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Can Nonprofits Lobby? How to Lobby Within the Limits

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Published: Jun 15, 2023

Nonprofits have long been at the forefront of advocating for important issues, but what about their ability to lobby? 

Can nonprofits lobby? 

This seemingly straightforward question holds significant implications for the impact and influence of nonprofit organizations.

While some might assume that nonprofits are limited in their ability to engage in lobbying due to their tax-exempt status, the reality is more nuanced.

Under the Internal Revenue Code, nonprofit organizations are categorized into different sections, with 501(c)(3) being the most common classification. While 501(c)(3) organizations are restricted in lobbying activities, they are not entirely prohibited from engaging in advocacy efforts. 

Understanding the rules and limitations that govern nonprofit lobbying is essential to 

  • Effectively advocate for your causes without jeopardizing your tax-exempt status
  • Leverage your unique position to effect meaningful change, and 
  • Navigate the fine line between advocacy and political campaign activities, such as endorsing a candidate. 

In the following sections, we will delve deeper into the 

  • Specific regulations governing nonprofit lobbying, 
  • Distinctions between different nonprofit classifications,
  • Key elements, considerations, and limitations,
  • Tests used to measure the extent of lobbying,
  • Consequences of excessive lobbying,
  • Importance of keeping accurate lobbying records, and 
  • Practical guidance for engaging in effective and compliant lobbying activities.  

501c3 vs. 501c4: A fundamental difference to know, can my nonprofit lobby?

When it comes to nonprofit organizations and lobbying, it is essential to understand the distinction between two common tax-exempt classifications: 501(c)(3) and 501(c)(4). These classifications, assigned by the Internal Revenue Service (IRS), determine the extent to which nonprofits can engage in lobbying activities. 

Let’s explore the fundamental difference between 501(c)(3) and 501(c)(4) organizations and what it means for their ability to lobby.

501(c)(3) organizations: Limited lobbying, amplified advocacy

501(c)(3) organizations are the most common type of nonprofits, encompassing

  • Charities, 
  • Educational institutions, 
  • Religious organizations, 
  • Scientific entities or organizations
  • Literary organizations.

The key feature of a 501(c)(3) organization is that it is eligible to receive tax-deductible donations. 

However, there are specific restrictions on the extent of lobbying activities they can undertake.

Under the IRS rules, 501(c)(3) organizations are prohibited from participating in any form of political campaign activities, such as endorsing or opposing specific candidates for public office. When it comes to lobbying, 501(c)(3) organizations have what is known as the “expenditure test” and “substantial part test” limitations.

  1. The “expenditure test” restricts the amount of funds a 501(c)(3) organization can spend on direct lobbying activities. Typically, this limit is set at a small percentage of the organization’s overall budget. 
  2. The “substantial part test” ensures lobbying activities do not become a primary focus of the organization. Generally, lobbying efforts should not occupy more than a “substantial part” of the organization’s overall activities.

Despite these limitations, 501(c)(3) organizations can still engage in certain advocacy activities. They can 

  • Educate policymakers, 
  • Provide research, 
  • Present evidence-based arguments to influence legislation, and
  • Participate in grassroots mobilization, encouraging their members and the general public to voice their opinions on relevant issues.

The National Association for the Education of Young Children (NAEYC) is a 501(c)(3) nonprofit that advocates for high-quality early childhood education. NAEYC engages in lobbying activities, such as contacting lawmakers and advocating for policies that benefit young children and their families.

501(c)(3) organizations can retain their tax-exempt status by focusing on their core mission and amplifying their advocacy efforts within the permissible boundaries.

501(c)(4) organizations: More flexibility, but with a trade-off

501(c)(4) organizations, also known as social welfare organizations, have more flexibility when it comes to lobbying activities. Unlike 501(c)(3) organizations, 501(c)(4) organizations can engage in unlimited lobbying efforts as long as it is related to their exempt purpose.

