Lobbying Regulations for Nonprofits.
Can nonprofits lobby without losing their tax-exempt status? Many nonprofits are unsure about advocating for their causes. The good news is that 501(c)(3) nonprofits can lobby, following IRS and Congress rules.
Since 1934, Congress has let nonprofits keep their tax-exempt status. They must not spend too much time trying to change laws. In 1976, Congress made it clearer, setting limits and rules for nonprofits to lobby safely. The IRS says lobbying is okay and offers Form 5768 to help nonprofits stay within limits.
It’s important for nonprofits to know the lobbying rules. This way, they can advocate for their missions without breaking the law. By understanding the guidelines and following best practices, nonprofits can confidently make a difference.
Key Takeaways
- Lobbying by 501(c)(3) charitable nonprofits is legal under IRS regulations.
- Nonprofits can choose between the Substantial Part Test or the Expenditure Test for lobbying.
- Violating lobbying regulations may result in the loss of tax-exempt status.
- Nonprofits can spend a percentage of their annual expenditures on lobbying, up to $1 million a year.
- Grassroots lobbying must refer to specific legislation, reflect a viewpoint, encourage public action, and provide legislative contact information.
Understanding Nonprofit Lobbying Basics
Nonprofit groups are key in shaping public policy through lobbying and advocacy. While “lobbying” and “advocacy” are often mixed up, they mean different things for nonprofits. Knowing the nonprofit lobbying definition and the role of advocacy for nonprofits is key for making a difference in laws and bringing about positive change.
Definition of Lobbying for Nonprofits
Lobbying is about trying to change laws at local, state, or federal levels. It can mean talking to lawmakers or government workers, or getting the public to share their views on laws. Nonprofits must make sure lobbying doesn’t take up too much of their work. The IRS says nonprofits should keep lobbying under 5% of their activities.
Under IRS rules, nonprofits can spend up to 20% of their budget on lobbying. Up to 25% of that can go to grassroots lobbying. How much a nonprofit can spend on lobbying depends on its budget.
| Annual Budget | Non-taxable Lobbying Amount |
|---|---|
| Less than $500,000 | 20% of exempt-purpose expenditures |
| $500,000 – $1 million | $100,000 + 15% of excess over $500,000 |
| $1 million – $1.5 million | $175,000 + 10% of excess over $1 million |
| Exceeding $1.5 million | $225,000 + 5% of excess over $1.5 million |
The Importance of Advocacy for Nonprofits
Advocacy is about teaching the public and lawmakers about an issue affecting the people an organization helps. Nonprofit staff know a lot about the needs of those they serve. This makes them great at solving problems and shaping laws. Advocacy for nonprofits is key for spreading awareness, building support, and changing laws that match the organization’s mission.
By doing the right kind of lobbying and advocacy, nonprofits can make sure their members’ voices are heard. This leads to real change in communities and beyond.
IRS Rules for Nonprofit Lobbying
Nonprofits must follow IRS rules for lobbying to keep their tax-exempt status. The IRS has two tests: the substantial part test and the 501(h) expenditure test.
Substantial Part Test
Under the substantial part test, nonprofits must make sure lobbying doesn’t take up too much of their work. The IRS doesn’t set a specific spending limit. But, it says no more than a “substantial part” of their work can be lobbying.
501(h) Expenditure Test
Nonprofits can choose the 501(h) expenditure test for clearer rules on lobbying. By filing Form 5768, they can set limits on how much they spend on lobbying. These limits depend on their total spending on exempt activities:
- 20% of the first $500,000 in expenditures
- 15% of the next $500,000 in expenditures
- 10% of the next $500,000 in expenditures
- 5% of expenditures over $1,500,000
The 501(h) election has a $1,000,000 cap on lobbying spending. There’s also a 25% limit on “grassroots” spending compared to “direct” lobbying.
Nonprofits choosing the 501(h) election must report their lobbying spending each year. They do this on Schedule C of Form 990. Small and mid-sized nonprofits are advised to pick the 501(h) election. It helps them understand lobbying rules better and do more lobbying.
