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There is a misperception that lobbying by a 501(c)(3) public charity is discouraged or even disallowed. Contrary to this opinion, federal laws actually encourage both advocacy and lobbying by public charities, within limits. Both Congress and the IRS have indicated that it is proper for a 501(c)(3) to advocate freely, or even lobby, due to their unique position of being on the front-lines of many social and community issues. However, the IRS has stated that lobbying must not constitute a “substantial” part of the organization’s activities. This article is designed to discuss the difference between advocacy and lobbying, the two different types of lobbying and if necessary, how to make the 501(h) lobbying election.
Advocacy v. Lobbying:
The IRS has defined two types of lobbying; direct and grass-roots lobbying. Direct lobbying occurs when a tax-exempt organization communicates with a legislator in an attempt to influence his or her vote on a specific piece of legislation. Grass-roots lobbying, however, is when the organization raises a “call of action” to the public to contact legislators regarding specific legislation. This “call to action” may involve any of the following:
- Urging the public to contact a legislator
- Providing the contact information for the legislator (e.g. phone number, address)
- Inclusion of material to be used in communicating a position on legislation with a legislator (tear-off post cards, petitions, etc.)
- Specific naming of legislators and their positions on a specific piece of legislation
- Advocacy, on the other hand, does not fall under these definitions. Some actions considered advocacy include public education regarding an issue, approaching a governmental agency regarding policy or regulation or publishing research results to the public. These broad policy activities do not count as lobbying and are not limited in any way.
The 501(h) Election:
So how does an organization determine if their lobbying activities are an insubstantial part of their activities? The IRS only provides vague guidelines for measuring “substantial” lobbying activity. Due to this vagueness it is highly recommended that an organization make a 501(h) election prior to engaging in any type of lobbying activity. A 501(h) election provides a safe harbor level of lobbying spending and guidelines for measurement.
The specified levels of lobbying expenses allowed under the election are as follows:
- 20% of the first $500,000 in exempt purpose expenditures, plus
- 15% of the next $500,000, plus
- 10% of the next $500,000 plus
- 5% of any remaining expenditures
In addition, all grassroots lobbying expenditures are limited to 25% of the total lobbying limit, and there is an overall cap of $1,000,000 on total lobbying expenditures.
The election is made annually by filing form 5768 with the IRS. It is a simple one page form which may be filed anytime during the tax year.
If you should have any questions regarding lobbying expenses or making the 501(h) election, please contact your RINA representative.