Lobbying by Nonprofits

Lobbying — defined as attempting to influence specific legislation through contact with legislators (direct lobbying) or through calls to action directed at the public (grassroots lobbying) — is permitted for 501(c)(3) public charities within limits, but is unrestricted for 501(c)(4) social welfare organizations. For 501(c)(3) organizations, the IRS applies either the "insubstantial part" test (lobbying must not be a substantial part of activities) or the Section 501(h) election (which provides specific dollar limits based on the organization's budget). Under the 501(h) election, organizations can spend up to 20% of the first $500,000 of exempt purpose expenditures on lobbying, with the percentage decreasing for larger budgets, up to a maximum of $1 million annually. Grassroots lobbying is further limited to 25% of the total lobbying allowance. Organizations that exceed these limits face excise taxes and potentially lose their tax-exempt status. It is important to distinguish lobbying from advocacy: nonprofits can freely engage in issue education, research publication, nonpartisan voter registration, and public awareness campaigns without these activities counting as lobbying. Form 990 Schedule C requires reporting of lobbying expenditures, political campaign activities, and related activities. For donors evaluating organizations on NonprofitTruth, lobbying expenditures are categorized within functional expenses and can affect the program expense ratio depending on how the organization classifies advocacy-related costs.