Legislative Activity​

Basic Rule
501(c)(3) organizations may engage in insubstantial amounts of lobbying  or legislative activity. The courts have generally interpreted this to mean 5% or less of overall activities, financial expenditures, staff hours or other measurable standards. Organizations that exceed this guideline will have their 501(c)(3) status revoked, unless they have filed IRS Form 5768 to elect the more liberal limits of section 501(h). (Not all 501(c)(3)’s are eligible to make this election.)  The rules that follow apply only to those organizations that have made the election.

Direct Lobbying, Electing Organizations
I. Definition
General discussion of controversial issues does not, alone, constitute lobbying. In order for the IRS to find that direct lobbying has taken place, there must be three elements:

• Specific Legislation - This could be a bill or other piece of legislation already introduced in the legislature, or a specific legislative proposal.
• Reflecting A View - In order to be lobbying, a discussion must take a position (supporting or opposing) the specific legislation.
  
• A communication with a legislator or a government official
  

Special rule - Discussion of initiatives and referenda are considered direct lobbying (subject to more generous percentage limits) even though communication is with the general public.

II. Limitations
If all three of these elements are present, you have "Direct Lobbying."  The rules for an organization which has made the section 501(h) election are as follows:

• The organization is allowed to spend up to 20% of its overall budget on direct lobbying without penalty.
• If more than 20%, but less than 30%, of the budget is spent on direct lobbying, there will be a penalty tax, but the 501(c)(3) status is not in jeopardy.
  
• If expenditures for direct lobbying average more than 30% of the organization's overall expenditures over a four year period, the IRS can revoke the 501(c)(3) tax exempt status.
  

(Caution: If the organization's budget exceeds $500,000 per year, these "safe harbor" percentages are reduced!)

III. Recordkeeping

• Keep track of the total amount spent directly for this kind of lobbying - long distance phone calls, postage, travel, payments to lobbyists.
• Paid employees, if any, should keep logs to determine the percentage of their salaries and benefits to be allocated to lobbying.
  
• Arrive at a reasonable method for allocating overhead and similar costs to the lobbying activity.
  

Grass Roots Lobbying, Electing Organizations
I. Definition

General discussion of controversial issues does not, alone, constitute lobbying. In order for the IRS to find that grass roots lobbying has taken place, there must be three elements:

• Specific Legislation - This could be a bill or other piece of legislation already introduced in the legislature, or a specific legislative proposal.
  
• Reflecting A View - In order to be lobbying, a discussion must take a position (supporting or opposing) the specific legislation. 
  
• A Call To Action - Includes urging people to contact legislators, giving out legislators' addresses or phone numbers, or identifying legislators who are either in favor of, or opposed to, the specific legislation.
  

Special rule - In some cases, communications with an organization’s own members may receive more lenient treatment.

II. Limitations
If all three of these elements are present, you have "Grass Roots Lobbying." The rules governing grass roots lobbying for an organization which has made the section 501(h) lobbying election are as follows:

• The organization is allowed to spend up to 5% of its overall budget on grass roots lobbying without penalty.
  
• If more than 5%, but less than 7.5%, of the budget is spent on grass roots lobbying, there will be a penalty tax, but the 501(c)(3) status is not in jeopardy.
  
• If expenditures for grass roots lobbying average more than 7.5% of the organization's overall expenditures over a four year period, the IRS can revoke the 501(c)(3) tax exempt status.
  

(Caution! If the organization's budget exceeds $500,000 per year, these "safe harbor" percentages are reduced!)

III. Recordkeeping

• Keep track of the total amount spent directly for postage, travel and other grassroots lobbying.  Also keep track of print space (column inches) in newsletters or other publications. Divide the amount devoted to grass roots lobbying by the total to determine a percentage to be applied to all costs of producing and distributing the publications.
  
• Paid employees, if any, should keep logs to determine the percentage of their salaries and benefits to be allocated to grass roots lobbying.
  
• Arrive at a reasonable method for allocating overhead and similar costs to the grass roots lobbying activity.
  

Note: Permitted grass roots lobbying amounts DO NOT INCREASE the overall lobbying limits.  For instance, if an organization spends 20% of its overall budget on direct lobbying, then any additional amounts spent on grass roots lobbying will be taxable.

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