Lobbying Limits

Contrary to popular belief, 501(c)(3) nonprofits can lobby — they just can't make it a "substantial part" of their activities. The tricky part is that the IRS has never clearly defined what "substantial" means under the default test (called the substantial part test). This ambiguity makes a lot of nonprofit leaders nervous about any advocacy work.

That's why many nonprofits elect the 501(h) expenditure test by filing Form 5768. This alternative test gives you clear, bright-line dollar limits on lobbying expenditures. Under the 501(h) test, you can spend up to 20% of your first $500,000 in exempt purpose expenditures on lobbying, with the percentage decreasing as your budget grows, up to a maximum of $1 million in lobbying expenditures regardless of size. There's also a separate sub-limit for grassroots lobbying (asking the public to contact legislators) — it's capped at 25% of your total lobbying limit.

Importantly, lobbying is specifically about attempting to influence legislation. Educating the public, publishing research, responding to government requests for testimony, and advocating on regulatory (non-legislative) issues generally don't count as lobbying under these rules.

Advocacy is often central to a nonprofit's mission — environmental groups push for clean air laws, education nonprofits advocate for school funding, health organizations lobby for research dollars. Understanding lobbying limits means you can advocate effectively without risking your tax-exempt status.

The 501(h) election is almost always the smart move for organizations that do any lobbying. It replaces a vague "substantial part" standard with clear dollar amounts, gives you safe harbors, and the penalties for exceeding the limits are graduated (you pay a 25% excise tax on excess spending) rather than all-or-nothing. The only organizations that can't elect 501(h) are churches and private foundations.