Legal Limits for Nonprofits: Advocacy vs. Lobbying
Nonprofits often shy away from important advocacy activities because they don’t understand what is permitted by law. But the boundaries are quite straightforward if you know the difference between advocacy and lobbying!
Advocacy vs. Lobbying
Advocacy is the act of expressing support for a cause, idea or policy. The right to advocate is a bedrock value of American democracy, and nonprofits from every sector engage in advocacy because it’s an important part of fulfilling their missions.
Lobbying is attempting to shape votes on pending legislation. Direct lobbying involves direct communications to public officials. Grassroots lobbying involves mobilizing the general public to communicate with public officials.
Nonprofits are never permitted to engage in political campaigns, and individual members may not use any organizational resources to conduct campaign activities.
Legal Limits for Nonprofits
The IRS states that nonprofits “may advocate a particular position or viewpoint” as long as the activity is nonpartisan and objective. Acceptable activities include conducting educational meetings and distributing educational materials surrounding public policy issues. In other words: nonprofits may advocate in a nonpartisan manner.
The IRS also permits nonprofits to weigh in on important legislation through lobbying; however, these activities must be nonpartisan and cannot comprise a substantial part of the organization’s activities. In other words: nonprofits may lobby in a nonpartisan manner within limits.
Tax Implications
Many tax practitioners advise nonprofits that they can safely devote 3-5% of their overall time and expenses to lobbying (based on a federal court ruling that 5% of a nonprofit organization’s time and effort was an insubstantial part of its activities). However, the IRS has published no clear definition of “substantial,” and considers “a variety of factors” in its assessments of lobbying. To avoid this ambiguity, nonprofits can choose a lobbying “election” under Section 501(h) of the Internal Revenue Code.
In completing a one-page form, nonprofits agree to follow a simple formula limiting the amounts they spend on lobbying. The limits work on a sliding scale: organizations with total exempt expenditures of $500,000 or less can spend up to 20% of their exempt expenditures on lobbying. The scale is capped at $1 million in lobbying expenses for the largest nonprofits. This scale allows plenty of room for the kind of lobbying most arts organizations want to do. Moreover, the limits apply specifically to lobbying, not to advocacy or other educational activities.
Nonprofit lobbying expenses are reported to the IRS through annual Form 990 filings. Taking the Section 501(h) election does not signal that you are a political organization, it simply means that you’re planning ahead to keep any lobbying activities within certain limits. Nonprofit organizations can opt in or out of the election at any time.