However, this increased lobbying freedom comes with a trade-off. Unlike donations to 501(c)(3) organizations, donations to 501(c)(4) organizations are generally not tax-deductible. 

This means while 501(c)(4) organizations have the ability to engage in robust lobbying campaigns, they might have a harder time attracting charitable donations.

Also, 501(c)(4) organizations can engage in political campaign activities to a limited extent. They can endorse or oppose candidates as long as these activities are not the organization’s primary focus.

The National Rifle Association (NRA) is a 501(c)(4) social welfare organization known for its lobbying efforts in the area of gun rights. They have been influential in shaping gun-related legislation and policies through lobbying lawmakers and mobilizing their membership base.

can-nonprofits-lobby-501(c)(3) vs501(c)(4)

Understanding Nonprofit Tax-Exempt Classifications: 501(c)(3) vs. 501(c)(4)

What constitutes lobbying?

Lobbying encompasses a range of activities aimed at influencing legislation and government policies. 

Some examples include:

  1. Direct communication: Engaging in direct conversations, meetings, or correspondence with legislators or government officials. The purpose is to express opinions, provide information, or advocate for specific policies or legislation.
  2. Advocacy campaigns: Organizing and leading campaigns to raise public awareness about an issue and mobilize support. They also encourage citizens to contact their elected representatives or government officials to promote or oppose certain policies.
  3. Research and analysis: Conducting studies, collecting data, and analyzing information to develop evidence-based arguments and policy recommendations. These support the lobbying entity’s position or cause.
  4. Grassroots mobilization: Organizing and coordinating grassroots efforts to rally public support, encourage individuals to contact policymakers, sign petitions, or participate in demonstrations related to specific issues.
  5. Testimony and expertise: Providing expert testimony or sharing knowledge and expertise at legislative hearings, public forums, or committee meetings. The purpose is to influence decision-makers and shape policy discussions.
  6. Campaign contributions and PACs: Donating funds to political action committees (PACs) that support candidates who align with the lobbying entity’s interests. 

Note: Endorsing a specific candidate for public office is generally not considered lobbying. This falls within the realm of political campaign activities, which have different regulations and restrictions for nonprofit organizations, particularly 501(c)(3) entities.

Laws to know: Can nonprofits lobby?

Laws governing nonprofit lobbying can vary depending on the country and specific regulations in place. In the United States, nonprofits are subject to certain rules and limitations regarding their lobbying activities. 

Here are the key rules:

Rules for lobbying by 501(c)(3) nonprofits

To maintain the tax-exempt status, a 501(c)(3) organization must adhere to the following rules:

  1. Under the expenditure test, 501(c)(3) nonprofits are limited in the amount of funds they can spend on direct lobbying activities. This limit is typically set at 3-5% of the organization’s overall budget. 
  2. The substantial part test ensures that lobbying activities do not become a primary focus of the organization. Lobbying efforts should not occupy more than a “substantial part” of the organization’s overall activities. The IRS has not defined what substatial means and relies on circumstantial evidence to determine whether a nonprofit is within its limits of lobbying. Typically, the IRS accounts for the nonprofit’s expenditure and time spent in a year for this test.
  3. 501(c)(3) nonprofits can engage in grassroots lobbying, which involves encouraging members or the general public to contact their elected officials regarding specific legislation or policies. However, no more than 25% of the lobbying expenses can be spent on grassroots lobbying.
  4. 501(c)(3) organizations are prohibited from engaging in political campaign activities. This includes endorsing or opposing specific political candidates for public office.
  5. 501(c)(3) nonprofits engaging in lobbying activities must maintain accurate records of their expenditures and activities to demonstrate compliance with the rules.

Understanding the necessary lobbying records for nonprofits

One important aspect you need to consider is the record-keeping requirements. It is essential to maintain accurate and detailed records of your lobbying activities. 

