations cannot engage in legislative advocacy, or lobbying. While nonprofit lobbying laws strictly prohibit tax-exempt nonprofit organizations from supporting or contributing to a political candidate, they do not entirely prohibit them from lobbying.
What is Lobbying or Legislative Advocacy According to Nonprofit Lobbying Laws?
Generally, nonprofit lobbying laws define lobbying and legislative advocacy similarly: an attempt to influence legislation. There are two kinds of lobbying. Direct lobbying is defined as an attempt to influence legislation by communicating with lawmakers, their employees, or any government employee who participates in the formulation of the legislation. Nonprofit lobbying laws only consider communication with the legislature as direct lobbying if the organization refers to specific legislation and expresses a view on the legislation. Grass roots lobbying is defined as an attempt to reach out directly to the public with the aim of influencing legislation. Interestingly, nonprofit lobbying laws deem communications with the public as direct lobbying, as opposed to grass roots lobbying, in the context of referendums or ballot initiatives. This is because the public is the legislative body where they vote directly on ballots or initiatives.
Lobbying does not include:
- Responding to written requests for assistance or advice from lawmakers;
- Publishing nonpartisan analysis, study or research;
- Writing generally about broad, social, economic and similar problems;
- Communicating with lawmakers regarding matters that might affect the organization’s existence, its powers and duties, its tax-exempt status, or the deduction of contributions to the organization (the “self-defense” exception); and,
- Providing members of your own organization with information and updates on the status of legislation, without a call to action.
The most important thing to keep in mind is that neither direct nor grass roots lobbying is off-limits under nonprofit lobbying laws. The only requirement is that communications or activities not be in reference to political candidates and that they not be a “substantial part” of the nonprofit’s activities.
How Much Lobbying is Permitted Under the Nonprofit Lobbying Laws?
While tax-exempt nonprofits are not prohibited from lobbying, legislative advocacy cannot comprise a “substantial part” of the organization’s activities under nonprofit lobbying laws. Unless a nonprofit takes the 501(h) election (see below), the IRS determines the question of whether lobbying is a “substantial part” of a nonprofit’s activities based on the specific facts and circumstances of each case. Specifically, the IRS looks at the total amount of resources (funds, plus employee and volunteer time) the tax-exempt organization expended on the lobbying activities. If the IRS finds that lobbying is a “substantial part” of a nonprofit’s activities, it may strip the organization of its tax-exempt status. The organization may have to pay up to 5% of its lobbying expenditures to the IRS in the form of an excise tax, and the organization’s leadership may be personally liable up to the same 5% amount if they knowingly approved substantial lobbying. This default test is fairly subjective and can be applied in unpredictable ways. For this reasons, nonprofits can avoid the uncertainties of the “substantial part” test by taking the 501(h) election.
What is the 501(h) Election, and How Does it Work?
Section 501(h) of the Internal Revenue Code provides a way for nonprofits to know exactly how much they can spend on lobbying without getting into trouble with the IRS. It is important to note that churches and private foundations are not eligible to take the election. For a definition of what a private foundation is, see IRS’s guide on private foundations. The amount that an eligible nonprofit can spend on lobbying under Section 501(h)’s “expenditure test” depends on the amount it spends on exempt purpose activities (those activities that relate to its exempt purposes, such as charitable, scientific, educational, or other purposes). The table below shows the IRS’s calculation for how much a nonprofit can spend on lobbying depending on the organization’s overall spending on exempt purpose activities.
|Spending on exempt purposes||Permitted spending on lobbying|
|Less than $500,000||20% of exempt spending|
|Between $500,000 and $1,000,000||$100,000 + 15% of exempt spending over $500,000|
|Between $1,000,000 and $1,500,000||$175,000 + 10% of exempt spending over $1,000,000|
|Over $1,500,000||$225,000 + 5% of exempt spending over $1,500,000 ($1M MAX)|
Importantly, grass roots lobbying is capped at 25% of the total amount a nonprofit is permitted to spend on lobbying. Spending in excess of this permitted limit both subjects the nonprofit to a 25% tax on the amount that was spent in excess of the limit and possibly jeopardizes its tax-exempt status. To take the 501(h) election, nonprofit organizations can file Form 5768 with the IRS.
What if My Organization Wants to Spend More on Lobbying?
Nonprofit lobbying laws only prohibit 501(c)(3) tax-exempt organizations from carrying on substantial lobbying activities. By contrast, there is no cap on how much 501(c)(4) action organizations can spend on lobbying. As such, a non-profit organization can operate both a 501(c)(3) entity and a 501(c)(4) entity. However, both organizations must be incorporated and operated separately, and accurate records must be kept to demonstrate that tax-deductible donations are not being used to pay for lobbying. In such a case, the political activities of the 501(c)(4) organization would not be attributed to the tax-exempt 501(c)(3) entity. For more information on this topic, see IRS’s guide on nonprofit lobbying.
DISCLAIMER: The information in this article is provided for informational purposes only and should not be construed or relied upon as legal advice. This article may constitute attorney advertising under applicable state laws.