Nonprofit Lobbying

An important aspect of many nonprofit organizations is lobbying, which is defined by the Internal Revenue Service as activities that attempt to influence legislation; however, organizations that have been granted 501(c)(3) status must carefully monitor their lobbying activities in order to keep that status.  Originally, these organizations operated under vague lobbying rules that stated that nonprofits could not expend more than an insubstantial portion of its funds on lobbying activity, leaving both IRS agents and nonprofits uncertain of how much they could allocate for their lobbying pursuits.

In 1976 the Lobby Law was passed creating vastly clearer guidelines, specifically through the 501(h) Election.  Nonprofits are not compelled to take this election, but in 1990 the IRS published final implementation rules that strongly suggested to nonprofits that they do so.  The process is easy, beginning with IRS Form 5768, and it is greatly helpful for any nonprofit that participates in lobbying activities.  This article will clarify the benefits that taking the 501(h) Election offers to 501(c)(3) organizations, and it will outline the election’s basic principles. 

To begin with, taking the election sets specific limits on the expenditures a nonprofit can make on lobbying activities: 20 percent of the first $500,000 of exempt purpose expenditures, which are payments made during a single year not including investment management costs, unrelated businesses costs, or certain fundraising costs.  Additionally, 15 percent of the next $500,000 of exempt purpose expenditures may be used for lobbying activities, 10 percent of the next $500,000 of exempt purpose, and five percent of the remaining exempt purpose expenditures up to $1 million.

Additionally, the election clarifies that lobbying activities that require no expenditures are not limited, and it establishes five exclusions to activities that might otherwise be considered lobbying, or “influencing legislation.”  These activities include those conducted in self-defense; to offer technical advice; to undertake non-partisan analysis or research; to examine or discuss broad social, economic, and/or similar problems; or to deal with regulatory and/or administrative issues.  Further, the IRS has clarified that nonprofits may take part in and/or conduct voter-education campaigns as long as they do not support or oppose a candidate. 

Another important consideration that must be made regards the type of lobbying activities that are to be undertaken:  direct or grassroots.  The main reason for this is that nonprofits are allowed only a quarter as much expenditures for grassroots lobbying as they are for direct.  The main reason for this is that direct lobbying involves only an organization and/or its members making its stand on a specific piece of legislation known to legislators or government employees capable of affecting the outcome of that legislation, while grassroots lobbying involves in an organization taking a specific stand on specific legislation and asking members of the general public to contact their legislators in favor of the organization’s stance.  Clearly, grassroots lobbying activities have the ability to make the larger impact. 

Those nonprofit organizations that intend to participate in the legislative process should take the 501(h) Election.  When reporting lobbying activities to the IRS, the election makes the process vastly simpler, as those organizations that do not take the election are required to provide a great deal more information to the IRS than those that do.  The process is simple (Form 5768), and the clarity that the election provides is well worth the effort.