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Lobbying and 501(c)(3) Organizations
By, Rosalie W. Miller, CPA
Upon seeing the title of this article, your first thought may have been "I thought that 501(c)(3) organizations were not allowed to conduct lobbying." In fact this is not true. The IRS and the Lobbying Law of 1976 expressly state that section 501(c)(3) organizations can, in fact, lobby, however with restrictions.
Section 501(c)(3) of the Internal Revenue Code states that an organization exempt under that section will lose its tax-exempt status and its qualification to receive deductible charitable contributions if a substantial part of its activities are carried on to influence legislation (lobbying). However, Section 501(h) of the Code permits certain eligible 501(c)(3) organizations to elect to make limited lobbying expenditures. If an organization makes this election, it can spend 20 percent of the first $500,000 of its exempt purpose expenditures on lobbying (with a decreasing percentage for higher expenditure brackets, and a maximum of $1 million spent on lobbying allowed in a year). In addition, the election allows organizations to carry on many other lobbying activities such as communicating with members to discuss legislation (but not to take action), and providing "nonpartisan analysis, study or research" materials that provide enough balanced information to let people form their own opinions.
If this election is not made, a 501(c)(3) organization may still engage in lobbying, as long as it is not a "substantial" part of their activities. However, the amount that would be "substantial" is not defined, and if the IRS audits an organization, it will look at the "specific facts and circumstances" of the situation. Among the factors that they will consider are the importance of the lobbying activities against the organization's purpose, its overall level of spending and activities, and the total amount that it spends on lobbying.
Election of Section 501(h) coverage may be beneficial to many organizations. However, due to the complexity of the rules and restrictions, expert advice should be sought before an organization decides to make the election. If you believe that your organization could benefit by making this election, or if you have any other questions on this topic, please feel free to contact any member of our nonprofit group.
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