Lobbying as a 501(c)(3) Organization: Yes You Can! (Sometimes)
Pufferfish sushi - fugu - can kill you if it isn't expertly prepared in such a way that the chef removes all the toxic parts. As I start typing this blog on the subject of lobbying as a 501(c)(3), I empathize with those sushi chefs. Perhaps the quickest way to forfeit your (c)(3)'s tax-exempt status is engaging in the strictly prohibited form of lobbying - "political campaign activity." So if you are considering diving headfirst into the lobbying waters, please consult with a qualified attorney about your specific situation. The devil, truly, is in the details.
Also, keep in mind that the appearance of impropriety can be just as damaging as an actual impropriety. With lobbying - indeed, with any legal or regulatory compliance issue - a wise nonprofit leader determines where the legal line is and takes one large step back. Newspapers love to write stories about nonprofits breaking the law, and you never want to get in a dispute with anything that buys ink by the barrel.
The good news is that the IRS permits (c)(3) organizations to engage in activities to "influence legislation" as long as it does not constitute a "substantial part" of its activities. If you think about it, that makes sense since effecting change in laws is essential to many organizations' missions, such as environmental conservation or civil rights protection. The key is understanding the difference between "influencing litigation" and its strictly prohibited cousin, "political campaign activity."
The Big No-No: Political Campaign Activity
A 501(c)(3) is "absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office." This includes contributions to campaigns and verbal or written statements in favor or in opposition to any particular candidate. So if any activity contemplated by a (c)(3) would be seen as support, endorsement or opposition to a candidate in an election, it should not be done. Even if the activity could be interpreted as merely indirect support or opposition, it should not be done. Hard stop.
"But wait a minute," you may be thinking. "What about all those Presidential debates that happen on (c)(3) college campuses? Isn't that political campaign activity?" Not in the sense that is prohibited by the IRS because the college is not supporting or opposing a particular candidate. All major candidates are invited and, as long as the event is not biased, the college's tax-exempt status is not jeopardized.
In fact, the IRS distinguishes and permits several types of political activities by a (c)(3), as long as impartiality is clear and no specific issue is emphasized:
Get-out-the vote and voter registration drives;
Legislative voting records;
Candidate debates and forums;
Candidate questionnaires and voter guides.
So now that we have covered the big no-no, let's look at the permissible form of lobbying, "influencing legislation."
Lobbying: Yes You Can! (Sorta)
To repeat, the IRS permits a (c)(3) to take action to "influence legislation" as long as the activities do not constitute a "substantial part" of its activities.
The IRS defines "influencing legislation" as when "a [501(c)(3) organization] contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation." The IRS defines "legislation" as "action by Congress, any state legislature, any local council, or similar governing body, with respect to acts, bills, resolutions, or similar items (such as legislative confirmation of appointive office), or by the public in referendum, ballot initiative, constitutional amendment, or similar procedure."
Similar to "political campaign activity," the IRS expressly excludes certain activities from its "influencing legislation" definition:
providing technical assistance or advice to a governmental body or committee in response to its unsolicited, written request, provided that (a) the request comes from more than one member of the body or committee, and (b) the response is made available to every member of the body or committee;
“self-defense activities” - i.e., communications concerning decisions that may affect an organization’s existence, powers, duties, 501(c)(3) status, or deductibility of contributions;
nonpartisan analysis, study, or research that may advocate a particular view, provided that (a) presentation of the relevant facts is sufficient to enable readers to reach an independent conclusion, and (b) distribution of the results is not limited to or directed toward persons solely interested in one side of a particular issue.
To help clarify the concepts covered thus far, consider this example: a state legislature has proposed a bill that would revoke the law requiring children to wear helmets while bicycling. The bill is sponsored by a state representative who is in the midst of running for reëlection. A 501(c)(3) organization that advocates for children's health issues produces a pamphlet that provides data on how many children's lives are saved each year by requiring bicycle helmets. The pamphlet also includes a voting record for bills involving child health issues. It disseminates this pamphlet to its email newsletter subscribers, posts it on its website, and sends it to all legislators.
The organization's including the voting record in the pamphlet does not constitute "political campaign activity" as long as there is no bias evident in how it is presented. Also, because the pamphlet does not advocate for the adoption or rejection of the bill, it does not constitute "influencing legislation."
But what it the organization does want to advocate either by communicating with a legislator or government official about the specific legislation and reflect a view on the legislation, or by attempting to influence public opinion and urging citizens to contact their legislators? This would constitute "influencing legislation" under the IRS, which is allowed as long as it does not constitute a “substantial part” of the organization's activities.
Defining "Substantial Part"
Historically, the IRS provided very little guidance on what constitutes “substantial.” Originally, organizations were forced to apply a vague and subjective standard called the “substantial part test.” This test provided no certainty for organizations; therefore, to avoid jeopardizing their tax-exempt status, most prudent organizations avoided lobbying altogether. Eventually, the IRS developed an alternative test that provides objective criteria and, consequently, more certainty for organizations.
This second test, “the expenditure test,” is an election under Code § 501(h) that any (c)(3) may make, as long as it is not a church, is not “integrally affiliated” with a church, and is not a private foundation. The organization makes the election by filing a Form 5768, then completes Schedule C on the Form 990. This may seem intimidating, but the organization will not be penalized if it abides by the following lobbying expenditure limits:
Twenty percent of the first $500,000 of an organization’s exempt purpose expenditures; plus
Fifteen percent of the second $500,000 of such expenditures; plus
Ten percent of the third $500,000 of such expenditures; plus
Five percent of the remainder of such expenditures.
This limit is subject to an overall cap of $1 million in annual lobbying expenditures.
If it does exceed the limits, the organization will be subjected to an excise tax of 25% of the excess, and managers who knowingly allowed the excesses may be subjected to an excise tax of 5%. If an organization exceeds the limits for four consecutive years, it may lose its tax-exempt status.
So, as you can see, lobbying as a (c)(3) is complicated both in determining what type of lobbying is involved, whether it is permitted, and, if so, if it will constitute a substantial part of its activities. As is the case with all my blogs, my intent is to help you spot the issues involved. If your organization is considering taking action that could be deemed "lobbying," contact a qualified attorney to help you formulate a compliant plan.