Political Campaign Activity and Lobbying
Activity For a 501(c)(3) Organization
Not-for-Profit Services Group
May 2012
www.KahnLitwin.com
Boston ♦ Newport ♦ Providence ♦ Waltham
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A Section 501(c)(3) organization can lose its exemption for even a minor involvement in a political
campaign.
However, lobbying activities are permissible within certain guidelines.
Please remember! The following information is for your general guidance and is not intended to
replace the advice of competent legal counsel.
Political Campaigns
Involvement in a political campaign includes contributing money (via a straight contribution,
attendance at a fund raising dinner, cocktail party, etc.) contributing services, contributing the use of
facilities (including renting facilities at below fair-market rental value), supporting or opposing a
candidate (for any political office), engaging in fundraising activities for a candidate, or otherwise
seeking to influence the outcome of an election. Although we have tried to list everything, we
probably have omitted some activity. Suffice it to say that a 501(c)(3) organization can not engage in
the political electoral process in any way whatsoever.
If you believe that it is in your best interest to attend the $100 per person cocktail party for the
governor or the dogcatcher, do not pay the $100 with a check from the organization or reimburse the
person who attended the event. If a Board member or employee attends such an event on their own
time, at their own cost, you have done no wrong.
We have heard that some organizations, who believe it is important to be politically visible, suggest
that the President or Executive Director attend such events, on their own time and at their own
expense. We have heard that this cost is factored into the compensation for these employees. We can
not verify this, as nothing of this nature is ever in writing. It is not written in the employment
agreement. It is not a documented factor in the compensation determination process.
Lobbying Activity
Lobbying is the attempt to influence the adoption or defeat of pending legislation through public
statements or ad campaigns. Lobbying also includes contacting members of the legislative body or by
urging the public to contact members of the legislative body. Lobbying is permissible provided the
charity follows one of two sets of rules.
The two sets of rules under which lobbying is permissible are:
1. The “no substantial part” rule or
2. The optional sliding scale rule.
You may lobby without fear of losing your tax-exemption status as long as you operate your lobbying
activities in accordance with one of the above sets of rules.
The Independent Sector, a national leadership forum, working to encourage philanthropy, volunteering,
not-for-profit initiative and citizen action maintains a site on the Internet that contains a great deal of
information regarding lobbying. You can reach the Independent Sector at www.independentsector.org
Charity Lobbying in the Public Interest (one of the initiatives of the Independent Sector) is working to
dispel the myths that lobbying by charities is unimportant, inappropriate or illegal by providing
information on the important role of lobbying in achieving an organization's mission.
The “no substantial part” rule
This rule provides that no substantial part of the organization’s activities can be lobbying. It is a
subjective test that is difficult to apply. Although it is generally believed that lobbying is not a
substantial part of an organization’s activities it is less than 5% of total activities, there is no definitive
safe harbor.
There are cases in which the “no substantial part” rule was held to have been violated in spite of the
small percentage of total activity devoted to lobbying activities. [Seasongood v. Comm., 227 F.2d 907
(6th Cir. 1955) and Christian Echos National Ministry, Inc. v. U.S., 407 F.2d 849 (10th Cir. 1972) cert.
den. 414 U.S. 864 (1973)]
In addition to the problem of the volume of lobbying activity, in applying the “no substantial part”
test, it is not always clear what activities must be considered lobbying. Attempting to influence
legislation does not necessarily begin at the moment an organization first makes its views known to
the public or the legislature. For example, significant time and effort may be devoted to researching
and studying issues before formulating a definitive position and these activities may be deemed part of
the lobbying effort. [League of Women Voters of the U.S. v. U.S.. 180 F. Supp. 379, 148 Ct. Cl 561
(1960) cert. den. 364 U.S. 822 (1960)]
The services of volunteers involved in lobbying have to be valued and included in lobbying
calculations when the “no substantial part” test is used.
The sliding scale rule
The federal government, including Congress and the Internal Revenue Service, supports lobbying by
charities. Congress sent that unambiguous message when it enacted the liberal provisions under the
1976 lobby law. The same message came from the Internal Revenue Service in regulations issued in
1990, which support both the spirit and intent of the 1976 legislation.
The 1976 law is clear regarding what constitutes lobbying by charities. Following are key points about
that legislation. They apply only to charities that have "elected" to come under the 1976 law. Those
that have not elected remain subject to the ambiguous "insubstantial" test, which leaves uncertain
which activities of charities related to legislation constitute lobbying and how much lobbying is
permitted:
1. The most important feature of the law is that it provides ample leeway for charities to lobby,
and it protects those that elect the advantages of the 1976 rules, from the uncertainties they
would be subject to if they remained under the insubstantial test.
2. Generally, organizations that elect the 1976 lobby law may spend 20% of the first $500,000 of
their annual expenditures on lobbying ($100,000), 15% of the next $500,000, and so on, up to
$1 million dollars a year! Equally important, there are eight critically important legislationrelated activities which charities may conduct that are not considered lobbying by the IRS.
