Lobbying by the book
If your nonprofit chooses to engage in some lobbying, make sure that you follow IRS rules. Straying from the requirements could jeopardize your tax-exempt status. In addition to tax issues, federal and some state governments regulate organizations that lobby. While there are exemptions for some nonprofits and small amounts of lobbying, consult with your attorney about your specific requirements.
Lobbying differs from advocacy
Part of playing it safe is knowing the difference between lobbying and advocacy. Lobbying is defined as a communication that attempts to change particular legislation. Advocacy, on the other hand, promotes general causes and issues. Nonprofits may do unlimited advocacy work, but the IRS limits the extent of lobbying activities.
Lobbying always involves advocacy, but advocacy doesn’t necessarily involve lobbying. The key to determining whether an activity is considered lobbying or advocacy depends in part on whom you’re trying to influence: Does the audience of your lobbying efforts make the laws or simply follow and enforce them? Do you want these individuals to vote a certain way on proposed legislation or simply be more aware of issues?
If your audience makes laws and you’re attempting to change legislation by encouraging these lawmakers to vote a certain way, it’s lobbying. If, on the other hand, you’re speaking with an administrative official or other non-lawmaking individual or group about a broad policy change, it’s advocacy.
Keep in mind that promoting a point of view and providing public education aren’t considered lobbying activities — even if you’re speaking with a public official. The discussion crosses the line only when specific legislation is discussed or you urge a particular vote.
Nonprofits play it safe
Nonprofits often shy away from lobbying for fear of losing their tax-exempt status. And some organizations worry they don’t have the proper resources, time or qualifications to lobby.
But the fact is that nonprofits can lobby without endangering their tax-exempt status and without major financial resources or expert assistance. The Center for Lobbying in the Public Interest suggests that even small nonprofits can make an impact by devoting as little as three hours a week to the endeavor.
Lobby law set the rules
The IRS evaluates lobbying based on whether a nonprofit chooses to report its activities under the 1976 lobby law or uses the “no substantial part” test. The lobby law provides nonprofits with a clearly defined set of rules, and requires organizations to file Form 5768, known as the “h” election. The “no substantial part” rule is more vague and subject to interpretation.
If, for example, an organization chooses to use the lobby law, it may spend 20% of its first $500,000 in annual expenditures on lobbying tax free. This percentage decreases as annual expenditures increase, and annual nontaxable lobbying expenses are capped at $1 million. An excise tax will apply when spending limits are exceeded.
If a nonprofit doesn’t report lobbying under the 1976 law, it must meet the “no substantial part” test, which stipulates that nonprofits can spend only an insubstantial amount of their resources on lobbying. The specific dollar amount isn’t defined, but courts have ruled that more than 5% of an organization’s budget, time and effort is substantial. Most organizations, therefore, aim for a percentage below 5%.
Lobbying raises public awareness
Lobbying can help you get your organization’s voice heard and raise public awareness of your mission. Some social goals can only be fully addressed by changes in law, which may be encouraged by lobbying. If you strictly follow IRS rules, you can accomplish these goals without putting your tax-exempt status in danger.