Can I Lobby?

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Nonprofit Lobbying Information

Whether it's working with public officials on welfare reform implementation or supporting greater charitable deductions, lobbying and advocacy can play an important role for nonprofits in achieving their missions. The federal guidelines that regulate nonprofit advocacy and lobbying incorporate significant flexibility for nonprofit organizations to participate in the public policy process.

The Donors Forum is a local resource for information on nonprofit advocacy. Our library holds a collection of nonprofit advocacy materials including, Worry-Free Lobbying, a free publication by the Alliance for Justice that is available on a walk-in basis only; it may not be requested for mailing. Worry-Free Lobbying is a handbook for funders and grantees that explains how to use the 501(h) election to maximize your effectiveness as an advocate and lobbyist. The Alliance for Justice is a Washington, DC-based public charity that works to strengthen the advocacy rights and abilities of public interest organizations.

In addition, Center for Lobbying in the Public Interest is a national project dedicated to educating nonprofits about the possibilities and limits under the law for nonprofit lobbying. Their informative website includes the full text of the revised Nonprofit Lobbying Guide and also goes over permissible activities of 501(c)(3) organizations in conducting lobbying, education campaigns, and voter education.

Nonprofit Lobbying: It's the Right Thing to Do

It is perfectly legal for your nonprofit organization to lobby. In fact, it's not only legal, but it's encouraged by Congress and the Administration. If you don't lobby, you are in danger of missing an opportunity to help those you serve.

It's also easy. Anyone who can make a phone call or write a letter can lobby. If you believe in a cause, then you should lobby. Sometimes lobbying is the best service a nonprofit organization can provide. For example, recently lobbying by charitable organizations has been principally responsible for reducing the number of alcohol related highway deaths, curtailing the use of tobacco products by teenagers, the setting aside of 1.7 million acres of federal land in Utah as a national monument, and for gaining greater mental health insurance protection for people suffering from mental illness. Lobbying today is a must. Any organization that does not lobby, or an organization that does not lobby well, is almost certain to get left out.

What is Lobbying?

Before going further, it might help to explain the term lobbying. Lobbying is nothing more or less than trying to persuade the members of a legislature -- whether city council, county commission, state legislature, or United States House of Representatives or Senate -- to enact legislation favorable to your cause or, on occasion, defeat or repeal legislation unfavorable to your cause. It's that simple. The legislation may set up a new program, change an existing one, guarantee certain rights, appropriate funds, etc.

Nonprofit Groups CAN Lobby
Many nonprofits have tended to soft pedal or refrain from lobbying altogether. This behavior no doubt has its roots in a provision that has been in the Internal Revenue Code since 1934 to the effect that "no substantial part" of a charity's activities may be that of attempting to influence legislation. The term "substantial" has never been clearly defined so many charities, fearing that their lobbying might stray beyond the ambiguous substantial limits, have tended to shy away from the activity altogether. However, the law changed in 1976.

Sanctioned by Congress and the IRS
In 1976 Congress removed all doubts as to the legality of lobbying by nonprofit tax-exempt organizations by writing into the income tax laws authorization for each such organization to elect to spend a certain percentage of its income on lobbying. Not only did Congress recognize the validity of lobbying by such groups but it came right out and used the very words "lobby" and "lobbying." Equally important, the Internal Revenue Service issued very clear, reasonable regulations related to the 1976 lobby law in August of 1990. Together, the law and regulations provide wide latitude for nonprofits to lobby.

But the law only provides this latitude for nonprofits that elect to be covered by it. In most circumstances, nonprofits should become subject to this law -- not only because it provides liberal limits on how much they can spend on lobbying, but also because it provides very clear and helpful definitions of what activities related to legislation do not constitute lobbying. If you are formally asked to testify before a congressional committee, for example, your testimony would not constitute a lobbying expense.

Some nonprofits have been reluctant to elect the 1976 law for fear that this action will either change their section 501(c)(3) status or serve as a "red flag" to the IRS and prompt an audit of the organization. Neither concern is justified. Electing to come under the 1976 law does not affect an organization's tax exempt status. Electing charities remain exempt under section 501(c)(3) of the Internal Revenue Code.

Further, the IRS has made clear in a letter to INDEPENDENT SECTOR that far from singling out for audit organizations that elect, the reverse is true. The letter states, ". . . our intent has been, and continues to be, one of encouragement [of charities] to make the election . . . Experience also suggests that organizations that have made the election are usually in compliance with the restrictions on lobbying activities."

