When Is a Nonprofit Lobbying?

In California, excessive lobbying could lead to loss of tax-exempt status

By Doug Mentes, Esq. | Last updated on January 11, 2023

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It’s perfectly legal for section 501(c)(3) organizations to lobby. The allowable amount of that lobbying will vary, however, depending on whether a nonprofit has elected under section 501(h) to use the expenditure test or remain with the default substantial part test. Organizations can, though, get more bang for their buck by understanding how the Internal Revenue Service (IRS) distinguishes lobbying from activities that are not grassroots lobbying, measuring lobbying or direct lobbying—instead seen as advocacy or education. Because, when nonprofits engage in advocacy or education, those activities do not count against the organization’s lobbying limitations.

What Is Lobbying?

Lobbying is defined by the IRS as attempting to influence legislation. Legislation encompasses action by congress, the state legislature, local council or a similar governing body, with respect to acts, bills, resolutions or similar items. Legislation also includes actions by the public, like a referendum, ballot initiative, constitutional amendment or similar procedure. A nonprofit is attempting to influence legislation when it:
  • advocates for the adoption or rejection of legislation
  • contacts legislative members or staff to propose, support or oppose a specific legislation
  • urges the public to contact legislative members or staff to propose, support or oppose legislation

What Is Advocacy?

Arthur Rieman has practiced law in California for 30 years and has spent much of that time advising and representing nonprofit organizations. “Advocacy is letting people know your point of view and asking them to support it,” he says. “There are lots of ways to talk to a lawmaker. That [lobbying] limitation applies only to attempting to influence the elected official or their staff.” He further notes how the IRS distinguishes some activities from lobbying: “If you advocate for a particular point of view, but it’s not about actual or pending legislation, that’s not considered attempting to influence legislation. When I was general counsel for a corporation, I would meet with legislators, and say, ‘The law is affecting us in a negative way. Please consider changing the law to help improve our business condition, without proposing any particular legislation.’ That would not be considered attempting to influence legislation under section 501(c)(3).” Self-defense activity is another exclusion from lobbying, meaning it won’t count toward the organization’s lobbying limits. “There is no limitation on attempting to influence legislation if it has to do with the survival of the organization,” Reiman says. “Let’s say that you’re an organization that provides social services paid for by government funds. In California, we have what are called regional centers that are funded by the state to provide contracts and grants to social service agencies. … [If] legislation was proposed to cut off all funding to regional centers, that would create an existential threat to any organization that was relying on regional center funding.” Other activities excluded from lobbying limits include:
  • contacting regulators or regulatory agencies
  • responding to requests from a legislative body—not just a sole legislator—for technical advice on pending legislation
  • any contact with executive, judicial or administrative bodies or members of congress
  • communication with organization staff members so long as the organization does not encourage members to lobby
  • disseminating nonpartisan analysis or research, so long as that research presents a sufficiently full and fair analysis of the pertinent facts to enable the audience to form an independent opinion

Expenditure Test Provides More Benefits

Lobbying activity by organizations that elect to use the expenditure test under section 501(h) is limited by the organization’s lobbying expenditures. However, a benefit of that election is that lobbying that is of no cost to the organization won’t count toward the organization’s lobbying limits. “If your volunteer board members go to Sacramento or Washington, D.C., or to the city council to lobby on behalf of the organization—and that’s not an expenditure—that doesn’t count against your limits,” says Rieman. In comparison, under the substantial part test, volunteer activity is counted when measuring the organization’s overall activity. Lobbying does come with risks for nonprofits, under either IRS lobbying measurement test. Excessive lobbying could lead to excise taxes on the organization or, worse, loss of tax-exempt status. If your nonprofit organization is considering lobbying activity, begin by sitting down with an experienced California nonprofit attorney. For more information on this area, see our overview of closely held business.

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