Per IRS regulations, a nonprofit organization is not allowed to influence legislation or policymakers.
Lobbying includes both federal and state legislation. Use of funds includes the same limitations on foriegn policymakers; for example, the use of US 501(c)3 funds to influence UK policy.
“In general, no organization may qualify for section 501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). A 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status.” -IRS
It is very important that you not skip “How this affects 501 Funding” below.
Key 501(c)3 Practices
- As a rule of thumb, ensure your organization is not using more than 10% of its resources on lobbying activities.
- Ensure the organization’s lobbying activities expenditure does not exceed $1,000,000.
- Ensure any group or individual the organization is funding is using the funds under the same rules.
- As a best practice, try not to engage in any activities that are actively or directly trying to influence legislation.
- If an organization receives a mix of 501(c)3 and non-501(c)3 funding, it is a best practice to keep all 501(c)3 funds in a separate bank account. Expenditures from this account are then only used following non-lobbying rules.
What is lobbying
Definitions of lobbying activities are very loosely defined and open to interpretation by the IRS. Judgments are often based on intent.
Lobbying is any activity where an organization is actively and directly trying to influence legislation. This includes both the policymaker and the policymaker's staff; anyone who has the authority or power to directly influence or enact policy.
“...proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.” -IRS
Examples include:
- Helping to write a piece of legislation.
- Doing research at the request of a policymaker, doing research for them.
- Meetings and discussions with government representatives.
- Engaging in “grassroots lobbying” or any attempt to influence legislation through an attempt to affect the opinions of the general public or any segment of the public.
- Lobbying could include social media posts that support or oppose a policy if it is meant to influence the public.
What is not lobbying
Educating and providing information or research where the recipient can make their own decision on the matter is not lobbying.
“Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.” -IRS
Examples of acceptable activities:
- Widely attended where at least 25 other people are expected to attend and the event is open to the public.
- Giving a policymaker public research for educational purposes; they must be able to come to their own conclusions on how the research affects policy.
- Social gatherings or events with no lobbying activities or purpose.
How To Test Whether An Organization Is Lobbying
The IRS has two tests for determining an organization’s political impartiality.
The Substantial Part Test
Is the organization’s intent or is the organization using a “substantial” amount of resources for lobbying purposes. Judgments often use over 10% to mean substantial. Resources can include funds and hours spent by employees.
The Expenditure Test
The organization is not spending over a certain percentage of expenses for lobbying activities. The percentage depends on the budget of the organization; see the chart in the link. But 10% is a good rule of thumb. Total expenditures for lobbying activities cannot exceed $1,000,000 regardless of the size of the organization’s budget.
How Tests Have Been Enforced
Judgments have used a general “no more than 10% of resources” rule. But the judgments have been very loose on the definition of resources. Sometimes it is a fiscal amount; sometimes it is hours; sometimes it is both.
How This Affects 501(c)3 Funding
Judgments on lobbying have included funds given to other organizations. If a 501(c)3 gifts or grants an organization any funds, those funds must be used under the same rules. Therefore, both funds received from or given to a 501(c)3 must monitor their lobbying activities.
If an organization receives a mix of 501(c)3 and non-501(c)3 funding, it is a best practice to keep all 501(c)3 funds in a separate bank account. Expenditures from this account are then only used following non-lobbying rules.