What Counts as Lobbying?
The 1976 law is clear regarding what constitutes lobbying by nonprofits. Following are key points about that legislation. They apply only to nonprofits that have "elected" to come under the 1976 law. Those that have not elected remain subject to the ambiguous "insubstantial" test, which leaves uncertain which activities of charities related to legislation constitute lobbying and how much lobbying is permitted:

1. The most important feature of the law is that it provides ample leeway for nonprofits to lobby, and it protects those that elect the advantages of the 1976 rules, from the uncertainties they would be subject to if they remained under the insubstantial test.

2. Generally, organizations that elect the 1976 lobby law may spend 20% of the first $500,000 of their annual expenditures on lobbying ($100,000), 15% of the next $500,000, and so on, up to $1 million dollars a year! Equally important, there are eight critically important legislation-related activities, which nonprofits may conduct that are not considered lobbying by the IRS.

3. Understanding what constitutes lobbying under the 1976 law is not difficult. In general, you are lobbying when you state your position on specific legislation to legislators or other government employees who participate in the formulation of legislation, or urge your members to do so (direct lobbying). In addition, you are lobbying when you state your position on legislation to the general public and ask the general public to contact legislators or other government employees who participate in the formulation of legislation (grassroots lobbying).

4. The Internal Revenue Service encourages groups to elect to come under the 1976 law. The IRS has found groups that have elected are more often in compliance with the law than those that have not. Also, it is easy to elect. Complete the one page IRS Form 5768 and send it to the IRS.

The tax law definition of lobbying

Under the tax law definition, "lobbying" is limited to making "direct" and "grassroots" lobbying communications.

Direct lobbying communication - a communication with a legislator, legislative staff, or other government official that refers to and takes a position on specific legislation or a specific legislative proposal. As long as the communications does not refer to specific legislative proposals, private foundations may properly fund generalized public education messages that discuss and take clear positions on broad public policy issues.

Grassroots lobbying communication - any communication with the general public that refers to and takes a position on specific legislation or a specific legislative proposal and includes a "call to action" encouraging recipients to do something about the legislation. Informational campaigns designed to educate the public about public policy issues do not constitute lobbying if they do not include such calls to action.

The one circumstance under which communications with the general public may be treated as lobbying communications, even if they do not contain a call to action, involves paid mass media advertisements on "highly publicized" legislation that appear within two weeks of a legislative vote. Such advertisements will generally be treated as grassroots lobbying if they reflect a view on the general subject of the highly publicized legislation and either refer to the legislation or encourage the public to communicate with legislators on the general subject of the legislation.

It is important to note that under the tax law definition, lobbying includes efforts to influence federal, state, local, and foreign legislative bodies and referenda and ballot initiatives, but does not include communications with executive branch officials who focus on administrative (distinguished from legislative) actions.

Why should my nonprofit organization consider electing to come under the 1976 lobby law?

The law is clear about how much lobbying is permitted.
For organizations that elect to come under the 1976 lobby law (hereafter called electing organizations) there is a single, clear financial yardstick regarding how much lobbying your group can do. You can lobby up to a certain dollar ceiling based on your overall budget (less certain costs of fund raising and income production). For example, you can spend on lobbying 20% of your first $500,000 in annual expenditures, 15% of your next $500,000 of expenditures, and so on, up to $1 million. Organizations that don't elect to come under the 1976 lobby law remain subject to the "substantial" test, and the yardstick of what's substantial lobbying is very vague. The commonly quoted five-percent test for establishing what is substantial has never been accepted by the Internal Revenue Service. For organizations that continue under the substantial rule, the IRS reserves the right to claim that there is some absolute level of lobbying activity - measured by dollars, time, public prominence, success, or importance to the nonprofit - that is "substantial." But the IRS has never defined what constitutes substantial, so an organization that hasn't elected can never be certain when it is straying beyond the legal lobbying limits.

The 1976 lobby law is clear about which activities are lobbying and which are not.
For example, lobbying occurs only when there is an expenditure of money by the charity for the purpose of attempting to influence legislation. Where there is no expenditure by the organization for lobbying, there is no lobbying by the organization. There is no assurance that the IRS would apply so permissive a standard to organizations that don't elect. Moreover, the rules for electing organizations clearly exclude from lobbying an exceedingly broad range of activities that charities may engage in related to legislation. Under the substantial test, there is no assurance that the IRS would not treat such activities as counting toward "substantial" lobbying. Electing to come under the 1976 law means that your organization will no longer be subject to the ambiguity of the substantial test.
The clear descriptions in the law and regulations regarding what constitutes lobbying permits an electing organization to tell whether its lobbying is getting close to its lobbying ceilings, and therefore know whether it can take on additional lobbying activities.

