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501(c)(3) Organizations: Political Activity and Lobbying

on Wednesday, 30 September 2015 in The Closer - M&A, Securities & Corporate Counsel: Kevin P. Tracy, Editor

Originally published in the September/October 2015 edition of The Nebraska Lawyer.


With an election year approaching, and voters and politicians facing contentious social issues, nonprofit organizations may be eager to engage in public policy discussions. Despite IRS attempts at clarity, there remains a great deal of confusion among nonprofit organizations regarding the scope of political and lobbying activities that are allowed. Attorneys representing tax-exempt organization may be asked to help clarify these issues, with questions such as: Are nonprofits absolutely barred from any political activity during election campaigns? How does the IRS distinguish between political and non-partisan activity? Can the nonprofit organization “lobby” and what exactly does that mean? Can private foundation grants be used to fund permissible public charity lobbying activity? The following discussion will address these and other questions that may arise when advising a 501(c)(3) organization in regard to the permissibility of political activities under the Internal Revenue Code (the “Code”).1


Overview of 501(c)(3) Organizations

As a threshold matter, it is important to clarify that not all nonprofit organizations are treated equally. The extent to which a nonprofit organization is permitted to engage in political or legislative activity depends upon the organization’s specific category of exemption under Section 501 of the Code.

The most well-known category of exemption is Section 501(c)(3), which requires that an organization be organized and operated exclusively for one of several enumerated purposes – most commonly, charitable.2 Additional categories of exemption under Section 501 include: 501(c)(4) (social welfare organizations), 501(c)(5) (labor and agricultural organizations), 501(c)(6) (trade and professional associations) and 501(c)(7) (social and recreational clubs). Political organizations (such as political action committees) are also exempt from taxation on operating income under Section 527 of the Code.

Organizations that qualify for exemption under Section 501(c)(3) enjoy the most favorable tax status. Although all organizations described under Section 501(c) are exempt from income taxation, only 501(c)(3) organizations may receive contributions which are tax-deductible to the donor. In return for this favored status, 501(c)(3) organizations face the most restrictions on their political and legislative activity. Whereas 501(c)(4) organizations may engage in partisan political campaign activity (but only as a secondary activity) and may engage in unlimited lobbying activities, a 501(c)(3) organization is generally prohibited from engaging in political campaign activity and may not attempt to influence legislation as a substantial part of its activities. Accordingly, this article will focus on political campaign intervention and lobbying restrictions applicable to organizations exempt from taxation pursuant to Section 501(c)(3).

Political Activity

By the express language of the Code, all section 501(c)(3) organizations are completely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for public office.3 An organization is considered an action organization, and therefore not entitled to 501(c)(3) status, if it intervenes in any political campaign for or against a candidate for public office (whether or not the activity forms a substantial part of the organization’s activities).4

“Candidate for Public Office”

The IRS takes a very broad view of who may qualify as a “candidate for public office” for purposes of the prohibition on political activity. To fall within the scope of the prohibited political activity, two elements must be present: (1) the activity must constitute a political campaign, and (2) the campaign must be with respect to a candidate for public office. Treasury regulations define the term candidate as an individual who offers himself or herself, or is proposed by others, as a contestant for an elective public office, whether such office be national, State, or local.5 It is clear that a Section 501(c)(3) organization cannot support or oppose an individual who has declared her candidacy for a particular office, but the prohibition extends beyond declared candidates and may apply to efforts to recruit an individual to run for office or advance exploratory activities. For example, a 501(c)(3) organization could not help in efforts to encourage (or discourage) Joe Biden or Mitt Romney from running for President, despite that neither has declared.6

Note that the political activity ban applies even if the public office is not “partisan”. For example, the Association of the Bar of the City of New York lost its 501(c)(3) status when the Association attempted to rate candidates in elective judicial races on a nonpartisan basis.7 However, the prohibition applies only to election campaigns and does not prohibit activity influencing the appointment and confirmation of appointed public officials, such as judicial and executive branch nominees. (Note that such activity would be considered “lobbying”, discussed below.)

