We get some version of this question from almost every foundation and nonprofit board we work with, “[C]an we weigh in on a bill moving through the legislature, or fund a grantee that does?” The answer depends entirely on what kind of 501(c)(3) is asking. Public charities and private foundations play by different rules, and foundations that assume charity rules apply to them tend to find that out the hard way.
Lobbying Rules for Public Charities and Private Foundations – Two Different Rule Sets
Public charities are allowed to lobby, within limits. Private foundations are not allowed to lobby at all. A 501(c)(4) social welfare organization, by contrast, can lobby without limit. The distinction matters because a lot of foundation board members come out of the corporate or public charity world and assume the flexible rules they are used to apply everywhere in the nonprofit sector. They do not.
A communication is lobbying when it meets specific elements. It goes to a legislative body, a government official who may help formulate legislation, or the general public; it refers to specific legislation; and it reflects a view on that legislation. If the audience is the general public rather than a legislator, there is a fourth element, a call to action asking the recipient to do something about the legislation, such as contacting their representative.
A letter to a member of the Arizona legislature expressing support for or opposition to a specific budget item is lobbying. A television ad describing the merits of a pending ballot initiative is lobbying too, even without a call to action, because the public is acting as the legislature when it votes on a ballot measure directly.
What Does Not Count as Lobbying
Several categories of activity fall outside the definition entirely:
- Communications with executive branch officials that do not reference or express a view on specific legislation.
- Comments on proposed regulations or other administrative action, even when the recipient happens to be a legislator.
- Statements made as a party to litigation.
- “Self-defense” communications with legislators about action that would affect the organization’s own existence, powers, or tax status.
- Technical advice provided in response to a written request from a legislative committee.
- Discussion of broad social or economic problems, so long as the discussion does not get into the merits of specific legislation.
- Nonpartisan analysis, study, or research, meaning a full and fair, objective exposition of a legislative issue that is broadly disseminated. This exception is broader than most board members expect. It can express a point of view and still not count as lobbying, as long as the treatment of the issue is genuinely balanced and the material is not distributed only to people already on one side of it.
This is the one that catches organizations off guard. A report or study that was not lobbying when it was written can become a lobbying expenditure later if it gets reused with a call to action added, for example when it is dropped into a legislative advocacy packet. There are two safe harbors that protect the original expenditure: the non-lobbying distribution of the material was larger than the later lobbying distribution, or the lobbying use happened more than six months after the material was first created and distributed. Organizations that commission research and then hand it to their government relations team a few months later should check both before assuming the original work stays clean.
Public Charities: Insubstantial Part vs. the 501(h) Election
Without an election, a public charity’s lobbying has to remain an “insubstantial part” of its activities, a vague standard the IRS has never defined with a bright line. Filing Form 5768 to make the 501(h) election trades that ambiguity for actual numbers. A charity can spend 20% of its first $500,000 in exempt purpose expenditures on lobbying, plus 15% of the next $500,000, plus 10% of the next $500,000, up to a total lobbying cap of $1,000,000. Grassroots lobbying, meaning lobbying aimed at the public rather than legislators directly, is capped at a quarter of the total lobbying limit. Most charities that lobby with any regularity are better off under the 501(h) election than guessing at “insubstantial.”
Private Foundations: You Cannot Lobby, But You Can Fund a Charity That Does
A private foundation cannot earmark a grant for lobbying. It can, however, make a general support grant to a charity that lobbies, since general support is not earmarked for anything specific. It can also make a grant for a specific project that includes a lobbying component, provided three things are true: the grant is not earmarked for lobbying, the total the foundation gives that grantee for that project in that year does not exceed the project’s budgeted non-lobbying activities, and the foundation has a signed budget from a grantee officer with no reason to doubt its accuracy. Get those three elements right and the foundation’s expenditure responsibility obligations are satisfied even though the grantee goes on to lobby with the money.
The practical takeaway for foundation boards is to separate what the foundation itself can say and fund from what its grantees are free to do with unrestricted or properly structured project support.
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 federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form. This post is for general informational purposes and does not constitute legal advice.