My organization is recognized as a 501c3 charity. Can we support advocacy without risking our tax-exempt status?
Yes! Federal laws actually encourage advocacy, which is the process of stakeholders making their voices heard on issues that affect their lives and the lives of others at the federal, state, and local level. When you invite a Congressperson to visit a historic place to learn more about preservation efforts, you are engaging in advocacy. When you send your Congressperson a letter explaining how your research has benefited from funding from the National Endowment for the Humanities, you are engaging in advocacy. Nonprofit 501(c)(3)s can engage in unlimited advocacy without endangering their IRS designation. Indeed, engaging in advocacy is an important best practice of the most effective nonprofit organizations.
There are limits, however, on lobbying, which is a defined term in the tax code. Lobbying means activities in support or opposition to a specific piece of legislation or regulation. When you send out a call to action asking your members to call their representatives to vote Yes or No on a particular bill, that is lobbying. Meeting with your Senators to ask them to vote Yes or No on a particular bill is lobbying. The IRS has declared that a non-profit cannot retain its tax-exempt status if it dedicates a “substantial part” of its activities to lobbying. What constitutes a “substantial part” of an organization’s activities is determined on a case-by-case basis. The IRS considers the amount of time and money spent on lobbying when making its determination.
Because the “substantial part” test is rather vague, many 501(c)(3) organizations have made the 501(h) election – which provides more specific lobbying guidance, in the form of clear definitions and dollar-based limits, to non-profits. The 501(h) election allows non-profits to use an expenditure test to determine what percentage of their annual expenditures they can spend on lobbying (normally around 20%). Making the 501(h) election has yet another benefit: reporting requirements are less burdensome. We therefore strongly encourage non-profits to make the 501(h) election if they are serious about engaging in lobbying efforts.
It is also important to understand that political activity, which means supporting or opposing candidates for public office, is always prohibited for 501(c)(3)s.
Please note that state or local laws may impose additional restrictions on nonprofit organizations. This summary is not intended to be legal advice for your particular situation.
For more information, see http://www.nonprofitlawblog.com/introduction_to/ and https://apps.americanbar.org/buslaw/blt/2009-03-04/mehta.shtml and https://www.ncoa.org/public-policy-action/advocacy-toolkit/advocacy-basics/nonprofit-advocacy-rules-regulations/