Can your 501(c)(3) nonprofit lobby without jeopardizing its tax-exempt status? In short, yes. The IRS permits nonprofit lobbying within specified limits. And some activities may not even be considered lobbying at all. Here’s what you need to know.
Table of contents
- What is Nonprofit Lobbying?
- Nonprofit Lobbying v. Advocacy
- Examples of Activities that are Not Lobbying
- Some direct communications.
- Certain communications with the general public.
- Some communications with executive or administrative officials.
- Attempts to influence regulations or other administrative or executive action.
- Litigation activity.
- Self-defense lobbying communications.
- Responses to legislators asking for technical advice.
- Nonpartisan analysis, study or research on a legislative issue.
- Discussions on broad policy issues.
- Communications by the grantee to its members.
- Personal activity of members on their own time.
- How Much Lobbying Can Your Nonprofit Do?
- Direct Lobbying Limits
- Grassroots Lobbying Limits
- Should We Make the 501(h) Election?
What is Nonprofit Lobbying?
The IRS defines lobbying as contacting members or employees of a legislative body (or urging the public to contact them) for the purpose of proposing, supporting, or opposing a specific piece of legislation, OR any other activities advocating for the adoption or rejection of a specific piece of legislation.
Covered legislative bodies include Congress, state and local legislatures, and the general public in referenda, initiatives, or proposed constitutional amendments.
Executive, judicial, and administrative bodies, such as school and zoning boards, are typically not considered legislative bodies.
Nonprofit Lobbying v. Advocacy
Many activities designed to influence legislation actually do not fall within the tax law definition of lobbying and are therefore permissible. Some activities are also specifically excepted from lobbying rules.
A good rule of thumb is that activities that are simply designed to advocate for your organization or mission (rather than for a specific piece of legislation or a candidate) are not considered lobbying.
Advocacy is typically more educational and focused on long-term engagement with the community and representatives about issues, rather than trying to advance a specific legislative outcome.
Examples of Activities that are Not Lobbying
Some direct communications.
Direct communications with legislators or their staff where there is either (i) no reference to a specific legislative proposal or (ii) no view expressed on such a proposal are not lobbying.
Certain communications with the general public.
Communications with the general public where there is (i) no reference to a specific legislative proposal; (ii) no view expressed on such a proposal; or (iii) no call to action are not considered lobbying.
Some communications with executive or administrative officials.
Communications with the executive or administrative officials or their staff where (i) there is no reference to a specific legislative proposal; (ii) no view is expressed on such a proposal; or (iii) the official or staff person will not participate in the formulation of the legislation, are not lobbying.
Attempts to influence regulations or other administrative or executive action.
Attempts to influence regulations or other administrative or executive action (including those that are implementing legislation) are not considered lobbying, even if the recipient of the communication is a legislator. This is because the action sought is not itself legislation.
Communications made as a party to litigation are not lobbying.
Self-defense lobbying communications.
Self-defense lobbying communications with legislators or their staff (but not the general public) on possible action that might affect the foundation’s or its grantee’s existence, their powers and duties, or their tax-exempt status or eligibility for contribution deductions are not lobbying. However, note that lobbying concerning the foundation or grantee’s program, budget, etc. does not meet the self-defense exception.
Responses to legislators asking for technical advice.
Responding to written requests from a legislative body, committee, or subdivision (not a single legislator or informal group of legislators) for technical advice or assistance on pending or potential legislation is not lobbying.
Nonpartisan analysis, study or research on a legislative issue.
Making available the results of nonpartisan analysis, study, or research on a legislative issue (with no direct call to action if it is communicated to the general public) is not considered lobbying. This must constitute an objective, educational presentation but may express an opinion or conclusion as to the desirability of legislation.
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Discussions on broad policy issues.
Discussions of broad policy issues requiring a legislative solution are not lobbying, so long as the merits of the specific legislation are not discussed.
Communications by the grantee to its members.
Communications by a grantee to its members about specific legislation of direct interest to the grantee are not considered lobbying, as long as there is no direct call to action.
Personal activity of members on their own time.
The personal activity of foundation or grantee directors, trustees, employees, or volunteers is not lobbying, as long as it is on their own time, at their own expense, and does not use the organization’s resources or name.
How Much Lobbying Can Your Nonprofit Do?
The original IRS rules say that an organization can maintain its tax-exempt status so long as:
(a) no substantial part of its activities consists of carrying on propaganda or otherwise attempting to influence legislation; and
(b) it does not participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office.
Congress later added guidance to clarify what is considered no substantial part. Section 501(h), enacted in 1976, now sets specific dollar limits on the amount a nonprofit may spend to influence legislation without losing its exempt status or incurring penalty taxes. The limits are calculated as a percentage of a charity’s total exempt purpose expenditures.
There are separate expenditure limits under Section 501(h) for direct lobbying and grassroots lobbying.
Direct Lobbying Limits
Direct lobbying is a communication with a legislator, an employee of a legislative body, or any other government employee who may participate in the formulation of the legislation that both (1) refers to a specific legislative proposal and (2) reflects a view on that proposal.
An organization’s direct lobbying ceiling amount is 150% of the organizations “lobbying nontaxable amount” for a taxable year. The “lobbying nontaxable amount” is the lesser of $1,000,000 or the amount determined as follows:
|If the exempt purpose expenditures are not over $500,000||20% of the exempt purpose expenditures|
|Over $500,000 but not over
|$100,000, plus 15 % of the excess of the exempt purpose expenditures over $500,000|
|Over $1,000,000 but not over
|$175,000 plus 10 % of the excess of the exempt purpose expenditures over $1,000,000|
|Over $1,500,000||$225,000 plus 5 % of the excess of the exempt purpose expenditures over $1,500,000 (up to $1,000,000)|
Grassroots Lobbying Limits
Grassroots lobbying is communication with one or more members of the general public that:
(1) refers to a specific legislative proposal,
(2) reflects a view on that proposal, and
(3) includes a “call to action”, directly or indirectly encouraging the recipient of the communication to engage in direct lobbying.
The “grass roots nontaxable amount” for any organization for any taxable year is 25% of the lobbying nontaxable amount for such organization for such taxable year. As you can see, the expenditure limits applicable to direct lobbying are more generous than the limits applicable to grassroots lobbying.
Should We Make the 501(h) Election?
In order to benefit from the bright-line lobbying expenditure limits in Section 501(h), a nonprofit must make an affirmative election by filing Form 5768 (Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation).
In most cases, if a public charity expends less than $17,000,000 on exempt purpose expenditures, it should consider making the 501(h) election. However, some public charities expending more than $17,000,000 on exempt purpose expenditures may be able to conduct more lobbying under the “no substantial part” test. Visit Further IRS guidance on the “no substantial part test”.
A public charity that wants to be more engaged in public policy than these limits permit may consider creating a sister social welfare organization that is exempt under Code Section 501(c)(4). Public charities considering making the election should consult with their tax advisors to evaluate the pros and cons of these various approaches and to ensure that they put proper record-keeping procedures in place.
Also, keep in mind that private foundations and churches are not eligible for the 501(h) election. Likewise, nonprofits that receive federal funds may also be restricted from influencing federal or state legislation under the Federal Acquisition Regulations. See 48 C.F.R. §§ 31.205-22; 31-701 et seq.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.