As a public charity, you may think that lobbying is off limits for you. But that’s not necessarily the case.

Nonprofit lobbying is alive and well for many charities; and, with next year’s election fast approaching, now may be a good time to review what role nonprofits may play in the decision-making processes.

The following information applies specifically to 501(c)(3) public charities who ARE NOT religious organizations.

If your organization is a private foundation, church, 501(c)(4), or other type of nonprofit, different considerations come into play and you should seek guidance from a professional with the relevant expertise.

Nonprofit lobbying: Issue advocacy

As mentioned, the myth that nonprofit lobbying is off limits is surprisingly widespread.

If you’re an IRS-recognized 501(c)(3) public charity, the IRS allows you to lobby, as long as the activities are not a substantial part of your operations.

Before proceeding further, it is important to define lobbying:

Lobbying is an attempt to influence legislation, either through a legislative body (direct lobbying) or the general public (grassroots lobbying). 

Every nonprofit has a charitable mission and this may, from time to time, intersect with legislation that can further or hinder your charitable purpose.

Lobbying is part and parcel of issue advocacy necessary for a nonprofit’s success in carrying out its mission.

This differs from “political activity”. Nonprofits are allowed to advocate for or against specific issues vis-à-vis legislation but they cannot engage in “political activity”, which involves supporting or opposing candidates for public office.

The distinction is critical. The IRS reminds us that political activity is strictly prohibited, while lobbying can be okay as long as it is not “too much”.

So what is “too much”? That depends on whether your organization chooses to follow the substantial part test or the expenditures test.

The substantial part test

The substantial part test is the qualitative test and it’s the default. It’s very subjective in nature.

When you support or oppose legislation, you will report the activities to the IRS on your next 990.

It’s also up to you to make sure that your lobbying activities are not substantial. The IRS will not tell you in advance what defines “substantial”. That’s for you to figure out. The IRS will let you know if they disagree with you. Yikes!

The expenditures test

The expenditures test is the quantitative alternative to the substantial part test. It provides you with very specific parameters about how much you can spend on lobbying and stay safe. You’ll fall under the expenditures test if you make a 501h election by filing IRS Form 5768.

With a 501h election in place, an organization with an annual budget of $500,000 can generally spend up to $100,000 (or 20 percent of its budget) on lobbying.

The percentage cap decreases for larger organizations. With a budget of $17 million or higher, the cap is $1 million, or just under six percent of your budget.

In addition to knowing how much you can legally spend on lobbying, one nice thing about the 501h election is that you can utilize unpaid board members and other volunteers to conduct nonprofit lobbying activities. This won’t “count against you” when reporting your lobbying activities to the IRS on your annual 990 (i.e. since these activities are not reflected in an organization’s expenses.)

Generally, if you’re going to engage in nonprofit lobbying expenses, it’s a good idea to file a 501h election.

However, one situation where it might not necessarily be a good idea is if you’re a very large nonprofit.

For example, with a $100 million budget, you would only be permitted to spend $1,000,000, or one percent of your budget. Some organizations in this situation may decide to take their chances with the substantial part test and spend more.

Nonprofits that have made a 501h election may choose to subsequently withdraw this election using the same Form 5768.

Special situations for nonprofit lobbying

If you’re a small 501(c)(3) and want to spend more than the quantitative test allows, you may want to consider merging with a larger organization that engages in significantly less lobbying activity than is permitted by the IRS.

The idea here is to utilize the unused “lobbying allowance” of the larger entity.

Some 501(c)(3) organizations may determine that political activity is necessary to further their charitable mission and decide to form a 501(c)(4) tandem organization. Such organizations are allowed to endorse or oppose candidates for public office and don’t face the same restrictions on lobbying that are imposed on other nonprofits.

With either of these special situations, seeking the expertise of a qualified professional is key.

In closing, remember that this article is designed for general information purposes only. It should not replace professional guidance from qualified experts.