Politics and lobbying: what charities can and can't do

This guide is for charity leaders who want to speak up on issues that affect the people they serve, and who worry about crossing a line with the IRS. Many charities stay silent because they think all political activity is banned. It isn't. After reading, you'll know the one absolute rule about elections, what lobbying is and how much a charity can do, and what the 501(h) election is and why many charities choose it.

Two very different rules

People often lump "politics" together. The IRS treats two activities very differently:

1. Campaign activity: supporting or opposing candidates for public office. For 501(c)(3) charities, this is banned.
2. Lobbying: trying to influence laws. For most 501(c)(3) charities, this is allowed, within limits.

Keep these two separate in your mind.

The campaign ban

The IRS says all 501(c)(3) organizations are 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. The IRS says it applies to all campaigns, including at the federal, state and local level.

According to the IRS, this clearly includes:

• contributions to political campaign funds, and
• public statements of position, spoken or written, made on behalf of the organization for or against any candidate.

Breaking this rule can lead to losing tax-exempt status and to excise taxes.

What's still allowed

The IRS says some election-related activities can be fine if they're nonpartisan, meaning they don't favor any candidate or party:

• voter education, such as public candidate forums and voter guides, done in a nonpartisan way,
• voter registration drives, and
• get-out-the-vote drives.

But if these activities show bias, such as favoring one candidate, opposing one, or having the effect of favoring a candidate or group of candidates, they become prohibited.

Common traps

• Posting or sharing content for or against a candidate on the charity's website or social media.
• Inviting only one candidate to speak at an event during an election.
• A leader endorsing a candidate from the podium at the charity's event.
• Letting a campaign use your mailing list or space for free when others can't.
• A voter guide that only covers issues that make one candidate look good.

When in doubt, don't, and get advice.

Lobbying is allowed, within limits

The IRS says a 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status. The law says lobbying can't be a "substantial part" of a charity's activities.

What counts as lobbying

The IRS describes legislation as action by Congress, a state legislature, a local council or a similar body on bills, acts, resolutions and similar items, or by the public in a referendum, ballot initiative or constitutional amendment. It does not include actions by executive, judicial or administrative bodies, such as an agency writing regulations.

There are two kinds:

• Direct lobbying: communicating with a legislator or their staff, or a government official who helps form legislation, about specific legislation, and stating a view on it. For example, meeting your state representative to ask them to vote yes on a bill.
• Grassroots lobbying: urging the public to contact legislators about specific legislation. For example, an email asking supporters to call their city council about an ordinance.

What isn't lobbying

The IRS says charities can take part in public policy without it counting as lobbying, for example:

• holding educational meetings,
• preparing and sharing educational materials, and
• otherwise discussing public policy issues in an educational way.

Publication 557 adds other activities that don't count for charities that make the 501(h) election, such as sharing nonpartisan analysis or research, discussing broad social problems, giving technical advice to a legislative body that asked in writing, and communicating with a legislature about a decision that might affect the charity's own existence, powers, tax-exempt status or the deductibility of gifts to it.

Two ways to measure "how much"

The substantial part test (the default)

If you do nothing, the IRS uses the substantial part test. There's no fixed number. The IRS looks at all the facts, including the time spent by paid staff and volunteers and the money spent. A charity that lobbies too much in a year may lose its exemption, and may face a 5% excise tax on its lobbying spending; managers who knowingly agreed can face a 5% tax too.

The problem is uncertainty. Nobody can tell you exactly where "substantial" begins.

The expenditure test (the 501(h) election)

Most public charities can choose instead to use the expenditure test under section 501(h) of the tax code. You do this by filing Form 5768 with the IRS. The IRS says the election can be made at any time during the tax year it's meant to cover, and it stays in effect for later years unless you revoke it.

Publication 557 explains that under the expenditure test, the limit is measured by money spent on lobbying, instead of by whether lobbying is a substantial part of your activities. Compare that with the default test, where the IRS also weighs the time of volunteers. And the limits are clear numbers based on your size. The IRS gives this table for the "lobbying nontaxable amount," which is how much a charity can spend on lobbying without tax, based on its exempt purpose expenditures (generally, what it spends on its mission and administration):

Publication 557 adds that grassroots lobbying has its own limit: 25% of the lobbying nontaxable amount.

Say a small charity spends $200,000 a year on its mission (a hypothetical example). Its total lobbying limit would be $40,000 (20%), and of that, no more than $10,000 could be spent on grassroots lobbying.

If an electing charity goes over its limit in a year, it pays an excise tax of 25% of the excess. It only risks losing its exemption if it normally spends more than 150% of its limits over a four-year period.

Who can elect

Publication 557 says churches and their integrated auxiliaries, and private foundations, can't make the 501(h) election. Most other public charities can.

Keep records and report

Charities that lobby report it on Schedule C of Form 990 or 990-EZ. Charities that made the 501(h) election report their lobbying spending against their limits. Charities that didn't must also describe their lobbying activities, including work done by volunteers, whether or not money was spent. Keep simple records of lobbying spending: staff time spent on lobbying (as a share of pay), printing and postage for lobbying messages, and any travel to meet legislators. If you've made the 501(h) election, these records are how you show you stayed within the limits.

Advocacy checklist

• Everyone who speaks for the charity knows the campaign ban
• Our social media policy covers candidate content
• Any voter activity is clearly nonpartisan
• We know whether we're under the substantial part test or the 501(h) election
• Our board has discussed filing Form 5768
• We track lobbying spending, and grassroots lobbying separately
• We report lobbying on Schedule C of our Form 990

If you want to hear how other charities approach advocacy, ask a member charity for help through the Exchange.