Participation or Intervention in a Political Campaign

There is currently no comprehensive statutory or regulatory guidance defining the scope of impermissible political campaign activities. Treasury Regulations state simply: “Activities which constitute participation or intervention in a political campaign on behalf of a or in opposition to a candidate include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to such a candidate.”8

It is obvious that the prohibition would be violated if an organization expressly advocates for the election or defeat of a candidate by, for example, sending a mailer or posting a message on its website with the words “Vote for Trump”. The IRS has similarly stated that contributions to political campaign funds are clearly impermissible.9 The difficulty arises when the political activity at issue is not so obvious and may serve a nonpartisan purpose. The IRS resolves these ambiguous situations by employing a “facts and circumstances” test. In evaluating potential political activity under this test, the IRS considers not just the language of the organization’s communication, but also all external factors as well, including the communication’s timing, its targeted audience, and how the message relates to public policy positions that distinguish candidates in a campaign.10

Voter Education and Registration. “Voter education” activities, such as the presentation of candidate forums and debates and the distribution of certain informational voter guides, may be permissible if conducted in a non-partisan manner.11 The IRS has indicated that the preparation and distribution of voter guides presents a “particular risk for noncompliance” and may violate the prohibition against political campaign intervention if the guide focuses on a single issue or narrow range of issues, or if the questions are structured to reflect bias.12

A 501(c)(3) organization may invite a candidate to appear or speak at an organization event in a non-candidate capacity. The organization should proceed cautiously to avoid any mention of the speaker’s candidacy or the election so as not to indicate support for or opposition to any candidate. On the other hand, if a candidate is invited to speak in his or her capacity as a political candidate, the IRS has indicated that the organization must provide all opposing candidates an equal opportunity to participate at the same or a “comparable” event.

Voter registration and get-out-the-vote drives are permissible as long as they are conducted in an unbiased manner without reference to any particular candidate or political party.13 When selecting target areas for voter registration activities, the organization must use neutral and nonpartisan criteria. For example, the organization may target low-income, minority, low-turnout, homeless or student populations, because those populations are typically underrepresented at the polls. However, a 501(c)(3) may not target groups because they tend to belong to a particular political party or have voted a certain way in prior elections.

Issue Advocacy. Section 501(c)(3) organizations can and do take positions on public policy issues such as environmental protection, gun violence prevention, health care, or education. Sometimes referred to as “issue advocacy”, this activity may include educating and persuading the public through communications ranging from fundraiser speeches to mass media campaigns. However, when the issues advocated by an organization become divisive in an election for public office, the line between issue advocacy and political intervention can be very difficult to draw. If a statement not only addresses an issue but also could be construed as favoring or opposing a particular candidate or group of candidates, even if it does not mention the name of a candidate or political party, it may be found to be political intervention.14 The IRS has cautioned organizations from intervening in a political campaign in a “surreptitious manner” by using “code words” to substitute for the candidate’s name, such as “conservative,” “liberal,” “pro-life,” “pro-choice,” “anti-choice,” “Republican,” “Democrat,” etc., coupled with a discussion of the candidacy or the election. 15

IRS guidance provides as an example a state senate election involving two primary candidates where funding for a new mass transit project is a prominent issue in the campaign. At the annual fundraising dinner for a local 501(c)(3) organization that promotes community development in the relevant area, which occurs the month before the election, the executive director gives a lengthy speech about community development issues including transportation issues. Although the speech does not mention the name of any candidate or political party, the speech concludes with the following statement: “For those of you who care about quality of life in District W and the growing traffic congestion, there is a very important choice coming up next month. We need new mass transit. More highway funding will not make a difference. You have the power to relieve the congestion and improve your quality of life in District W. Use that power when you go to the polls and cast your vote in the election for your state senator.” The IRS concludes that the organization has violated the facts and circumstances test and engaged in prohibited political campaign intervention. 16

Note that 501(c)(3) public charities are allowed to advocate for the passage or defeat of a ballot measure or other legislation within certain limits. (See “Lobbying” discussion below.) However, when ballot measures become closely identified with a candidate who has publicly endorsed or opposed the measure, any lobbying communications related to that measure must be carefully crafted to focus solely on the substance of the measure and avoid any indication that the organization supports or opposes a particular a candidate.

