Many nonprofits and charitable organizations may wonder if they can engage in lobbying activities and retain their tax-exempt status. The short answer to that question is yes. However, to the frustration of everyone involved in the nonprofit world, how much lobbying an organization can engage in is going to depend on facts that are specific to each organization. The good news is that there are guidelines established by the IRS to help nonprofits and charitable organizations determine how much lobbying is too much.
What is Lobbying?
Lobbying has generally been defined as attempts to persuade members of a legislative body to propose, support, oppose, amend, or repeal legislation. Essentially, lobbying means trying to persuade a member of a federal, state, or local legislative body to vote in a certain way.
Legislation has been defined as anything a legislative body must vote to adopt or reject. This includes laws, resolutions, proposals, nominations, treaties, zoning rules, referendums, initiatives, and constitutional amendments.
Lobbying by Nonprofits
The general rule established by the IRS is that an organization will not qualify for tax-exempt status under section 501(c)(3) of the Internal Revenue Code if a substantial part of an organization’s activities involves attempting to influence legislation through lobbying.
The IRS has developed two tests to determine whether lobbying constitutes a substantial portion of an organization’s activities, the substantial part test and the expenditure test. The substantial part test is the default test the IRS will use in determining lobbying activity.
Under the substantial part test, in determining whether an organization’s lobbying activities were excessive, the IRS will consider both the amount of time and the amount of money spent on attempting to influence legislation.
Certain organizations may elect to use the expenditure test as an alternative method for measuring lobbying activities. Under this test, the IRS looks to the amount expended on lobbying efforts. Typically, an organization’s 501(c)(3) status won’t be jeopardized unless lobbying expenditures exceed a specific amount, which is set by the IRS and based on the size of the organization.
Failing either test may result in an organization losing its 501(c)(3) tax-exempt status.
While there are some limits for nonprofits and charitable organizations, there is no outright ban on lobbying. As long as your organization stays within the limits allowed by the IRS, your organization can engage in lobbying. For more information on nonprofits, charitable organizations, and lobbying, contact us at (580) 234-6600.