3. Understanding what constitutes lobbying under the 1976 law is not difficult. In general, you
are lobbying when you state your position on specific legislation to legislators or other
government employees who participate in the formulation of legislation, or urge your
members to do so (direct lobbying). In addition, you are lobbying when you state your
position on legislation to the general public and ask the general public to contact legislators or
other government employees who participate in the formulation of legislation (grassroots
lobbying).
4. The Internal Revenue Service encourages groups to elect to come under the 1976 law. The
IRS has found groups that have elected are more often in compliance with the law than those
that have not. Also, it is easy to elect. Complete the one page IRS Form 5768 and send it to
the IRS.
The 1976 lobby law is clear about which activities are lobbying and which are not. For example,
lobbying occurs only when there is an expenditure of money by the charity for the purpose of attempting
to influence legislation. Where there is no expenditure by the organization for lobbying, there is no
lobbying by the organization. There is no assurance that the IRS would apply so permissive a standard
to organizations that don’t elect. Moreover, the rules for electing organizations clearly exclude from
lobbying an exceedingly broad range of activities that charities may engage in related to legislation.
Under the substantial test, there is no assurance that the IRS would not treat such activities as counting toward
"substantial" lobbying.
COMMON QUESTIONS ABOUTTHE LOBBYING ELECTION
Will Electing Put You on an IRS "Hit List"?
Definitely not. The IRS usually says nothing at all about what will or won’t increase your chances of
audit. However, the IRS Manual indicates that there is no connection between electing and becoming
subject to an audit. In fact, the IRS tells its auditors that lobbying issues are more likely to arise on
audit in the case or organizations that have not elected. In practice, audits of electing organizations are
usually simpler, because the organization and the IRS agent both understand what rules apply, instead
of having to apply the vague substantiality standard.
If We Elect, Will We Have to do More Record-Keeping and Reporting?
All nonprofits — whether or not they elect — have to report annually to the IRS on how much they
spend on lobbying. For electing organizations the reporting requirements are much simpler than for
non-electing organizations. If an organization elects, it need simply report the amounts it spent on
"direct lobbying" (generally lobbying members or staff of a legislative body) and "grassroots lobbying"
(urging the public to lobby) and do a bit of simple arithmetic.
Non-electing organizations, on the other hand, are required to include with their return detailed
narrative descriptions of their lobbying activities and report the amount spent on each activity. Both
types of organizations have to maintain records to substantiate what they reported on audit by the
IRS.
Electing organizations — and, if they are wise, non-electing ones as well — need a system for
recording how much they spend on lobbying. The IRS will accept any reasonable method of doing
this; for example, you can use sampling (that is, a brief period of time that is representative of your
lobbying activities) instead of complete time records to estimate how much time staff spends on
lobbying activity.
Should Very Large Organizations Elect?
Large organizations, even more than small ones, are likely to find the clearer, more specific financial
standards easier to comply with and report on than the substantiality test. Moreover, if they elect,
their size gives large organizations greater latitude to lobby, because an electing organization’s
lobbying ceiling is a percentage of their budget.
Once an organization’s budget reaches $17 million, its lobbying ceiling is capped at $1 million for all
lobbying expenditures and $250,000 for grass roots lobbying. However, even for the largest
organizations that don’t elect it seems likely that the IRS would claim that lobbying expenditures in
excess of these levels would be substantial. In addition, of course, the large organization that doesn’t
elect is subject to all of the vagaries of the substantial test, and it has more difficult reporting
requirements on the annual IRS return. At a minimum, very large organizations predisposed not to
elect should consult counsel knowledgeable about the 1976 law and regulations before making a final
decision.
Why Isn’t Staying Under the Substantiality Test Good Enough?
All nonprofits can lobby — even those that remain subject to the vague substantiality test. But those
groups that elect are sure of benefiting from the clear, reasonable, liberal definitions in the 1976 lobby
law and regulations. If, one year, you do inadvertently exceed the limits by a modest amount, you risk
only a penalty tax, not loss of exemption.
If an organization is absolutely certain that no significant amount of anything it does could be
considered lobbying, then electing — though harmless — is not necessary. But bear in mind that by
not engaging in lobbying your organization may be failing to employ a very important activity that
could be enormously helpful in carrying out your mission.
Educational activities
Charities sometimes confuse working for the election of a political candidate with lobbying. These
two kinds of activity are in fact very different. It is perfectly legal (and highly appropriate) for a
charity to work for the passage of a particular piece of legislation, during a political campaign or at any
other time.
Working for the election of a particular candidate, however, whether at federal, state, or local levels —
is strictly prohibited and is cause for the charity to lose its tax-exempt status. While a 501(c)(3) group
cannot work on behalf of or against candidates, there are a number of other voter education activities,
such as those described below, that it can legally engage in.
Electioneering. A 501(c)(3) organization cannot endorse, contribute to, work for, or otherwise
support a candidate for public office, nor can it oppose one. This in no way prohibits officers,
individual members, or employees from participating in a political campaign, provided that they say or
do everything as private citizens and not as spokespersons for the organization or while using the
organization’s resources.
