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Law and Nonprofit Advocacy & Lobbying
Frequently Asked Questions about Nonprofit
Lobbying
What
is lobbying?
What is advocacy?
What is the 501(h) election?
Why should a 501(c)(3) elect 501(h) status?
What does not count as lobbying?
What are the expenditure limits?
What is the difference between direct
and grassroots lobbying?
What are the IRS requirements for reporting?
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.
What
is advocacy?
Advocacy
involves identifying, embracing and promoting a cause.
There is no limit to the amount of advocacy you can do. Advocacy
is not lobbying!
What is the 501(h) election?
The 501(h) election
is a very simple one-page form (IRS
Form 5768) that can be filed with the IRS at any time, which
greatly clarifies the rules under which nonprofits can lobby.
Electing to use the 501(h) expenditure test can maximize the organization’s
lobbying activity.
- The
organization only counts lobbying activity that it spends money
on. Cost-free activities, such as volunteer time, do not count
against the organization’s lobbying limits because an organization
does not pay its volunteers.
-
501(h) provides a clear dollar limit on the amount of money an
electing 501(c)(3) can spend on lobbying. The limits vary depending
on the size of the organization’s budget. Small organizations
that spend less than $500,000 a year can often expend as much
as 20% of their budget on lobbying.
-
An electing 501(c)(3) may spend up to a quarter of its overall
lobbying limit on “grass roots” lobbying (urging the
general public to communicate the organization’s position
on legislation to legislators) or up to the entire amount on “direct”
lobbying (telling legislators or their staff to support or oppose
legislation or urging the organization’s members to do so).
-
An electing 501(c)(3) can take advantage of some specific exceptions
for activities that otherwise might appear to fit the definition
of lobbying. Among these exceptions is a “nonpartisan analysis,
study or research” or a substantive report that fully discusses
the pros and cons of a legislative proposal.
-
A 501(c)(3) may elect the 501(h) expenditure test to govern its
lobbying activity by filing the simple Form 5768 once with the
IRS.
Why
should a 501(c)(3) elect 501(h) status?
-
Because 501(h) provides more generous lobbying limits than the
“insubstantial part test.”
-
Because the 501(h) test is clear and easy to calculate.
-
Because there are clear definitions of various kinds of lobbying
communications.
- Because
volunteer and other efforts that do not cost the organization
money will not count toward the exhaustion of the lobbying limits.
-
Because an electing charity cannot lose its exemption for a single
year’s excessive expenditures, while a non-electing charity
can.
-
Because there is no personal penalty for individual managers of
an electing charity which exceeds its lobbying expenditure limits.
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.
In order
to be covered by the rules, your organization must file Form
5768 with the IRS. This simple one-page form can be filed
at any time. The IRS has provided clear documentation to nonprofit
organizations that filing this form is favored by the IRS and will
not trigger an audit.
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 is not lobbying.
- Technical
advice. Providing technical advice to a governmental body
in response to a written communication is not lobbying.
- 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 is not lobbying.
- Regulatory
and administrative issues. Communication with governmental
officials or employees on non-legislative (i.e. administrative)
matters such as rule-making is not lobbying.
What are the expenditure 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.
This is clearly a vague guideline.
The 501(h) Election provides specific expenditure limits. To be
protected by these guidelines you must have filed Form
5768 with the IRS.
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.
What is the difference between direct and
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.
What are the IRS requirements for reporting?
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.
Information
on this page was gathered from several sources including: The
Lobbying and Advocacy Handbook for Nonprofit Organizations,
by Marcia Avner Worry-Free
Lobbying For Nonprofits, by Alliance for Justice.
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, please consult an attorney.
(Last updated: June 26, 2008)
Questions? Comments? Contact Jeannie Fox at jeannie@mncn.org
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