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Often times, 501(c)3 charitable organizations, in the course of their normal activities, find themselves engaging in public policy debate and, more importantly, lobbying efforts. In the United States, federal law allows nonprofits to lobby within certain limits. Knowing what constitutes lobbying under the law, and what the limits are, is key for every nonprofit to lobby both legally and safely. 

Generally speaking, the Internal Revenue Service (IRS) defines lobbying as the attempt to influence the passage, defeat, introduction or amendment of legislation, including bills introduced by a federal, state or local legislative body, bond issues, referenda, constitutional amendments, and Senate confirmation votes on Executive branch nominees. In addition, the IRS defines two types of lobbying communication which must be considered: direct lobbying and grassroots lobbying.

Direct lobbying is any attempt to influence any legislation through communication with a legislator, an employee of a legislative body or other government official, which1) refers to specific legislation and 2) reflects a view on such legislation.

Grassroots lobbying is any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof. A grassroots lobbying communication is one which 1) refers to specific legislation; 2) reflects a view on that legislation; and 3) encourages the recipient to take action with respect to the legislation, either by (a) directly urging the recipient to contact legislators or other government officials in order to influence legislation; (b) including the address, phone number or similar information about a legislator or government official; (c) providing a petition, postcard or other prepared message to send to a legislator or government official in order to influence legislation; or (d) identifying one or more legislators who will vote on the legislation as opposing the organization's view; being undecided; being the recipient's representative in the legislature; or being a member of the legislative committee that will consider the legislation. Encouraging the recipient to take action does not include naming the main sponsor(s) for the purposes of identifying the legislation.

Nonprofits organized under IRS Code Section 501(c)3 are allowed to lobby provided that they pass the “substantiality test” or the “expenditure test”. The “substantiality test” is the default test and is more subjective as it is based on facts and circumstances for each individual lobbying case. The “expenditure test”, however, sets forth specific limits on how much a nonprofit may spend on lobbying. Nonprofits that prefer to be governed by the expenditure test must file IRS Form 5768. Although nonprofits should address lobbying concerns with legal counsel due to the complexity of the IRS rules, a simplified look at the “expenditure test” limits are listed below. A tax is triggered when either lobbying expenses or grassroots expenditures exceed the nontaxable lobbying amounts. 

Total Expenditures Related to Tax-Exempt Purpose

Amount that may be Spent on Lobbying (Grassroots lobbying must comprise no more than 25% total allowable lobbying costs)

US$500,000 or less 20%
US$500,000 - US$1 Million US$100,000 + 15% of budget over US$500,000
 US$1 Million - US$1.5 Million US$175,000 + 10% of budget over US$1 Million
US$1.5 Million and overUS$224,000 + 5% of budget over US$1.5 Million

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