Personal Activities. The political campaign prohibition applies to the activities conducted by or on behalf of the 501(c)(3) organization. However, the IRS has made clear that the political activity prohibition is not intended to restrict free expression on political matters by leaders of nonprofit organizations speaking for themselves in their personal capacity.17 Board members, staff, and other individuals associated with a 501(c)(3) organization must be careful to avoid making any partisan comments in official organization publications, at official functions of the organization, or otherwise in a manner that would be attributed to the organization. The organization should prohibit all individuals from using the organization’s assets or facilities, including mailing lists and email accounts, for personal election campaign work.

Consequences of a Violation. Violating the prohibition against political campaign intervention may result in denial or revocation of the 501(c)(3) organization’s tax-exempt status and the imposition of certain excise taxes.18 The IRS has the discretion to determine which sanctions it imposes—revocation, excise tax, or both. For example, when a church in 1992 paid for newspaper advertisements criticizing then-Governing Bill Clinton as a “sinner” and concluding with “How then can we vote for Bill Clinton?”, the IRS audited the church and revoked its exempt status (and the revocation was upheld in federal court).19 In contrast, a church’s guest preacher gave a sermon the Sunday before the 2004 election entitled “If Jesus Debated Senator Kerry and President Bush”. The sermon criticized President Bush’s economic, social, and foreign policy, described these issues as important to the election, and asked the congregation to “vote [their] deepest values” in the voting booth. The IRS determined that the sermon constituted impermissible campaign intervention but declined to take any disciplinary action against the church.20

Proposed Regulations: New “Bright Line” Standard? After years of frustration with the lack of clear standards and inconsistent application by IRS, controversy erupted in 2013 when the IRS was accused of bias against conservative groups applying for tax exempt status under Section 501(c)(4).21 The IRS admitted poor judgment using shortcuts such as targeting terms “Tea Party”, “Patriot”, “Progressive”, and “Occupy” to identify organizations that should receive further scrutiny. The Treasury Department and IRS began the rulemaking process to better define candidate-related political activity, initially focused solely on Section 501(c)(4) organizations (which are permitted to engage in political activity so long as the activity is secondary to their primary purpose). The first draft of the proposed rules was roundly criticized, and the public comment period closed in February of 2014 with a record number of public comments received.22 The IRS has since withdrawn the proposed rules and has yet to issue a second set of draft rules. The hope among many tax exempt organization practitioners is that the new rules will adopt a “bright lines” test to provide clarity and reduce IRS discretion. In the meantime, all tax-exempt organizations engaging in political activity must proceed with caution.


With respect to lobbying, the Code imposes different requirements depending upon the type of 501(c)(3) organization conducting the activity—public charities or private foundations. While a comprehensive description of the difference between public charities and private foundations is beyond the scope of this article, generally public charities are supported by a variety of sources and private foundations are funded by a single source (typically an individual, family, or corporation).

A public charity may engage in lobbying, so long as those activities do not amount to a “substantial” part of the charity’s activities.23 When an organization engages in substantial lobbying, it is deemed an action organization and no longer qualifies for 501(c)(3) status.

A private foundation is prohibited from engaging in any lobbying.24 The prohibition against lobbying by private foundations is found in Section 4945 of the Code, which imposes a penalty tax on any amount paid or incurred by a private foundation for certain purposes — each a “taxable expenditure.” Accordingly, private foundations must be extremely careful when engaging in these types of activities to avoid monetary penalties and possible loss of tax exempt status.

Lobbying Defined.

