Within your nonprofit, be careful not to blur the lines between lobbying and political expenditures. Although these terms may seem alike, they are two distinct activities that carry significant compliance requirements and can impact your nonprofit’s tax-exempt status. Therefore, it is imperative to be well-versed in the compliance requirements related to these matters to eliminate confusion and ensure your organization complies with the intentions of the IRS.
What is lobbying?
Lobbying is activities intended to influence foreign, national, state, or local legislation. It includes direct lobbying (attempting to influence the legislators) and grassroots lobbying (attempting to influence legislation by influencing the general public).
What are political expenses?
Political expenditures are synonymous with political campaign activities. Political expenditures have to do with supporting or opposing candidates for elected offices, whether federal, state, or local.
Is lobbying allowable?
The short answer is yes. In general, nonprofits may participate to some extent in lobbying regardless of their tax-exempt status. However, for 501(c)(3) organizations, if a “substantial” part of their activities involve lobbying, then the nonprofits can lose their 501(c)(3) charitable status. Therefore, it is important that these organizations monitor the amount of time and dollars spent on lobbying activities.
Other nonprofit classifications, such as 501(c)(4), (5), and (6) entities, are not subject to the restrictions noted above, and merely have to ensure that tax is paid on lobbying activities. This is accomplished in one of two ways, the most common being through reporting of non-deductible dues. The second is through paying a proxy tax.
Are political expenses allowed?
The answer depends on your nonprofit’s tax-exempt classification.
- 501(c)(3) organizations are prohibited from participating in political campaigns and incurring political expenses. Unlike lobbying, there is not a “substantial part” test, and the IRS can revoke an organization’s tax-exempt status for any participation in a political campaign, regardless of whether there is a cost or not.
- Non-501(c)(3) organizations may incur political expenditures but, similar to lobbying, tax must be paid on those.
What can organizations do to ensure the lines aren’t blurred?
Understand the nuances, including the fact that lobbying is specific to legislation, and political activities have to do with supporting or opposing candidates for elected offices.
Additionally, for all classifications, it is important to have a process to track and monitor lobbying and political activities which will not only ensure accurate reporting to the IRS, but also help an organization stay on the right side of the rules when it comes to compliance.
Many nuances and considerations must be taken into account related to these complex areas, and we have barely scratched the surface. If your organization participates in or is considering participating in lobbying and political activities, we encourage you to download our eBook, Lobbying and Political Expenditures for Nonprofits.