There’s a simple one-page form that can save you a ton of time and stress if your organization does some sort of legislative lobbying. Form 5768, more popularly known as the 501(h) election or the expenditure test, can do wonders for your lobbying efforts.
Taking the 501(h) election is an alternative to filling out the section of Form 990 that requires organizations to disclose the “total expenses paid or incurred” as a result of lobbying. If you don’t take the election, the IRS looks at the information in this section and determines if the nonprofit’s legislative lobbying is only an “insubstantial” amount of the organization’s activities. This is referred to as the substantial part test.
So what exactly qualifies as “insubstantial?” It’s never clearly defined and seems to be determined on a case-to-case basis. This can be a major problem, because if the IRS decides that your lobbying was substantial, your tax-exempt status could be in jeopardy. Check out the advantages and disadvantages of filling out the 501(h) election below.
One of the biggest advantages of the 501(h) election is that it clearly defines the specific amount that you can spend on lobbying, based on your total amount of expenditures. This gets rid of uncertainty; instead of looking at an organization’s activities, now you’re working with hard and fast numbers, leaving no doubt about the limit.
Filing for the expenditure test also lays out certain governmental activities that don’t count as lobbying.
- Nonpartisan analysis, study or research that presents all sides of an issue
- Responses to written requests for assistance from committees or other legislative bodies
- Challenges to or support for legislative proposals that would change the organization’s rights or its right to exist
- Examinations and discussions of broad social, economic and similar problems
- Any communications with a government official or employee that isn’t for the purpose of influencing legislation
Another benefit is the form’s simplicity. The form needs to be mailed any time during the financial year to be applied for that year. It will remain in effect until the organization revokes it or tax-exempt status is lost.
There are a few examples of organizations that might not benefit from this form. The major exception is large organizations. If a significant portion of the budget is dedicated to lobbying, especially grassroots lobbying, it may be more beneficial to follow the substantial part test; even with the risks associated. Organizations like churches and private foundations aren’t allowed to file for the election, but can lobby under the substantial use test.
For Organizations That Don’t Lobby
If your organization hasn’t done any kind of lobbying before, you might think this doesn’t apply to you; don’t be quick to dismiss it. The US Tax Code allows any tax-exempt organization to freely engage in lobbying, but only as long as it is an “insubstantial” portion of the organization’s activities. Even if that’s not part of what your nonprofit does, keep in mind that you have the option. If you find yourself engaged in lobbying down the road, it’ll be helpful to have the 501(h) guidelines already applied to your organization.
Differences Between Lobbying and Advocacy
It’s important to note the differences between lobbying and advocacy. Advocacy, while similar, isn’t the same as lobbying, and the IRS doesn’t regulate advocacy like they do with lobbying. The similarity and confusion will often lead to nonprofits shying away from doing anything at all.
While lobbying deals with supporting or opposing a specific piece of legislation, advocacy is more broad; talking on behalf of your constituency, giving them a powerful voice that they would otherwise not have. Educating legislators, telling them how government funds helped your constituents, or inviting them to visit and see how the funding is helping first-hand all is considered advocacy. However, as soon as you ask a legislator to vote for or against a specific piece of legislation or include a call to action to your members, it becomes lobbying.
In essence, advocacy is relationship building. If you are in contact with legislators, keeping them informed of the goings-on at your organization and how much you are getting out of government funding, you’ll stay on the right side of the advocacy-lobbying line. Once you actively try to sway opinion on a specific piece of legislation, you cross the line into lobbying.
Long story short on the 501(h) election – take it. If your organization qualifies, there aren’t many reasons to be judged under the substantial part test, and electing under 501(h) couldn’t be much simpler. Even if lobbying isn’t something you do now, taking the election is something worth serious consideration.