Rules of Nonprofit Lobbying

by Andrine Redsteer

The Internal Revenue Code provides rules for nonprofits regarding lobbying and involvement in political campaigning. Categories of nonprofits include those exempt from taxes under 501(c)(3) and those exempt under 501(c)(4). While 501(c)(3) organizations are not entirely restricted from lobbying activities, restrictions apply regarding the amount of money they can spend on these activities. If a nonprofit violates the restrictions imposed by the Internal Revenue Code, it may have to pay excise taxes and its tax-exempt status may be revoked.

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Understanding Lobbying

The Internal Revenue Service defines lobbying as any activity that attempts to influence legislation. A 501(c)(3) nonprofit organization is prohibited from "too much lobbying." This includes contacting legislators to convey opposition or support for legislation -- such as resolutions, bills or acts -- or urging the public to do so. Generally, 501(c)(3) organizations may participate in voter registration drives, provided participation is non-biased and non-partisan.

501(c)(3) and 501(c)(4) Organizations

A 501(c)(3) organization is a foundation, corporation or community chest organized for educational, religious or charitable reasons, while 501(c)(4) organizations are local employee associations or civic leagues that exist to promote the social welfare of the community in which they are located. Organizations that qualify as 501(c)(4) nonprofits do not have the same restrictions against lobbying as 501(c)(3) nonprofit groups.

Substantial Part Test

A 501(c)(3) organization may choose between a substantial part test and an expenditure test as a way to measure the amount of its lobbying activities. The substantial part test allows 501(c)(3) groups to lobby, as long as lobbying activities are "insubstantial." The term "insubstantial" has never been defined; thus, many nonprofits choose the expenditure test because its parameters are clear.

Expenditure Test

A 501(c)(3) organization that chooses the expenditure test may allocate 20 percent of its annual budget on lobbying activities. However, of the allowed 20 percent, only 25 percent may be spent on indirect lobbying. Indirect lobbying is also referred to an grassroots lobbying. This types of lobbying involves urging the public to take a certain stance on a specific piece of legislation. Direct lobbying, on the other hand, involves direct contact with legislators.