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Legislative Advocacy: A Legal Right for Nonprofits

Legislative Advocacy: A Legal Right for Nonprofits.

By Rebecca D. Ramos

There is much confusion among nonprofit staff and board members about whether non-profits can lobby. Legally, they can.

For a 501(c)(3) type of nonprofit, the IRS cares about direct and grassroots lobbying. Direct lobbying is defined as an attempt to influence legislation by stating a position on that specific legislation to legislators or other government employees who participate in the formulation of legislation.  Grassroots lobbying is when a nonprofit urges its members to engage in direct lobbying.

When ESMMSC urges a legislator to vote a specific way on a bill, that is direct lobbing.  When ESMMSC sends out a legislative alert, urging its members and partners to contact their legislator about supporting or stopping a specific bill, that is grassroots lobbying.

The IRS does not want nonprofits engaging in lobbying full time, so it  has two ways in which they limit the amount of direct and grassroots lobbying.  The first is the “substantial part” test.  The second is the Section H election.*

Substantial Part Test:

The IRS evaluates the “substantial part” test on the basis of the facts and circumstances devoted to lobbying by the organization, such as the time (by both paid and volunteer workers) and the resources spent. The idea is that no substantial part of the organization’s activities or resources can be used for lobbying. The substantial part test has been criticized as there is no definition for what is substantial or insubstantial.

Section H Election:

The IRS provides clear guidance in the Section H Election option for nonprofits engaged in lobbying. Nonprofits may elect to operate their lobbying activities under Section 501(h) of the tax code.  Under this 501(h) expenditure test, public charities may spend:

          Direct Lobbying: 20% of the first $500,000 of its exempt purpose expenditures; 
15% of the next $500,000, and so on, up to one million dollars a year.

          Grassroots Lobbying: 5% of the first $500,000 of its exempt purpose expenditures;
3.75% of the next $500,000, and so on, up to $250,000 a year.

Much Legislative Advocacy is not Lobbying

In reality, nonprofits spend much of their legislative advocacy efforts engaged in a bunch of activities that do not fit into the definition of direct or grassroots lobbying.

For example, research, technical assistance, broad discussion and examination of problems, and updating members on the status of legislation is not lobbying.  Any communication with a legislator regarding matters that can impact the existence of a nonprofit – taxes, raffles, contributions – are exempted under the “self-defense” exception, and are not counted as direct or grassroots lobbying.

ESMMSC has come a long way in their advocacy efforts in two short years. They have joined other nonprofits in South Carolina to improve the lives of South Carolinians by engaging in their legal right to lobby!

*This does not constitute binding legal advice. For specific legal or tax advice for our own circumstance, be sure to consult your attorney or accountant.