Candidate’s Statements. It is entirely proper for a charity to inform candidates of its positions on
particular issues and to urge them to go on record, pledging their support of those positions.
Candidates may distribute their responses both to the charity and to the general public. Charities,
however, may not publish or distribute statements by candidates except as nonpartisan
“questionnaires” (discussed in the following paragraph) or as part of bona fide news reports.
Questionnaire. Charities with a broad range of concerns can safely disseminate responses from
questionnaires. The questions must cover a broad range of subjects, be framed without bias, and be
given to all candidates for office. If a charity has a very narrow focus, however, questionnaires may
pose a problem. The IRS takes the position that a charity’s narrowness of focus implies endorsement
of candidates whose replies are favorable to the questions posed. The same applies when candidates
are asked to respond to a charity’s position paper. Unless you are certain that your organization clearly
qualifies as covering a broad range of issues, your organization should avoid disseminating replies
from questionnaires.
Voting Records. Many charities follow the useful practice of telling their members how each member
of a legislature has voted on a key issue. There is no legal problem with this practice provided that if
the information is presented and disseminated during the campaign it is done in the same manner as it
is at other times. A problem arises if an organization waits to disseminate voting records until a
campaign is under way. If your organization has followed the practice of disseminating voting
records as votes occur throughout the year, then you are safe in publishing the record of a vote that
occurs during a campaign. If, however, your organization has not published the records regularly
throughout the year, your group may not, during the campaign, publish a recap of the legislative votes
throughout the legislative session. That is permissible, however, after the election.
Public Forums. Charities may invite candidates to meetings or to public forums sponsored by the
organizations. The invitation must be extended to “all serious candidates.” It is best to write to them
all simultaneously and to use identical language in the invitations. It is not necessary that all candidates
attend. Even-handedness must be maintained in promoting and holding such a meeting or forum.
The charity should not state its views or comment on those of the candidates. If there is a questionand-answer period, each candidate must be given an equal opportunity to answer questions, and the
moderator should strive to ensure balance. Speeches or other remarks by candidates at the forum may
be published as news items in the charity's newsletter, if it is published regularly and if its circulation is
limited to the organization's normal distribution patterns.
Testimony on Party Platforms. As part of a lobbying effort, charities may testify before party platform
committees at the national, state, or local levels. Responses to testimony may be reported in regularly
published newsletters. Both parties' platform committees should receive copies of the testimony.
Any account of the testimony and responses may be reported in the charity’s regularly scheduled
publication.
Issue Briefings and Candidates' Statements. Issue briefings for candidates must be extended to all the
candidates running for a particular office. A candidate may publish a position paper or statement on
the issue, but a charity may not circulate the candidate's statement to the media, the general public, or
the charity's members until after the election.
Membership Lists. The charity may sell, trade, or rent its list to others, including candidates for office.
If it does so, all candidates must be aware of the opportunity and be given the same access. An
organization that gives or lends its membership list to a candidate is in effect making an illegal
campaign contribution. To stay within the law, the group must be paid fair value in return.
Five exceptions from the term "influencing legislation":
In general, they are exceedingly useful for charities making the lobbying election. They rule out of
the term "influencing legislation" a number of important kinds of legislatively oriented activities
which might well — indeed, in most cases clearly would — otherwise be considered within this
exception. And where a charity's activity is within one of the exceptions, none of the charity's
costs in carrying it count as legislative expenditures, to be applied against its expenditure
allowances.
1. A broad and highly important exception applies to making available the results of nonpartisan
analysis, study, or research on a legislative issue.
The final regulations make clear that such research and analysis need not be neutral to be
within this exception. On the contrary, they provide that materials consisting of plain
legislative advocacy can qualify. The exception applies to material that takes a clear position on
the merits of specific legislation:
So long as it contains a sufficiently full and fair exposition of the facts to enable the
audience to form an independent opinion;
So long as the organization makes the material generally available; and
For grass roots communications, as long as the material does not include a direct call
upon the audience to contact legislators.
This exception permits robust argument for or against specific legislation where the argument
presents the facts fairly and seeks to persuade its audience by rational means (and the other
conditions noted above are met). Even before the adoption of the final regulations, the
exception (included in the proposed regulations) had proved to be widely useful for electing
public charities.
2. A second very important exception is one for membership communications. A charity's
communication with its members — by magazine, newsletter, conference, or any other
method, is not influencing legislation unless it "directly encourages" its members to lobby.
Here again, the organization's communication can comment on pending legislation, evaluate it,
and take a position on it so long as the statement does not tell members to lobby legislators —
or urge others to lobby.
3. A third important exception excludes charities' discussion of broad social, economic, and
similar policy issues whose resolution would require legislation — even if specific legislation
on the matter is pending in a legislative body — as long as the discussion does not address the
merits of specific legislation.
4. A fourth, narrower exception permits charities to respond to written requests from a legislative
body, committee, or subcommittee for technical advice on pending legislation.
5. A fifth exception, also much narrower than the first three, allows electing charities to engage in
direct lobbying on matters affecting their own powers, duties, tax exempt status, or the
deduction of contributions to them.
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