Advocacy and lobbying can be a powerful way for nonprofits to gain support and mobilize the communities they serve, provide backing for policy solutions, and remind elected officials of the issues facing their constituents and the country at large.

The act of lobbying involves influencing or attempting to influence an elected official on an issue or certain legislation. Nonprofit organizations are allowed to lobby as long as they adhere to guidelines set by the IRS and state and municipal governments.

Below, we provide a brief overview of the IRS guidelines, as well as best practices for complying with federal requirements. Note that both New York State and New York City implement additional restrictions and have separate reporting and filing requirements, which must be met in addition to federal requirements. Our Nonprofit Advisory group can assist you in these efforts.

Federal Requirements

While lobbying is a form of advocacy, not all advocacy constitutes lobbying, as defined by IRS guidelines. Advocacy includes a large number of activities, including lobbying, but there are forms of advocacy that do not fall into the category of lobbying, including voter registration campaigns, public education, and policy research.  Nonprofits are allowed to engage in an unlimited number of non-lobbying advocacy efforts, and many choose this path because it is an effective way to rally support for their mission.

Lobbying, however, is a much more restricted practice. The IRS defines lobbying as such:

• Direct lobbying refers to attempts to influence a legislative body through communication with a member or employee of a legislative body, or with a government official who participates in formulating legislation.
• Grass roots lobbying refers to attempts to influence legislation by attempting to affect the opinion of the public with respect to the legislation and encouraging the audience to take action with respect to the legislation. In either case, the communications must refer to and reflect a view on the legislation

The IRS guidelines also impose different restrictions on public charities versus private foundations.

Public Charities

Public charities may lobby within limits prescribed by the IRS. For nonprofits wishing to engage in direct lobbying with elected officials, they can file Section 501(h) of IRS Form 5768 to allow them to spend funds on direct lobbying. Nonetheless, nonprofits are restricted to spending these funds as follows:

• 20% of the first $500,000 of their budget (or up to $100,000)
• 15% of the next $500,000 (or up to an additional $75,000)
• 10% of the next $500,000 (or up to an additional $50,000)
• 5% of any remaining funds up to an annual aggregate limit of $1 million

Section 501(h) also allows for grassroots lobbying, under the following expenditure limits:

• 5% of the first $500,000 of their budget (or up to $25,000)
• 75% of their next $500,000 (or up to an additional $18,750)
• 5% of their next $500,000 (or up to an additional $12,500)
• 25% of their remaining budget up to an annual aggregate limit of 250,000

Private Foundations

Private foundations are not allowed to lobby, but they are allowed to indirectly support public charities who do lobby. Private foundations are allowed to fund an unlimited amount of non-lobbying advocacy activities so long as these activities advance the foundation’s charitable purposes. Private foundations are prohibited from earmarking funds specifically for lobbying through their grantmaking activities. Individual private foundation personnel who wish to participate in lobbying activities are prohibited from using any of the foundation’s resources to do so.

While private foundations themselves are not allowed to lobby, they are allowed to make General Operating Support grants to the public charity of their choice. This is one way to indirectly lobby, as public charities may use this type of grant to lobby under certain conditions. General Operating Support grants are discussed in further detail in the “Lobbying and Grants” section of this article.

Any election-related activities by either public charities or private foundations are strictly prohibited.

Lobbying Exemptions

There are three exemptions to lobbying that nonprofits commonly use. The first exemption is related for any nonpartisan analysis, study, or research. To be granted an exemption, these must contain a “full and fair” explanation of the issues, and the level of nonpartisanship must be such that any reader could come to any given conclusion on the issues. Further, the nonprofit is required to show that the primary purpose of these activities is educational, not lobbying-related. This exemption allows for nonprofits to still include a viewpoint on specific legislation and indirectly call readers to action without incurring lobbying expenses.

The second exemption involves written requests for technical advice. Such requests must be submitted in writing on behalf of a government body, committee, or subcommittee, not by a single legislator.

The third exemption allows nonprofits to conduct examinations or discussions of broad social, economic, and similar issues. These issues can also be the subject of specific legislation, although IRS guidelines require that the nonprofit not refer to the specific legislation or directly encourage recipients to take action. As aforementioned, indirect calls to action are allowed.

Lobbying and Grants

When lobbying may be involved, the structure of a grant matters for both public charities and private foundations. There are two categories of grants: those for general operating support, and specific project grants under the Project Grant Rule.

General Operating Support

General Operating support grants made to an organization are those that are not restricted to any particular project or activity. As long as there is no agreement on how funds should be spent between the private foundation making the grant and the organization receiving the grant, the organization can use the money for any purpose- including lobbying. Note that these grants are only available to public 501(c)(3) charities and their foreign equivalents.

Specific Project Grant Under the Project Grant Rule

The Project Grant Rule requires foundations to show that a grant is not specifically earmarked for lobbying by demonstrating that the amount of a foundation’s grant does not exceed the non-lobbying portion of the project. Nonprofits that aim to fund lobbying efforts through specific project grants arranged by foundations must verify that they have more than one source of funding for their project, as a private foundation may only fund an amount that does not exceed the non-lobbying portion of the project budget.

The rules for advocacy and lobbying may seem challenging, but both activities can be useful avenues for a nonprofit organization to advance its mission. For nonprofits wishing to learn more about IRS-specific requirements, read Learn Foundation Law’s Advocacy & Lobbying: Rules for Public Charity Grantees of Private Foundations.

Capalino’s Nonprofit Advisory Services Group can assist in your nonprofit’s advocacy efforts while ensuring compliance with state and municipal requirements. For more information contact Executive Vice President Jeanne Mullgrav at jeanne@nullcapalino.com or 212.616.5832.

Nonprofit Advisory Services

The contents of this article are intended to convey general information only and not to provide legal advice.

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