Those of us working within the nonprofit community, and particularly in or with 501 c3 public charities, recognize advocacy as a vital part of our mission. However, many of us get caught up in the delivery of services and may spend very little time advocating for the very systemic changes that could reduce the extensive need for the services we deliver. I am certain that we can agree that there may be no better spokespersons for the sick and elderly than those who commit themselves to nursing home service and hospice care. And who are more qualified to testify to successful rehabilitation methods than those who counsel in local drug clinics?
However, in my daily practice, I have come to recognize that time and money are not the only causes for a limited advocacy program. Often, it is a lack of understanding about what one can and cannot do when your public charity gets involved as an advocate in the public policy arena. There is confusion as to the distinctions between advocacy and lobbying, limited knowledge of the related lobbying regulations, and a resulting uninformed concern over losing one’s tax-exempt status.
While it is true that a public charity under the Internal Revenue Code Section 501 c3 is not allowed to take part in a political campaign on behalf of any candidate for public office, there are no such restrictions on cause-related advocacy. In fact, even lobbying can be undertaken by a public charity without any risk to its tax-exemption so long as these efforts are not a substantial part of its activities.
Direct lobbying is attempting to persuade legislators to enact or not enact a bill. Grassroots lobbying involves encouraging the constituency of legislators to exercise their influence with such legislators on behalf of or against some legislation. Political campaigning consists of working for or against candidates’ election to office. (See box for extended definitions.)
Is It Advocacy or Is It Lobbying?
Under these definitions, there is in fact a great number of activities an organization can engage in that are neither campaigning nor lobbying, thereby, eliminating the concern for legal repercussions that lobbying might have on the tax exemption of a “public charity.”
For example, the following activities are not lobbying:
- Efforts to make an administrative agency of the government change its policies, rules or regulations, or to adopt new ones, are not considered lobbying.
- An exempt organization can target a political executive (e.g.: a mayor or governor) so long as they are not being asked to promote, discourage or veto legislation.
- Your organization can develop a general policy position directed at issues as long as the issues have not been reduced to a specific legislative proposal.
- Testifying before a legislative committee on a matter for which the organization has received a written request from the committee to testify. 
- Non-partisan voter registration drives are also allowable,  as is voter educational material so long as such material: 1) States the position of all candidates without any evaluation of the candidates, 2) covers a broad range of issues without any particulate bias toward such matters, and/or 3) describes the candidates’ positions in ways that do not show bias on the issues or a preference.
Applies to Organizations Not Individuals
Also, it may be important to your organization to note that these rules apply only to the organization and not to individuals acting in their individual capacity and not as a representative of the organization. Staff or board members can advocate individually or join volunteer advocacy groups formed to advance positions as long as the group has no connection to the exempt organization with which the individual is associated.
In acting on your own, you should not use the letterhead of your exempt organization; in addition, if your name is to appear on the letterhead of some unrelated group that may be lobbying, it is always better not to list your organization’s name. Several of my clients have an individual that is so closely associated by the public with their organization that I encourage he or she not to participate “on their own” unless we can track such activity within the organization to ensure it is not substantial.
Options Available Under the Law for Lobbying
In understanding some of the aforementioned distinctions, you may determine that your organization does need to lobby or that some of its “advocacy” activities may begin to meet the lobbying definitions. While it is true that the actual boundaries can, at times, only be ascertained through an in-depth knowledge of the code sections, regulations, revenue rulings and case law, this should not discourage you from pursuing your efforts. You simply need to be aware of the options available under the current law and have available to the organization professional counsel to address any specific nuances that may arise.
First, there is the “traditional” test under which no “substantial part” of the organization’s activities can consist of lobbying. Unfortunately, there is no specific definition by the IRS of “what is substantial,” therefore, the amount of lobbying activity allowed to a given organization may ultimately depend on the extent and nature of its other activities.
It was once suggested that less than five percent of an organization’s time and effort involved in legislative activities is not “substantial.” However, this may be misleading in that several cases have established that the political activities of an organization must be assessed in the context of its objectives and circumstances to determine whether a substantial part of its activities was to influence or attempt to influence legislation.
An exempt organization that desires to steer clear of such murky waters can employ Section 501(h) of the Code.
The H Election
Under this Code section, a public charity can elect to track their lobbying activities using a predefined “expenditure test.” An organization may make the election by filing Federal Form 5768 Election/Revocation of Election by an Eligible Section 501 c3 Organization to Make Expenditures to Influence Legislation. It is important to note that the election pertains only to lobbying and that any involvement by the exempt organization in political campaigns on behalf of or in opposition to any candidate for public office is still forbidden. However, by making this election, the “substantial” lobbying becomes a matter of definition for the public charity organization.
A public charity making the Section 501(h) election may spend up to a certain dollar amount of its “exempt purpose expenditures” to influence legislation without incurring tax or losing its exempt status. Under the expenditure test there are limits for direct and grassroots lobbying expenditures. (See expenditure test box.) If the organization does not meet the expenditure test (i.e., it spends in excess of the amounts allocated under Section 501(h), it will owe a 25 percent excise tax on its excess lobbying expenses. In addition, if over a 4-year period the organization’s average annual total lobbying or grassroots lobbying expenditures are more than 150 percent of the direct and grassroots dollar limits, respectively, the organization will lose its exempt status. This is a one-time election and, if the organization wishes to revoke the election, it may do so using the same form.
When an H election is not made, it is up to the organization to ensure that “no substantial part of the activities of the organization is carrying on propaganda or otherwise attempting to influence legislation.” While the rules under the H election are clear and objective, it should be obvious from our discussions above that the “no substantial part” tests rests upon subjective criteria that have been developed in an inconsistent and unclear manner.
It is interesting to note, however, that some activities, which would clearly not be lobbying under the rules that apply to organizations that have made the election, may in fact be lobbying under the “no substantial part” test. Most of this uncertainty involves grassroots lobbying and the communication rules listed above. For example, the nonpartisan analysis or research material which presents full and fair disclosure of the facts so that the reader can form an independent opinion on the issues will not be considered grassroots lobbying under 501(h), but would most likely be considered lobbying without the H election.
As the test for those who have made the H election is based solely on expenditures, lobbying may be done by uncompensated board members without limit and may not have any effect on the organization’s tax status. Under the “no substantial part” test, such efforts would be included.
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