Federal Law and Nonprofit Lobbying

Empty Minnesota Capitol chamber with empty seats, the American and Minnesota state flags, and statues of prominent former Minnesota legislators.

Definitions of Lobbying Under Federal Law

Lobbying is defined by federal tax law as any attempt to influence specific legislation. Legislation means a bill that has been introduced, or a proposal that may be introduced in any legislative body such as a city council, state legislature or Congress.

What Lobbying Does and Does Not Include

Advocacy involves identifying, embracing and promoting a cause. There is no limit to the amount of advocacy you can do. Advocacy is not lobbying! In addition, there are five activity categories that are excluded from the term “influencing legislation.” They are:

  1. Self-defense. Communication on any legislation that would affect an organization’s existence, powers and duties, tax-exempt status, or deductibility of contributions is not lobbying (note: lobbying on state budget appropriations does not fall under self-defense as defined here).
  2. Technical advice. Providing technical advice to a governmental body in response to a written request is not lobbying.
  3. Non-partisan analysis or research. According to the IRS, studying community problems and their potential solutions is considered non-partisan if it is “an independent and objective exposition of a particular subject matter…(which) may advocate a particular position or viewpoint so long as there is a sufficiently full and fair exposition of pertinent facts to enable the public or an individual to form an independent opinion or conclusion.”
  4. Examinations and discussions of broad social, economic and similar problems. Communication with the organization’s own members with respect to legislation which is of direct interest to them, so long as the discussion does not address the merits of a specific legislative proposal and make no call for action is not lobbying.
  5. Regulatory and administrative issues. Communication with governmental officials or employees on non-legislative (i.e. administrative) matters such as rule-making is not lobbying. Note: Unlike federal law, Minnesota law does require state reporting on attempts to influence administrative action. For more information, see Minnesota Campaign Finance Board’s Lobbyist Handbook.

IRS Regulation on Nonprofit Lobbying

There are two regulatory frameworks the IRS uses to monitor nonprofit lobbying. MCN strongly encourages small and mid-sized nonprofits to choose the 501(h) election.

  • The 501(h) election is a very simple one-page form (IRS Form 5768) that can be filed with the IRS at any time, which greatly clarifies the rules under which nonprofits can lobby. Electing to use the 501(h) expenditure test can maximize the organization’s lobbying activity and provides the organization with clear guidelines for how to proceed. Organizations must report how much was spent on direct lobbying and how much of the total amount for the year was spent on grassroots lobbying. Taking the 501(h) election is a best practice for small and medium sized nonprofits that lobby.
  • If the organization does not take advantage of the 501(h) election the IRS will evaluate lobbying under the general principle that “no substantial part” of its activities can be devoted to lobbying. This regulatory framework does not provide specific guidelines, such as expenditure limits, and requires detailed reporting of a wide range of activities related to lobbying. For these reasons, nonprofits are encouraged to choose the 501(h) election as a general rule.

IRS Reporting Requirements for Nonprofit Lobbying

All 501(c)(3) organizations (except churches, association of churches and integrated auxiliaries) must report lobbying expenditures to the IRS annually through Schedule C on Form 990. For those nonprofits that take the 501(h) election, the organization is required to report how much was spent on direct lobbying and how much of the total amount for the year was spent on grassroots lobbying. Organizations that do not take the 501(h) election must provide detailed descriptions of a wide range of activities related to lobbying.