These records should include the purpose of the lobbying, the individuals involved, the time and resources allocated, and any lobbying expenses incurred. This might include 

  • Volunteers,
  • Staff,
  • Advertisements, 
  • Mailings, 
  • Published statements, 
  • Grants, 
  • Direct contact with legislators, 
  • Public events, and 
  • Other means of lobbying.

(Source)

can-nonprofits-lobby-permissible-lobbying-activity

Understanding the Permissible Lobbying Activity Limits for Nonprofit Organizations

Rules for lobbying by 501(c)(4) nonprofits

501(c)(4) nonprofits, also known as social welfare organizations, have more flexibility in lobbying activities compared to 501(c)(3) organizations. However, they still need to adhere to certain lobbying rules and regulations. 

  1. 501(c)(4) organizations can engage in unlimited lobbying activities as long as they are related to their exempt purpose. This means they can actively advocate for specific legislation or policies that align with their mission and goals. 
  2. There is no specific limit on the amount of funds that 501(c)(4) nonprofits can spend on lobbying activities. They have the freedom to allocate resources as needed to support their lobbying efforts.
  3. Similar to 501(c)(3) organizations, 501(c)(4) nonprofits can engage in grassroots lobbying
  4. While 501(c)(4) organizations have more flexibility in lobbying, they are still subject to restrictions when it comes to political campaign activities. Engaging in political campaign activities, such as endorsing or opposing specific political candidates, should not be the primary focus of the organization.

Lobbying rules for other nonprofit organizations

While the specifics may vary depending on the jurisdiction and organizational structure, here are some general considerations for lobbying by other nonprofit organizations:

  1. Nonprofits engaging in lobbying activities should ensure that their lobbying efforts align with their stated exempt purpose or mission. This establishes a clear connection between the organization’s activities and its charitable or social welfare goals.
  2. Nonprofits should demonstrate that their lobbying activities serve the public interest and provide a tangible benefit to the community they serve. This establishes the legitimacy and importance of their lobbying efforts.
  3. Nonprofits must comply with all relevant laws and regulations governing lobbying activities in their jurisdiction. This includes adhering to reporting requirements, disclosure obligations, and any limitations on lobbying expenditures.
  4. Nonprofits should maintain accurate records of their lobbying activities, including expenditures, communications with lawmakers, and any grassroots mobilization efforts. These records demonstrate compliance and can be useful for future reporting or audits.

Types of lobbying

In the world of advocacy and public policy, lobbying takes on various forms and strategies. As you navigate the complex landscape of lobbying, it becomes essential to familiarize yourself with the different types of lobbying and their distinct approaches. 

This understanding allows you to strategically plan and effectively advocate for your causes within the boundaries of the law.

In this section, we will explore the different types of lobbying commonly employed by nonprofits. 

Direct lobbying: Direct lobbying refers to the act of directly communicating with legislators, government officials, or their staff to influence their opinions, decisions, or actions on specific legislation or policies. It involves making persuasive arguments, providing information, and advocating for a particular position.

Grassroots lobbying: Grassroots lobbying involves mobilizing the general public, members, or supporters of an organization to take action and advocate for a specific cause or issue. It typically includes activities such as writing letters, making phone calls, organizing rallies, or using social media to encourage individuals.

Coalition lobbying: Coalition lobbying involves multiple organizations or interest groups coming together to collectively advocate for a common cause or shared goals. By pooling resources, expertise, and influence, they have a stronger impact and increase their chances of achieving the desired policy outcomes.

Industrial lobbying: Industrial lobbying focuses on advocating for the interests of specific industries or sectors. Organizations or trade associations representing businesses within an industry engage in lobbying efforts. The purpose is to shape policies and regulations that affect their members’ operations, competitiveness, or market conditions.

Issue advocacy: Issue advocacy involves promoting awareness and support for a particular issue without expressly endorsing or opposing specific legislation or candidates. It aims to educate the public, generate public discourse, and influence public opinion to create a favorable environment for policy change.

