Nonprofit organizations with 501(c)(3) tax-exempt status under the Internal Revenue Code (IRC) are subject to specific restrictions on their political activities. Violating these rules can lead to loss of tax-exempt status, so all nonprofits need to be aware of these restrictions to avoid any potential problems.
IRS regulations generally prohibit charities with tax-exempt status from engaging in lobbying except to an “insubstantial degree.” Historically, if a charity spends more than about five percent of its budget, time, and effort on lobbying, it may be considered “substantial” and thus violate IRS regulations, although there is no regulation that defines “substantial” with precision.
The other alternative for charities under IRS statutes is to use the 501(h) expenditure test under Section 501(h) of the IRC. Under the formula defined in 501(h), a charity’s lobbying activities are subject to specific dollar limits with an overall cap of $1 million. However, any lobbying activities by volunteers on behalf of the charity do not count toward those limits.
The IRS defines lobbying as:
- Any type of communication or contact
- To legislators (or urging the public to contact legislators)
- Intended to influence specific legislation in a certain way (i.e., asking for a vote one way or the other)
Legislation includes all action by a legislative body, whether by a federal, state, or local government body, and by the public when voting on a legislative initiative or referendum. Therefore, lobbying specifically excludes advocacy in front of non-legislative bodies, such as school boards or public agencies, that deal with general policy issues instead of specific policies to be enacted by law. Public education on a policy issue or promoting a specific point of a view on a general policy issue does not constitute lobbying that is restricted for charities under federal tax regulations.
Campaigning generally involves supporting or opposing any candidate for any type of elected office at the local, state, or federal level. Any participation in campaigning on behalf of or against any candidate during an election can result in losing a charity’s 501(c)(3) status. Campaigning also involves supporting or opposing a specific political party during an election, such as supporting all the candidates of one party or another.
Violating this restriction can result in the revocation or denial of tax-exempt status. It also can result in the IRS imposing certain excise taxes on the organization.
However, advocating for or against ballot initiatives or referendums during elections does not qualify as campaigning. As a result, charities may engage in this type of policy advocacy without endangering their tax-exempt status.
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