The 501(h) Election
If You Do Advocacy, Consider Filing the 501(h) Election
From the National Council of Nonprofits
Federal tax laws already allow every charitable nonprofit to engage in some lobbying activities. There are spending limits and technicalities that curb nonprofit advocacy, but knowing your rights ensures your organization’s participation in the democratic process. The language in the Internal Revenue Code, rather than providing an absolute ban on all lobbying by charitable nonprofits, instead sets a limit, providing that, “no substantial part of the activities” may be for “carrying on propaganda, or otherwise attempting, to influence legislation.”
Federal tax laws already allow every charitable nonprofit to engage in some lobbying activities. There are spending limits and technicalities that curb nonprofit advocacy, but knowing your rights ensures your organization’s participation in the democratic process. The language in the Internal Revenue Code, rather than providing an absolute ban on all lobbying by charitable nonprofits, instead sets a limit, providing that, “no substantial part of the activities” may be for “carrying on propaganda, or otherwise attempting, to influence legislation.”
Thus, while many people do not realize it, charitable nonprofits may freely engage in lobbying, as long as that activity amounts to only an “insubstantial” amount of the nonprofit’s activities.
Here’s the rub: The definition of “insubstantial” has not been provided by the IRS, and the line between an “insubstantial” and a “substantial” amount of lobbying activities is hazy at best, especially because it depends on how the IRS retroactively weighs the facts and circumstances of each situation. Therefore, to avoid the uncertainty of a nonprofit’s lobbying activity being measured with this subjective test, charitable nonprofits should consider filing IRS Form 5768 (Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation).
Filing the form, which is also known as “filing the 501(h) election,” allows nonprofits to elect to be measured by the objective “expenditure test” instead. Importantly, a 501(c)(3) charitable nonprofit taking the 501(h) election remains a 501(c)(3) charitable nonprofit. The (h) election simply allows that nonprofit to opt out of the vague “substantial” activity test and use the friendlier expenditure test.
The expenditure test has great advantages over the more uncertain “substantial part” test. Indeed, in the National Council of Nonprofit’s opinion, filing the 501(h) election is, for the vast majority of nonprofits, the easiest, most effective “insurance” a nonprofit can secure to protect itself from overstepping IRS limitations on lobbying activities. Private foundations, churches, and integrated auxiliaries of churches are not permitted to file the 501(h) election, however.
Learn more on the National Council of Nonprofits website.