Determining the threshold: When does your activity cross into lobbying?

Determining whether an activity constitutes lobbying can sometimes be a complex task for nonprofit organizations. 

To provide clarity, here are some instances of what constitutes as lobbying:

1. Making the lobbying election

In the realm of nonprofit lobbying, organizations have the option to make the “election” under Section 501(h) of the Internal Revenue Code. This determines the rules and limits for lobbying activities and provides certain advantages for 501(c)(3) organizations.

When you make the lobbying election, you are governed by the expenditures test rather than the substantiality test. The expenditures test offers concrete mathematical methods to determine the permissible extent of lobbying without incurring penalty taxes or jeopardizing the organization’s 501(c)(3) status.

Making the lobbying election comes with several key advantages.

  1. There are numerous exceptions provided for what qualifies as lobbying. 
  2. Penalty taxes are imposed for excessive lobbying instead of an immediate loss of tax exemption. 
  3. Nonprofits that exceed the lobbying limits in a given year are also provided a safe harbor or margin for error. 
  4. Time “donated” by volunteers, including board members, for lobbying purposes is excluded. 
  5. There is a lower risk of an IRS audit for organizations that have made the lobbying election.

To make the lobbying election, file the IRS Form 5768, a straightforward one-page form. 

Important note: The lobbying election is not available to 501(c)(3) organizations that qualify as “supporting organizations” and derive their public charity status through supporting a 501(c)(4), (c)(5), or (c)(6) organization that meets the public support tests.

2. Reaching out to legislators to influence legislation

This activity involves reaching out to legislators at the local, state, federal, or international level with the intention of proposing, supporting, or opposing specific legislation.

When you engage in direct communication with legislators, you have the opportunity to 

  • Express your views, 
  • Share information, and 
  • Advocate for your organization’s stance on particular laws or policies. 

This can be done through sending letters, emails, making phone calls, attending meetings, or participating in public hearings.

The purpose of contacting legislators is to effectively convey your perspective and influence the decision-making process. 

3. Encouraging the public to reach out to legislators

This involves encouraging individuals within the community or the general public to contact members of a legislative body, such as local, state, federal, or international representatives. Nonprofits do this through social media, newsletters, public campaigns, or organized events.

Urging the public to take part in the legislative process amplifies your advocacy efforts and creates a collective voice for change. This can have a significant impact on lawmakers’ decisions. 

The American Heart Association’s You’re the Cure initiative is an example of grassroots mobilization for legislative outreach. They encouraged their members and supporters to contact their elected representatives to advocate for policies promoting cardiovascular health and prevention. 

4. Supporting or opposing the enactment of legislation

Advocacy involves actively supporting or opposing proposed laws or policies, and nonprofits play a crucial role in influencing the legislative process.

When a nonprofit organization engages in advocacy, it uses various strategies to promote its stance on particular legislation. 

This can include 

  • Conducting research, 
  • Providing expert analysis, 
  • Organizing public events, 
  • Issuing press releases, 
  • Publishing reports, and 
  • Utilizing social media platforms to raise awareness and garner support.

This helps you shape public opinion, influence lawmakers, and ultimately impact the outcomes of the policymaking process. 

5. Engaging with the public and expressing a stance on a ballot initiative

A ballot initiative refers to a proposed law or policy that is directly voted upon by the public during an election.

Nonprofits play a crucial role in informing the public about ballot initiatives and advocating for their preferred outcome. Through public campaigns, informational materials, social media, and community events, nonprofits raise awareness, educate the public, and promote their viewpoint on specific ballot measures.

When are your activities not lobbying?