Measuring Lobbying Activities
It’s key for nonprofits to measure nonprofit lobbying to follow IRS rules. The IRS looks at how much time and money are spent on lobbying. Knowing the difference between direct lobbying and grassroots lobbying helps in tracking and reporting.
Time and Expenditure Considerations
The 501(h) expenditure test guides how to measure lobbying. Time spent by paid staff on lobbying counts towards the limits because of salary costs. But, volunteer time doesn’t count. Yet, any costs for volunteer lobbying must be reported.
501(h) lets nonprofits spend up to 20% of their budget on lobbying, with a cap of $1,000,000. The amount not taxed for lobbying is based on how much is spent on exempt purposes.
| Exempt Purpose Expenditures | Lobbying Nontaxable Amount |
|---|---|
| ≤ $500,000 | 20% of the exempt purpose expenditures |
| >$500,000 but ≤ $1,000,000 | $100,000 plus 15% of the excess over $500,000 |
| >$1,000,000 but ≤ $1,500,000 | $175,000 plus 10% of the excess over $1,000,000 |
| >$1,500,000 | $225,000 plus 5% of the excess over $1,500,000 |
Direct vs. Grassroots Lobbying
Direct lobbying means talking directly to lawmakers to shape laws. Grassroots lobbying is about getting the public to reach out to lawmakers.
501(h) lets nonprofits spend up to 25% of their lobbying budget on grassroots efforts. Keeping detailed records of both types of lobbying is crucial for staying within these limits.
Lobbying Limitations for 501(c)(3) Organizations
501(c)(3) groups face specific rules on lobbying to keep their tax-exempt status. They can do some lobbying but must not let it be too much. The IRS doesn’t clearly define “substantial,” but spending 5% on lobbying might be okay. Spending 15-20% is likely too much.
IRC 501(h) lets charities use a special “expenditures” test for lobbying. This test has clear limits on how much can be spent on lobbying. The limits are based on the organization’s total spending on exempt purposes.
| Exempt Purpose Expenditures | Lobbying Expenditure Limit |
|---|---|
| First $500,000 | 20% |
| Second $500,000 | 15% |
| Third $500,000 | 10% |
| Remaining expenditures | 5% |
The yearly limit for lobbying is $1 million. Also, no more than 25% of the lobbying allowance can go to grassroots efforts. If these limits are broken, a 25% tax is applied to the extra spending. If a 501(c)(3) spends too much on lobbying over four years, it loses its tax-exempt status.
Nonprofits must report their lobbying on Form 990, even if they don’t follow the 501(h) election. Lobbying costs include salaries and overhead for direct and grassroots efforts. But, volunteer work doesn’t count if no money is spent by the organization.
It’s key for 501(c)(3) groups to watch their lobbying closely to stay within the rules. Getting help from advocacy groups and lawyers can be very helpful.
Reporting Lobbying Activities
Nonprofit groups must follow IRS rules for lobbying. They need to report accurately to keep their tax-exempt status. The IRS Form 990 is key for this.
Groups doing lobbying must fill out Schedule C of IRS Form 990. They need to give details on expenses, staff time, and activities. Keeping good records all year is vital. This helps show they followed IRS rules.
IRS Form 990 Requirements
Nonprofits must report their lobbying on IRS Form 990. They need to fill out certain parts:
- Part IV, Line 4: Say if they did any lobbying that year.
- Schedule C, Part II-A: List lobbying costs for 501(c)(3) groups not using the 501(h) test.
- Schedule C, Part II-B: List lobbying costs for 501(c)(3) groups using the 501(h) test.
Groups using the 501(h) test report their lobbying on Form 990. They get clear rules and limits on spending.
Maintaining Accurate Records
Nonprofits must keep good records for accurate reporting. This includes:
- Time spent by staff and volunteers on lobbying
- Direct expenses like travel and materials
- Indirect expenses like office space
- Payments to consultants for lobbying
Good records help fill out IRS Form 990 accurately. It’s also important to train staff on record-keeping and what lobbying is.
