Desiree burned with a charitable passion for the welfare of the individuals whom her charitable organization served. She had a radar for things that she felt might adversely affect them, and when her radar went off, watch out! One day, she stormed into an Executive Committee meeting, sharing a fresh report of a bill just introduced in her state legislature’s lower house. The bill, Desiree claimed, would further undercut the limited opportunities her organization’s patrons faced for recovery and increase their risks and burdens. Someone, Desiree demanded, must speak out against the bill.

Purpose

Your organization has a charitable purpose that it published to the IRS to qualify for 501(c)(3) status. That charitable purpose is your organization’s primary or even sole reason for existing, so far as the IRS, donors, and others may be concerned. Yet many things can affect a charitable purpose, making its carrying out easier or more difficult. And many things can affect the individuals, groups, and populations whom charitable organizations serve. Federal, state, and local legislation is one of those many things. Does advocacy for or against legislation, or lobbying as the IRS and others call the practice, fall within or outside of a charitable organization’s purpose? In Section 501(c)(3), Congress indicated that some lobbying can serve charitable purposes but not much. The IRS must disqualify so-called action organizations, dedicated to campaigning and carrying on propaganda, from 501(c)(3) tax-exempt status.

Examples

First, though, understand what lobbying looks like. Lobbying might include inviting a legislative representative to the charity to hear the views of its directors and executive on pending legislation, taking a bus full of charity volunteers to a legislative hearing at the state capitol to advocate for or against legislation, or encouraging donors, volunteers, and the public to call representatives to favor or oppose a bill. The essential aspect of lobbying is that it involves attempts to influence legislators or encourage others to influence legislators regarding pending or proposed legislation.  Your organization may have zero interest in lobbying. But just wait. You may soon see a bill that could have enormous potential impacts on your organization, its charitable mission, or its patron population. Then, you might reconsider your organization’s lobbying interests.

Types

The Internal Revenue Code and IRS recognize two types of lobbying, direct lobbying and grassroots lobbying. Direct lobbying occurs when an organization representative meets directly with a legislator or legislative staff member to advocate for or against legislation. Section 4911(d) defines direct lobbying as “any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of the legislation....” Grassroots lobbying occurs when an organization encourages the public to influence legislation. Section 4911(d) defines grassroots lobbying as “any attempt to influence any legislation through an attempt to affect the opinions of the general public or any segment thereof....” The encouragement may be specific, such as listing names and telephone numbers of legislators to call to oppose or favor a bill, or general, such as organizing the public for a rally or demonstration and passing petitions to sign. Direct lobbying thus addresses legislators and their staff, while grassroots lobbying addresses the public.

Restriction

The Internal Revenue Code Section 501(h)(1) prohibits qualified 501(c)(3) charitable organizations from lobbying more than in an insubstantial part of the organization’s activities. To say it another way, Section 501(h)(1) prohibits substantial lobbying, not insubstantial lobbying. Section 501(h)(1) recites, “exemption from taxation ... shall be denied because a substantial part of the activities of such organization consists of carrying on propaganda, or otherwise attempting, to influence legislation....” 

Contrast

Keep in mind that Section 501(c)(3) organizations must not campaign at all. Zero. Zilch. Nada. To campaign is to support or oppose a candidate, while to lobby is to support or oppose legislation. Examples of prohibited campaigning include endorsing a candidate on the organization’s website or with signs around the organization’s facility, the organization granting the candidate permission to include the organization’s name among endorsers in campaign materials, or the organization’s executive director speaking on the candidate’s behalf at a campaign event while representing the organization. Section 501(c)(3) organizations can lose their tax-exempt status for any campaigning but would lose their tax-exempt status only for substantial lobbying. 