Here are some examples of activities that typically do not fall under the umbrella of lobbying:

  1. Providing nonpartisan analysis: When you provide objective and nonpartisan analysis of legislation or public policies without advocating for or against specific outcomes, it is considered educational and informative rather than lobbying. For instance, conducting research studies, publishing reports, or organizing informational events that focus on an issue rather than a party, candidate or legislator.
  1. Internal communication and education: Activities that involve internal communication and education within your organization or among your members or staff are generally not considered lobbying. This can include conducting training sessions, workshops, or seminars to enhance knowledge and understanding of issues related to your nonprofit’s mission.
  2. Self-defense of your tax-exempt status: You have the right to defend your tax-exempt status and respond to inquiries or examinations by the IRS. Providing information or clarifying details about your organization’s activities to the IRS in the context of maintaining your tax-exempt status is not typically considered lobbying.
  3. Engaging in non-lobbying advocacy: There are various forms of advocacy that do not fall under the definition of lobbying. For example, conducting public awareness campaigns, mobilizing community action, or engaging in public education initiatives that do not directly influence specific legislation.
  4. Providing unsolicited technical assistance: If a governmental body or committee makes an unsolicited written request for technical assistance or advice, providing such assistance does not count as lobbying. However, the request must be from the body or committee as a whole and not from an individual member.
  5. Self-defense activities: Communications with legislators regarding decisions that may impact your organization’s existence, powers and duties, 501(c)(3) status, or tax deductibility of contributions are considered self-defense activities and not lobbying.
  6. Discussing broad policy issues: Engaging in discussions about broad social, economic, and similar policy issues, even if legislation related to those issues is pending, is not lobbying. However, ensure that the discussions do not address the merits of specific legislation.
  7. Communication with a government official or employees: Communicating with government officials or employees, except for members or employees of a legislative body, is not considered lobbying unless the communication’s principal purpose is to influence legislation.
  8. Communication between organization and members: Communications between an organization and its members about proposed or pending legislation are generally not considered lobbying, unless the communications directly encourage members to attempt to influence legislation.

How to measure your lobbying activities

Nonprofits that engage in lobbying activities need to determine the extent of their lobbying efforts to ensure compliance with the law. There are different tests available to measure the level of lobbying, depending on the nonprofit’s tax-exempt status and whether they have made the election under Section 501(h) of the Code. 

Let’s explore the various tests and who should take them:

The 501(h) expenditure test

Eligibility: Nonprofit organizations with 501(c)(3) status other than churches and private foundations who have chosen to make the election under Section 501(h).

General rules

  • The objective is to ensure lobbying expenditures do not exceed the specified limits under section 4911, which are based on the size of the organization.
  • If the lobbying expenditures remain within the prescribed limits, the organization’s tax-exempt status is not at risk.

Test

  • The lobbying nontaxable amount is determined based on the organization’s exempt purpose expenditures.
  • The exempt purpose expenditures are the total expenses incurred by the organization in furtherance of its exempt purpose.
  • The allowable lobbying nontaxable amount is determined by the size of the exempt purpose expenditures.
  • Organizations using the expenditure test must file Form 5768 (Election/Revocation of Election by an Eligible IRC Section 501(c)(3) Organization to Make Expenditures to Influence Legislation) during the tax year for which the election is to be effective. The election remains in effect unless revoked.


Here is a breakdown of the allowable lobbying expenditures under the 501(h) expenditure test:

Amount of exempt purpose expendituresLobbying nontaxable amount
≤ $500,000Up to 20% of the exempt purpose expenditures
>$500,00 to ≤ $1,000,000$100,000 + 15% of the excess of exempt purpose expenditures over $500,000 
> $1,000,000 but ≤ $1,500,000$175,000 + 10% of the excess of exempt purpose expenditures over $1,000,000
>$1,500,000 but ≤ $17,000,000$225,000 + 5% of the exempt purpose expenditures over $1,500,000
>$17,000,000$1,000,000
Source: IRS

Important note: If you exceed the lobbying expenditure limits over a four-year period, you may risk losing your tax-exempt status, subjecting all income for that period to taxation. Also, if you exceed your lobbying expenditure dollar limit in a particular year, you must pay an excise tax of 25 percent on the excess amount.