Electing is easy.
To elect, an organization simply files with the IRS the one-page IRS Form 5768, identifying the organization and indicating that its governing body has elected to come under the provisions of the 1976 law. An election made anytime during the organization's tax year is effective throughout that tax year, and for succeeding years. If an organization wants to revoke its election and go back to the substantial test, it can do so by filing the same form and simply checking a different box. Revocation is effective when its next tax year begins. Experts on the lobby law have prepared information for INDEPENDENT SECTOR outlining the statute and regulations that govern electing organizations. It will help your management, board and counsel understand the rules that apply if you elect.

Under the 1976 lobby law penalties for violations are more flexible.
If an organization elects and then is held to have exceeded a ceiling, the penalty is 25% of the amount of the excess spending (not the total spent for lobbying). Only if it exceeds a ceiling by 50% on a four-year aggregate basis can it lose its exemption. Also, managers are not subject to penalty in the case of an electing organization. For an organization that does not elect, any lobbying deemed more than "insubstantial" can mean loss of tax exemption - as well as possible penalty taxes on the organization and its managers.

Some Common Questions about the Lobbying Election

Will Electing Put You on an IRS "Hit List"?

Definitely not. The IRS usually says nothing at all about what will or won't increase your chances of audit. However, the IRS Manual indicates that there is no connection between electing and becoming subject to an audit. In fact, the IRS tells its auditors that lobbying issues are more likely to arise on audit in the case or organizations that have not elected. In practice, audits of electing organizations are usually simpler, because the organization and the IRS agent both understand what rules apply, instead of having to apply the vague substantiality standard.

If We Elect Will We Have to do More Record-Keeping and Reporting?

All nonprofits - whether or not they elect - have to report annually to the IRS on how much they spend on lobbying. For electing organizations the reporting requirements are much simpler than for non-electing organizations. If an organization elects, it need simply report the amounts it spent on "direct lobbying" (generally lobbying members or staff of a legislative body) and "grassroots lobbying" (urging the public to lobby) and do a bit of simple arithmetic. Non-electing organizations, on the other hand, are required to include with their return detailed narrative descriptions of their lobbying activities and report the amount spent on each activity. Both types of organizations have to maintain records to substantiate what they reported on audit by the IRS. Electing organizations - and, if they are wise, non-electing ones as well - need a system for recording how much they spend on lobbying. The IRS will accept any reasonable method of doing this; for example, you can use sampling (that is, a brief period of time that is representative of your lobbying activities) instead of complete time records to estimate how much time staff spends on lobbying activity.

Should Very Large Organizations Elect?

Large organizations, even more than small ones, are likely to find the clearer, more specific financial standards easier to comply with and report on than the substantiality test. Moreover, if they elect, their size gives large organizations greater latitude to lobby, because an electing organization's lobbying ceiling is a percentage of their budget. Once an organization's budget reaches $17 million, its lobbying ceiling is capped at $1 million for all lobbying expenditures and $250,000 for grass roots lobbying. However, even for the largest organizations that don't elect it seems likely that the IRS would claim that lobbying expenditures in excess of these levels would be substantial. In addition, of course, the large organization that doesn't elect is subject to all of the vagaries of the substantial test, and it has more difficult reporting requirements on the annual IRS return. At a minimum, very large organizations predisposed not to elect should consult counsel knowledgeable about the 1976 law and regulations before making a final decision.

Why Isn't Staying Under the Substantiality Test Good Enough?

All nonprofits can lobby - even those that remain subject to the vague substantiality test. But those groups that elect are sure of benefiting from the clear, reasonable, liberal definitions in the 1976 lobby law and regulations. If, one year, you do inadvertently exceed the limits by a modest amount, you risk only a penalty tax, not loss of exemption. If an organization is absolutely certain that no significant amount of anything it does could be considered lobbying, then electing - though harmless - is not necessary. But bear in mind that by not engaging in lobbying your organization may be failing to employ a very important activity that could be enormously helpful in carrying out your mission.


Disclaimer
The Donors Forum maintains this page to provide general information and guidance about the laws and regulations pertaining to foundation and nonprofit lobbying. The law, however, can change or vary from jurisdiction to jurisdiction. None of this information should be used or relied on as legal advice or opinion about specific matters, facts, situations or issues. It is always advisable to consult a lawyer about your particular circumstances.

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