Substantiality

The question for a charitable organization wishing to do some lobbying, then, is what constitutes substantial lobbying crossing the line. The IRS applies the Internal Revenue Code’s substantial-part test to determine whether a 501(c)(3) organization has exceeded its permitted level of lobbying. Section 501(h) imposes lobbying ceilings for an organization each tax year, one ceiling for direct lobbying and another ceiling for grassroots lobbying. The lobbying ceilings are 150% of (one-and-a-half times) lobbying ceiling amounts appearing in a table at Section 4911(c)(2). Those amounts depend on knowing your organization’s annual exempt purpose expenditures. In effect, the larger your organization’s annual expenditures, the smaller the percentage your organization may spend on lobbying. For example, an organization spending under $500,000 annually has a lobbying ceiling of 150% of 20% of its expenditures, while an organization with expenditures over $1,500,000 has a lobbying ceiling of 150% of $225,000 plus just 5% of its expenditures over $1,500,000. The more that your organization receives and spends on its charitable purpose, the less it may spend on lobbying.

Tracking

If your organization wishes to conduct lobbying, it should calculate its annual lobbying ceiling. It should then track each expenditure on lobbying to ensure that its total annual lobbying expenditures don’t exceed the ceiling. For instance, if the organization sends its executive director to the state capitol to meet with legislators to advocate for or against legislation, the organization should calculate the cost of the time, travel, and associated expenses, enter those costs in a record, and continue to record and total such expenditures throughout the year, monitoring them against the approaching ceiling. If the organization publishes website or flyer material advocating that the public should support or oppose legislation, the organization should calculate and record the staff time and other costs associated with preparing, posting, and distributing the material. If the organization holds a rally on a legislative cause, the organization should calculate and record the cost of the staff time and other expenses the organization devoted to organizing the rally. Lobbying is permissible up to a degree. Record and monitor the expenditures to stay within limits.

Exceptions

The lobbying definitions shared above are so broad, and the insights of charitable organizations potentially so valuable to the consideration of legislation, that Congress granted exceptions to the above lobbying limits. The exceptions permit a charitable organization to make available to legislators nonpartisan analysis, study, or research, to provide technical advice to an agency or committee when requested in writing, and to appear before a legislative body to testify to legislation impacts on the organization. Examine other exceptions at Section 4911(d)(2). 

Education

The above restriction against campaigning and limitation as to lobbying do not prevent a 501(c)(3) organization from educating voters on subjects relating to the organization’s charitable purpose. Charitable organizations may organize nonpartisan voter-education events, conduct non-partisan voter-registration drivers, publish and distribute balanced voter guides, and invite candidates from all sides to speak at an open forum in which the organization maintains neutrality. The organization must avoid partisanship. It must also not urge voters to vote in specific reference to a candidate, issue, or referendum. At voter-education events, the organization should not permit campaign fundraising. The organization’s moderator of an open candidate forum should ask only balanced questions and avoid the appearance of partisanship.

Individuals

The above limits and restrictions on lobbying and campaigning are limits and restrictions on the organization. Individuals associated with a charitable organization retain their right, as individual citizens, to campaign and lobby. Individuals may contact legislators and legislative staff to advocate on legislation as much as they wish, as long as not identifying themselves as organization representatives. Likewise, individuals may campaign for candidates, as long as not identifying themselves as organization representatives. A charitable organization’s officer, director, or staff member exercising those individual rights should not announce the individual’s organization role, membership, or association, nor wear clothing or items identifying the organization, when lobbying or campaigning individually. The line is fine between acting and speaking on one’s own behalf versus acting as an organization representative. Patrol that line closely, including by training and monitoring organization leaders and staff members who wish to campaign or lobby as individuals, while respecting the organization’s restrictions. 

Key Points

• Charitable organizations pursue exempt purposes, not political action.

• Section 501(c)(3) strictly forbids charities from campaigning.

• Section 501(c)(3) permits only insubstantial lobbying unless excepted.

• Lobbying takes direct and grassroots forms.

• Charities face lobbying ceilings based on their annual expenditures.

• Track any lobbying activity against the annual lobbying ceiling.

• A charity may share nonpartisan analyses and research.

• Charity representatives may testify on charity impacts of legislation.

• Charities may hold nonpartisan voter-education events.

• Individuals campaigning must avoid disclosing their charity role.

Read Chapter 19.