The insubstantial part test

Eligibility: 501(c)(3) public charities that have not elected to use the 501(h) expenditure test. 

General rules

  • The insubstantial part test considers all supporting activities, including research, discussion, and similar efforts, as attempts to influence legislation.
  • The determination of when lobbying activity begins depends on the facts and circumstances of each situation.
  • Time spent in discussing public issues, formulating positions, and studying them in preparation for adopting a stance are considered lobbying activities.
  • Publications or statements indicating a position on legislation, as well as those that support or advocate for specific legislative measures, are included as lobbying preparation.
  • Prior statements or articles that express general positions unrelated to specific legislation are not considered lobbying.

Test

The insubstantial part test evaluates whether the lobbying activities are an “insubstantial part” of the nonprofit’s overall activities. While there is no specific threshold, the IRS considers various factors such as time, effort, and expenditures devoted to lobbying.

Substantial part test

Eligibility: All types of organizations, except for churches and private foundations, are subject to the substantial part test.

General rules

  • The IRS assesses various factors to determine if lobbying activity is substantial, including the amount of time devoted by both compensated staff and volunteers, as well as the expenditures allocated to lobbying efforts.
  • If an organization engages in excessive lobbying in any taxable year, it may risk losing its tax-exempt status. This would result in all of its income becoming subject to taxation.
  • Nonprofit organizations, other than churches and private foundations, that lose their tax-exempt status due to excessive lobbying may be subject to an excise tax. This may equal to five percent of their lobbying expenditures for the year in which they no longer qualify for exemption.
  • Managers of organizations who knowingly agree to excessive lobbying expenditures, which could lead to the loss of tax-exempt status, may be jointly and severally liable for a tax. This may equal to five percent of the lobbying expenditures.
  • Private foundations have their own set of taxes on lobbying expenditures, while churches are not subject to excise taxes for excessive lobbying.

Test

The substantial part test assesses whether the lobbying activities are a “substantial part” of the nonprofit’s overall activities. The determination is based on facts and circumstances analysis, considering factors such as the time, effort, and resources dedicated to lobbying.

What are the consequences of lobbying by 501(c)(3) nonprofits?

501(c)(3) nonprofits, including public charities, have specific guidelines and limitations when it comes to engaging in lobbying activities. While these organizations are allowed to participate in lobbying to some extent, exceeding certain thresholds can have consequences. 

Here are the potential consequences:

  1. Jeopardizing tax-exempt status: If a 501(c)(3) nonprofit engages in excessive lobbying, it runs the risk of jeopardizing its tax-exempt status. The IRS determines whether lobbying activity is excessive based on various factors, including time devoted and expenditures related to lobbying. If lobbying becomes a substantial part of the organization’s activities, it may lose its tax-exempt status.
  2. Income subject to tax: If a 501(c)(3) nonprofit loses its tax-exempt status due to excessive lobbying, all of its income becomes subject to tax. This can result in significant financial implications for the organization.
  3. Excise tax: In addition to losing tax-exempt status, nonprofits that engage in excessive lobbying may be subject to an excise tax. Section 501(c)(3) organizations, other than churches and private foundations, can face an excise tax equal to five percent of their lobbying expenditures for the year in which they no longer qualify for exemption.
  4. Excise tax on organization managers: The managers of a nonprofit organization who agree to excessive lobbying expenditures, knowing that it may result in the loss of tax-exempt status, may also be subject to an excise tax equal to five percent of the lobbying expenditures.
  5. Reporting and compliance obligations: Nonprofits engaging in lobbying activities must comply with reporting requirements and ensure accurate documentation of their lobbying expenditures. Failing to meet these obligations can lead to penalties or other legal complications.

Note: The information provided here is a general overview. Consult legal counsel, tax professionals or experts well-versed in nonprofit regulations for specific guidance tailored to your organization’s circumstances and jurisdiction.

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