Lobbying vs. Advocacy: What’s the Difference?
Nonprofit groups often use both lobbying and advocacy to help their causes. Lobbying is a form of advocacy, but not all advocacy is lobbying. It’s key for nonprofits to know the difference to keep their tax-exempt status.
Lobbying means trying to change laws by talking to lawmakers or their staff. Advocacy is broader, aiming to support a cause or educate people about important issues.
Examples of Non-Lobbying Advocacy Activities
Nonprofits can do many things without losing their tax-exempt status. Here are some examples:
- Distributing materials to congressional offices describing a program’s success
- Sharing an analysis of legislation’s impact on a website
- Inviting legislators to visit programs and witness their impact firsthand
- Informing congressional offices how federal funding is used to support the nonprofit’s mission
- Providing technical assistance or advice in response to official written inquiries from congressional bodies
Nonprofits can do as much non-lobbying advocacy as they want. But, they must keep good records and make sure they don’t cross the line into lobbying.
| Lobbying Activities | Non-Lobbying Advocacy Activities |
|---|---|
| Direct communication with legislators about specific legislation | Distributing materials describing program success |
| Encouraging the public to contact representatives about bills | Sharing analysis of legislation’s impact on a website |
| Expending funds to influence legislation | Inviting legislators to visit programs |
| Subject to IRS limitations and reporting requirements | Providing technical assistance in response to official inquiries |
By focusing on allowed non-lobbying advocacy, nonprofits can help their causes and educate policymakers. They can also get their supporters involved without losing their tax-exempt status. It’s important for organizations to have clear policies, train their staff, and get help from experts or lawyers when dealing with lobbying vs advocacy.
Best Practices for Nonprofit Lobbying Compliance
Nonprofit groups are key in helping their communities and causes. But, they must follow strict rules when they lobby. They need to have clear rules and train everyone on these rules.
It’s important to know what you can and can’t do with federal money. Nonprofits can’t use federal funds for lobbying or to support or oppose candidates. People working for nonprofits can vote and support candidates on their own time, but not as a representative of the group.
Nonprofits should track and report their lobbying efforts well. They need systems to keep an eye on time and money spent on lobbying. They also need to keep good records for reports. The IRS has rules for what lobbying activities need to be reported.
Establishing Clear Policies and Procedures
Creating detailed policies and procedures is key for nonprofits. These should explain what lobbying is, what’s allowed and what’s not, and how to track and report. Important things to think about include:
- Differentiating between direct and grassroots lobbying
- Setting expenditure limits based on the organization’s tax-exempt status and total exempt purpose expenditures
- Identifying staff roles and responsibilities related to lobbying activities
- Establishing protocols for maintaining accurate records and filing required reports
Training Staff and Volunteers
After setting up policies and procedures, training is crucial. Staff and volunteers need to know the organization’s rules and federal and state laws. Key topics to cover include:
| Training Topic | Description |
|---|---|
| Lobbying Definitions | Clarify what constitutes direct and grassroots lobbying, and provide examples of each |
| Expenditure Limits | Explain the specific expenditure limits based on the organization’s tax-exempt status and total exempt purpose expenditures |
| Reporting Requirements | Review the various reporting requirements at the federal, state, and local levels, and outline the organization’s procedures for maintaining accurate records |
| Prohibited Activities | Emphasize the importance of avoiding prohibited activities, such as using federal funds for lobbying or participating in political campaigns |
By having clear policies and training, nonprofits can lobby effectively and stay within the law. This approach protects their tax-exempt status and ensures their advocacy matches their mission and values.
Lobbying Regulations for Nonprofits: State and Local Laws
Nonprofits face rules not just from the federal government but also from state and local laws. These rules can change a lot from place to place. It’s key for nonprofits to know the specific laws in their area and what they do.
State and local laws define lobbying differently. They also have their own rules for who needs to register and what reports are needed. For example, some places might make you register if you spend a certain amount on lobbying. Others might not. The rules for how often and what to report can also vary a lot.
