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By: Denise DeBelle, Law Office of Denise M. DeBelle
In the last blog, I described certain traps for the unwary non-profit organization if you are politically active and want to avoid risking your 501(c)(3) tax exempt status. Staying non-partisan is key for any 501(c)(3) organization. What about lobbying public officials- can non-profits do that?
Most definitely yes. But because of the risks of violating specific rules of the IRS, some non-profit organizations get nervous about any lobbying at all. This is unfortunate because non-profit organizations have day to day experience with populations needing government assistance, and in-depth knowledge of issues of public importance. The input of non-profits concerning the action of government and the content of our laws, is sorely needed!
What should a non-profit know about lobbying?
First, IRS regulations do not prohibit lobbying by a 501(c)(3).
But second: the IRS does impose limits on the percentage of an organization’s budget that can be devoted to lobbying.
This post will lay out the general rules about lobbying for the 501(c)(3) organization: how IRS defines it, how much is permissible, and how to be able to do more of it and still preserve the tax exempt status of your organization.
Not all advocacy is lobbying. Educating the public, being an expert on a given public issue, or advocating for the enforcement of existing laws, are not, standing alone, lobbying as defined by the IRS.
What are the different types of lobbying?
There are two types of lobbying:
Why is it important to know when your organization is lobbying? Returning to our original point, the IRS limits the amount of lobbying if you are a 501(c)(3) – so you are required to keep track of the percentage of your budget in order to not exceed those limits.
There are two ways to compute limits on lobbying applicable to your organization.
The first is the old-fashioned test – an IRS Rule since 1934 – which says that lobbying must be an “insubstantial part” of the organization’s activity. You’re probably asking yourself, What is insubstantial? As you can imagine, this is hard to define. It typically would be stated as roughly 20%, but this is not a true benchmark. Please note that churches and religious non-profits must use this test when lobbying, as they do not qualify for the second rule.
Luckily, Congress enacted a different rule in order to allow more flexibility to 501(c)(3)s. This second test is called the 501(h) election or the 501(h) expenditure test. It is a simple matter to elect this approach. You must submit IRS Form 5768 (a short form which simply requires a signature of the organization’s officer). What it means is the lobbying your organization does must not exceed the applicable percentage of your budget depending upon the level of overall expenditures.
Under the 501(h) expenditure test, the organization may spend the following:
On Direct Lobbying
20% of the first $500,000 of its exempt purpose expenditures
15% of the next $500,000, and so on, up to one million dollars a year
On Grassroots Lobbying
5% of the first $500,000 of its exempt purpose expenditures
3.75% of the next $500,000, and so on, up to $250,000 a year
For non-religious 501(c)(3) organizations, the 501(h) election is definitely worth your consideration. It allows the voices of your constituents, your Board and staff to be heard and to influence the legislators and public officials deciding issues which affect those constituents.
Some of these rules can get very specific and detailed, and there are some other ways to increase your activism but still avoid falling into the lobbying definition. So it is best to consult an attorney in this area if you have more specific questions.
This posting is for information purposes only and is not intended as specific legal advice.
Law Office of Denise M. DeBelle
The Association of Consultants to Nonprofits | 400 E. Randolph St., #2305 | Chicago, IL 60601