Not-for-profit organizations often shy away from lobbying for fear of losing their tax-exempt status. But organizations can lobby without endangering their tax-exempt status (and without major financial resources or professional assistance) when they understand how to walk the fine line between nonprofit lobbying and advocacy.
Nonprofit Lobbying versus Advocacy
Knowing the difference between lobbying and advocacy is an essential component of complying with the lobby law. Although many details are still under investigation, the recent IRS scandal involving extra scrutiny of “Tea Party” and “patriot” organizations serves as an example of the importance of clearly defining activities as lobbying or advocacy.
Lobbying always involves advocacy, but advocacy doesn’t necessarily involve lobbying. The key to determining whether an activity is considered lobbying or advocacy depends in part on the audience an organization is trying to influence. Questions to consider include:
- Does the audience of an organization’s efforts make the laws or simply follow and enforce them?
If the audience makes laws and the organization is attempting to change legislation by encouraging these lawmakers to vote a certain way, then it’s lobbying. If the organization is speaking with an administrative official or other non-lawmaking individual or group about a broad policy change, then it’s advocacy.
- Does the organization want these individuals to vote a certain way on proposed legislation or simply be more aware of issues?
Promoting a point of view and providing public education aren’t considered lobbying activities — even if the organization is speaking with a public official. The discussion crosses the line only when specific legislation is discussed or a particular vote is influenced.
Following the Lobby Law
The IRS evaluates lobbying based on whether a not-for-profit chooses to report activities under the 1976 lobby law or uses the “no substantial part” test. The lobby law provides nonprofits with a clearly defined set of rules, and requires organizations to file Form 5768, known as the “h” election. For example, if an organization chooses to use the lobby law, then it may spend 20% of its first $500,000 in annual expenditures on lobbying tax free. This percentage decreases as annual expenditures increase, and annual nontaxable lobbying expenses are capped at $1 million. An excise tax will apply when spending limits are exceeded.
The “no substantial part” rule stipulates that nonprofits can spend only an insubstantial amount of their resources on lobbying. The specific dollar amount isn’t defined, but courts have ruled that more than 5% of an organization’s budget, time, and effort is substantial. Most organizations, therefore, aim for a percentage below 5%.
Focus on Walking the Line with CRI
Lobbying can be a powerful way for your organization to increase public awareness of your mission. So increase the spotlight time of your mission while CRI’s not-for-profit CPAs assist your organization with following the IRS rules regarding lobbying to maintain your organization’s tax-exempt status. Just don’t ask us to sing Johnny Cash’s song.