Non-Profit Advocacy: Drawing the Line Between Permissible Advocacy and Forbidden Lobbying

​As a non-profit organization, you may have heard that you are not allowed to engage in lobbying. However, this generalization greatly oversimplifies the matter. And because of that oversimplification, some non-profits wrongly assume that they cannot even take a stand on issues, whether current social issues or simply issues that are relevant to the organization’s mission and purpose.

What is lobbying

​The IRS defines lobbying as attempting to influence legislation. A 501(c)(3) organization risks losing its tax-exempt status if a substantial part of its activities is attempting to influence legislation. "Attempting to influence legislation" means (i) contacting, or urging the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or (ii) advocating the adoption or rejection of legislation. 

Organizations may, however, get involved in public policy issues without the activity being considered “lobbying.” For example, organizations may conduct educational meetings, prepare and distribute informational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.

Bottom line: You must distinguish between attempting to influence legislation and simply having a position on an issue of public policy.

If your organization does engage in lobbying, what is considered “substantial”?

In determining whether your organization's lobbying activity is "substantial," the IRS considers all of the relevant facts and circumstances. The IRS especially focuses on the the amount of time spent on lobbying (by both compensated and volunteer workers) relative to the amount of time spent on activities that support the organization's exempt purpose. The IRS also considers the amount of money the organization devotes to lobbying (again, relative to the amount of money the organization spends on its other, non-lobbying activities).

If the IRS determines that a substantial part of a 501(c)(3) organization’s activities in a tax year consisted of lobbying and the organization loses its tax-exempt status, then all of its income becomes subject to tax. In addition:

• The organization will be subject to an excise tax of 5% of its lobbying expenditures for the year in which it ceased to be tax-exempt. 
• Plus, an additional 5% tax may be imposed against organization managers, jointly and severally, who agreed to the making of such expenditures knowing that the expenditures would likely result in the loss of tax-exempt status. This means that your officers and directors can be personally liable for the tax bill if they knowingly approved substantial lobbying activity.

Expenditure Test

​If the substantial part test sounds too vague for comfort, there is a more specific alternative test. Most 501(c)(3) organizations may elect the expenditure test to measure their lobbying activities. To do so, the organization files Form 5768 (Election/Revocation of Election by an Eligible IRC Section 501(c)(3) Organization to Make Expenditures to Influence Legislation). 

Under the expenditure test, the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided the amount it spends on its lobbying activities does not normally exceed certain dollar amounts. This limit is based upon the size of the organization, but generally speaking, if you are a 501(c)(3) organization, the amount you spend on lobbying should be a relatively small portion of your overall budget. (Think less than 20% and even less the larger your non-profit organization becomes).

If your organization exceeds your lobbying limit in a given year, then the organization will face a 25% excise tax. If your organization engages in excessive lobbying over a 4 year period, then you can lose your tax-exempt status and face back taxes for that entire time period. 
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In the next non-profit post, we’ll look at how to structure your organization if lobbying will be part of your mission and you’re concerned about potentially exceeding the expenditure limits. 

In the meantime, if you have questions or concerns about your advocacy versus lobbying activities:

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