In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.
Legislation includes action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure. It does not include actions by executive, judicial, or administrative bodies.
An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.
Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.
What is lobbying?
Lobbying is defined as “the attempt to influence legislation.” Legislation includes actions by Congress or any state legislature, local council, or other similar governing body. Actions by these bodies include acts, bills, or resolutions. If an exempt organization contacts, or urges the public to contact, a member or employee of a governing body in order to advocate for or against an action by the body, it is lobbying.
What are the consequences of lobbying?
If a 501(c)(3) organization conducts substantial lobbying, it risks losing its tax-exempt status. Loss of exemption would result in the organization’s income becoming subject to income tax. In addition, taxes may apply to the organization and to managers who knew that the lobbying expenditures were excessive.
How does the IRS determine if lobbying activities are substantial?
The IRS uses one of the following two methods to determine whether the lobbying activities of a 501(c)(3) are substantial:
the “substantial part test,” or
the “expenditure test.”
The first test is a subjective test based on the facts and circumstances. The IRS considers a variety of factors, including the time devoted to the lobbying activity by both compensated and volunteer workers, as well as the money spent on it. If the activity as a whole is determined to be substantial, the organization’s exempt status may be jeopardized.
The second test is an objective, mathematical test that applies a dollar limit for lobbying expenditures based on the organization’s total expenditures. As long as the organization’s total annual lobbying expenditures are under this limit, its lobbying is considered insubstantial. An organization must elect to have its lobbying activities measured by this test by filing Form 5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation. This election, governed by section 501(h) of the Code, must be made during the tax year for which it is to be effective.
Additional information:
Measuring lobbying activity: substantial part test
Measuring lobbying activity: expenditure test
DISCLAIMER: This information is not intended to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.
