Please note
that the information on this website does not constitute legal advice.
If your organization has legal questions about lobbying and
other advocacy efforts, consult an attorney.
What
is lobbying?
The 501(h) Election
What does not count as lobbying?
Lobbying Limits
Direct vs. Grassroots Lobbying
Reporting Lobbying Expenditures
Additional Resources
What is lobbying?
Lobbying is defined by federal tax law as any attempt to influence
specific legislation. Legislation means a bill that has been introduced,
or a draft bill that may be introduced in any legislative body such
as a city council, state legislature or Congress.
The 501(h) Election
Prior to 1976, there was enormous ambiguity over the amount of lobbying
that nonprofits could do. The IRS rules required that tax-exempt
nonprofits could lose their tax-exempt status if they did more than
an "insubstantial" amount of lobbying. This "insubstantial-lobbying
test" was never specifically defined in IRS rules, and individual
IRS agents had no guidance in what constituted "too much lobbying."
The 1976 Lobby
Law, however, established clear guidelines for lobbying expenditures.
The Lobby Law allows nonprofits to choose to be covered by
a clearly defined set of lobbying rules. This law clarifies
that 501(c)(3) nonprofits that elect to fall under these rules can
spend up to a defined percentage of their budget for lobbying without
threatening their tax-exempt status. In 1990, the IRS published
final rules on implementing the Lobby Law that make it quite clear
that nonprofits should elect to be covered by the lobbying-expenditure
test and not fall under the vague insubstantial lobbying test.
What are some
of the benefits of taking the 501(h) election versus not electing?
- No limit
on lobbying activities that do not require expenditures, such
as unreimbursed activities conducted by bona fide volunteers.
- Clear definitions
of various kinds of lobbying communications, enabling electing
charities to control whether they are lobbying or not.
- Higher lobbying
dollar limits and fewer items which count toward the exhaustion
of those limits.
- Less likely
to lose exemption because the IRS may only revoke exempt status
from electing organizations that exceed their lobbying limits
by at least 50% averaged over a four-year period.
- No personal
penalty for individual managers of an electing charity that exceeds
its lobbying expenditure limits.
In order to be
covered by the rules, your organization must file IRS Form 5768 with
the IRS. This simple one-page form can be filed at any time.
The IRS has provided clear documentation to nonprofit organization
that filing this form is favored by the IRS and will not trigger an
audit. You can download the form from the IRS
website (this is a PDF document).
What does not count as lobbying?
There are five activity categories that are excluded from the term
"influencing legislation." They are:
- Self-defense:
communication on any legislation that would affect an organization's
existence, powers and duties, tax-exempt status, or deductibility
of contributions.
- Technical
advice: providing technical advice to a governmental body
in response to a written communication.
- Non-partisan
analysis or research: studying community problems and their
potential solutions is considered non-partisan if it is "an independent
and objective exposition of a particular subject matter...(which)
may advocate a particular position or viewpoint so long as their
is a sufficiently full and fair exposition of pertinent facts
to enable the public or an individual to form an independent opinion
or conclusion."
- Examinations
and discussions of broad social, economic and similar problems:
communication with the organization's own members with respect
to legislation which is of direct interest to them, so long as
the discussion does not address the merits of a specific legislative
proposal and make no call for action.
- Regulatory
and administrative issues: communication with governmental
officials or employees on non-legislative (i.e. administrative)
matters such as rule-making.
Lobbying Limits
If your organization has not taken advantage of the 501(h)
election (see above) then "no substantial
part" of your organization's activities can be devoted to lobbying.
Clearly, this is a very vague guideline. Therefore, in 1976,
specific expenditure guidelines were established, known as the "section
501(h) expenditure test." However, in order to be protected by
these guidelines, your organization must take formal steps to fall
under these guidelines (see above).
The total lobbying expenditure limits under
the 501(h) election are:
- 20% of the first $500,000 of exempt purpose expenditures, plus
- 15% of the next $500,000 of exempt purpose expenditures, plus
- 10% of the next $500,000 of exempt purpose expenditures, plus
- 5% of the remaining exempt purpose expenditures up to a total
cap of $1 million.
(Exempt purpose expenditures are all payments you make in a year
except investment management, unrelated businesses, and certain
fundraising costs.)
Direct vs. Grassroots Lobbying
Under the 501(h) election, the IRS distinguishes between direct
and grassroots lobbying.
Direct lobbying
is when you state your position on specific legislation to legislators
or other government employees who participate in the formulation
of legislation, or urge your members to do so. In order to
count as direct lobbying it must refer to specific legislation and
express a view on it.
Grassroots
lobbying is when you state your position on specific legislation
to the general public AND ask the general public to contact legislators
or other government employees who participate in the formulation
of legislation. If you do not include a call to action in
your communication to the general public, it is not lobbying. Remember,
urging your members to lobby counts as direct lobbying not
grassroots lobbying.
The distinction
between direct and grassroots lobbying is important under the 501(h)
election because the 1976 Lobby Law specifies different expenditure
limits for grassroots and direct lobbying activity. An organization
may spend only one-fourth as much on grassroots lobbying, as on
direct lobbying. For example, if an organization's annual
permissible lobbying expenditures were $100,000, it could spend
only $25,000 on grassroots lobbying. But it could spend the
remaining $75,000 on direct lobbying.
Reporting Lobbying Expenditures
All 501(c)(3) organizations (except churches, association of churches,
and integrated auxiliaries) must report lobbying expenditures to
the IRS. For those nonprofits that do not elect to fall under
the 1976 Lobby Law (for information on the 501(h) election, see
above), the IRS requires detailed descriptions of a wide range
of activities related to lobbying. For organizations that
take the 501(h) election, the only requirement is to report how
much was spent on lobbying and how much of the total amount for
the year was spent on grassroots lobbying.
Additional Resources
- Letter
from the Internal Revenue Service to the Center for Lobbying
in the Public Interest verifying the legality of lobbying and answering
nine frequently asked questions.
- Four Important
Facts about Lobbying with Foundation Grant Funds, Center for
Lobbying in the Public Interest
- Initiatives
& Referenda, Center for Lobbying in the Public Interest
(Last updated: February 6, 2006)
Questions? Comments? Contact Josh Winters at josh@mncn.org
|
HOME
PUBLIC
POLICY 
