Does your organization want to weigh in on a ballot measure? (Part Two)

Assuming your organization wants to lobby, the organization should next consider its tax-exempt status and how the IRS treats lobbying for organizations of that type.  For purposes of this post, I am only going to discuss considerations for §501(c)(3) public charities.*

Public charities are subject to limitations on their lobbying under one of two different tests.  Charities that remain under the default substantial part test are subject to the limitation that no substantial part of their activities can consist of attempting to influence legislation.  Legislation is understood broadly to include actions by Congress, State legislature, local governing bodies, and the general public when considering referenda, initiatives, constitutional amendments, and other similar measures.  For the purposes of measuring whether an organization’s lobbying activities are substantial, supporting activities such as studies, research and preparation can be included as lobbying activities.  Additionally, portions of overhead attributable to these activities should be included.  Lobbying activities that should be measured under the substantial part test are not limited to activities that the organization expends funds for – volunteer activities should also be considered when determining whether the overall lobbying activities constitute a substantial part of the organization’s programs.  There is no clear point at which an organization’s lobbying activities become substantial in the eyes of the IRS – it is always a fact specific inquiry.  As little as five percent has been questioned as to whether it was substantial as compared to the organization’s overall activities.

Organizations that would like the certainty that more specific limits provide can choose to elect to be measured under the expenditure test of §501(h).  This test provides a much clearer method of measuring an organization’s activities, in large part because you only have to count actual expenditures.  By electing under the expenditure test, organizations are also safe from having their exemption revoked for lobbying activities unless they normally exceed the proscribed limits.  Electing organizations do have to distinguish whether their lobbying activities were grassroots or direct lobbying (grassroots lobbying is subject to an additional limitation).  Electing charities that choose to lobbying for or against a ballot measure should count those activities as direct lobbying (the general public is viewed as the legislature in these instances).

If your organization is planning or has already begun to actively lobby the general public on a ballot measure, you should determine which test you fall under for measuring lobbying activities, particularly if you engage in lobbying on other subjects as well.  Don’t let the IRS rules around lobbying prevent you from getting out and representing your organization’s interest on an issue – nonprofit organizations provide a great service to the public by involving themselves in such issues.

 

*Organizations other than §501(c)(3)s do not have numerical lobbying limits.  The issue of whether an organization of this type can engage in lobbying activities revolves around whether the organization is focused on accomplishing its exempt purposes.  However, private foundations (§501(c)(3)s that are not public charities) are subject to a prohibitive excise tax on their lobbying activities and thus should not lobby.

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