To follow state and local lobbying rules, nonprofits should take a few steps:
- Find out the specific laws in their area
- Know what counts as lobbying and what doesn’t
- See if you need to register and do it if you do
- Keep track of and report on lobbying activities and spending
- Get help from lawyers or advocacy groups if you’re unsure
By following these rules, nonprofits can speak up for their causes without losing their tax-exempt status. Here’s a quick look at some important parts of state and local lobbying laws:
| Aspect | Description |
|---|---|
| Definitions | States and localities have their own ways of defining lobbying |
| Registration | Rules for registering as a lobbyist vary by place |
| Reporting | How often and what to report can differ a lot |
| Expenditure Limits | Some places have limits on how much you can spend on lobbying |
| Penalties | Breaking the rules can lead to fines, losing tax-exempt status, or other penalties |
Engaging in Permissible Lobbying Activities
Nonprofit groups can do many things to help their causes and shape public policy. These actions, done right and reported well, help nonprofits push for their missions and make a difference.
One important part of this is teaching policymakers. Groups can share facts, studies, and expert views to help lawmakers understand their cause and policy effects. This way, nonprofits can become trusted sources and influence policy decisions.
Educating Policymakers
Nonprofits can do many educational things without being seen as lobbying by the IRS. These include:
- Holding educational meetings with policymakers
- Distributing educational materials
- Providing expert testimony at legislative hearings
- Sharing research and data on relevant issues
Mobilizing Supporters
Another good way for nonprofits to lobby is by getting their supporters involved. They can urge people to reach out to lawmakers, go to hearings, or join advocacy events. But, it’s important to keep these efforts within limits and report them correctly.
Here are some key stats on nonprofit lobbying and political activity:
| Organization Type | Political Campaign Activity | Lobbying and Advocacy |
|---|---|---|
| 501(c)(3) | Prohibited | Limited |
| 501(c)(4), 501(c)(5), 501(c)(6), 501(c)(7) | Limited | Unlimited |
Nonprofits can spend up to 20% of the first $500,000 on lobbying under the 501(h) test. By knowing and following these rules, groups can lobby effectively to support their missions and help their communities.
Seeking Guidance and Resources
Understanding nonprofit lobbying rules can be tough. But, there are many resources to help. Getting advice from advocacy groups and lawyers who know lobbying laws can make a big difference.
Professional Advocacy Organizations
Nonprofits can find help from well-known advocacy groups. They offer training, tools, and support for lobbying and advocacy. Some top groups include:
- Alliance for Justice
- Independent Sector
- National Council of Nonprofits
These groups provide useful guides and handbooks. For example, the Alliance for Justice has a detailed guide on how to influence laws. It’s a key resource for many national groups.
Legal Counsel for Nonprofit Lobbying
Nonprofits should also get legal counsel specializing in nonprofit lobbying compliance. A skilled lawyer can help with federal and state lobbying laws. They can:
- Check if the organization needs to register
- Help with quarterly LDA reports
- Guide on how to report lobbying on IRS Form 990
- Explain what you can and can’t do in lobbying
Legal advice is crucial for nonprofits. It helps avoid legal problems and ensures they can advocate well. This is especially important for groups under Section 501(h) or getting federal funds. They face extra rules and reports.
Conclusion
It’s key for nonprofits to know how to lobby without breaking the law. They must follow federal and state rules. This means they can speak up for their cause without trouble.
Nonprofits need to understand IRS rules like the substantial part test. This helps them know if they’re lobbying too much. They must report accurately on Form 990 and keep good records to show they’re following the rules.
It’s important to know the difference between lobbying and advocacy. Not all advocacy is lobbying. Nonprofits can educate policymakers and get their supporters involved. But, only 31% of nonprofits lobby or advocate, down from 74% in 2000.
To do lobbying right, nonprofits should have clear rules and train their people. They should also get help from experts and lawyers when needed. This way, they can make a real difference in their communities.
Source Links
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