In order to determine whether a private foundation is engaged in impermissible lobbying or a public charity is engaged in excessive lobbying, it is first necessary to understand what activities constitute lobbying. The Code generally describes lobbying as “attempting to influence legislation”. For public charities electing to be treated under Section 501(h) (see below), lobbying communications fall into two categories: grass roots lobbying or direct lobbying.25

A direct lobbying communication is an attempt to influence legislation through communication with any member or employee of a legislative body, (or with any government official or employee who may participate in the formulation of the legislation, but only if the primary purpose of the communication is to influence legislation). A communication with such a legislator or government official will be treated as direct lobbying only if the communication: (1) refers to “specific legislation”, and (2) reflects a view on such legislation. For example: a letter to Senator Deb Fischer which states “The Defund Planned Parenthood Act of 2015 should not be passed.”

A grass roots lobbying communication is an attempt to influence legislation through an attempt to affect the opinions of the general public. However, a communication will be treated as grass roots lobbying only if the communication: (1) refers to “specific legislation”, (2) reflects a view on such legislation, and (3) encourages the recipient of the communication to take action with respect to such legislation. For example: a direct mail flyer which states “The Defund Planned Parenthood Act of 2015 should not be passed. Contact your Senator and tell him or her to vote “no” on defunding Planned Parenthood.”

For purposes of the lobbying restrictions, the term “legislation” includes action by Congress, any state legislature, local council, or similar body, or by the public in a referendum, ballot initiative, constitutional amendment, or similar procedure, and the term “specific legislation” includes both legislation that has already been introduced in a legislative body and a specific legislative proposal that the organization either supports or opposes.26 The IRS provides this example of grass roots lobbying referencing “specific legislation”: a newsletter article distributed by an organization regarding problems with the use of pesticide X which states in part “Legislation that is pending in Congress would prohibit the use of this very dangerous pesticide. Fortunately, the legislation will probably be passed. Write your congressional representative about this important issue.”

Exceptions. The Code and Treasury Regulations clarify that certain activities, without more, are not considered to be lobbying, including:

  1. Engaging in nonpartisan analysis, study or research;
  2. Responding to written requests for technical advice or assistance from a governmental body or committee;
  3. Appearances before, or communications to, any legislative body with respect to a possible decision which might affect the existence of the organization, its powers and duties, tax-exempt status, or the deduction of contributions to the organization (the “self-defense” exception); and
  4. Examination of broad social, economic, and similar problems (such as pollution or population control), including any public discussion or communications with members of legislative bodies or government employees, even though the general subject of the communication may also be the subject of legislation before a legislative body, so long as such discussion does not address itself to the merits of any specific legislative proposal and does not directly encourage recipients to take action with respect to legislation.

It is certainly possible for non-lobbying activities to contribute to an eventual legislative outcome. For example, a massive public advocacy campaign that stops short of constituting “grassroots lobbying” or a well-written nonpartisan report can form the basis for legislative action. In this regard, a nonprofit organization’s educational efforts may contribute to an environment that could potentially lead to the enactment of legislation, even though the organization is not itself “attempting to influence legislation”.

Extent of Permissible Lobbying by Public Charities

While public charities may participate in some level of lobbying, to be exempt under Section 501(c)(3) “no substantial part” of the charity’s activities may consist of attempting to influence legislation (i.e. lobbying). Whether a public charity has surpassed its limits on lobbying activities is determined under either the default “substantial part” test or the elective, bright-line “expenditure test” under Section 501(h).

Substantial Part Test. If a public charity does not elect to file under Section 501(h) (discussed below), the charity must comply with the default “substantial part” test of Section 501(c)(3): “no substantial part” of a charity’s activities may consist of lobbying. The IRS has not defined the scope of “substantial” for purposes of Section 501(c)(3) — which makes compliance with this test a difficult and uncertain feat. The courts have made clear that the determination is based upon facts and circumstances and that a mechanical percentage test is not appropriate.27 In determining whether the test has been violated, the IRS will consider not only expenditures of money, but also the time (of both compensated and volunteer workers) and other non-monetary resources devoted by the organization to lobbying.28 It is also important to note that the regulations defining “grassroots” and “direct” lobbying, and the specific examples and exemptions under those regulations, do not apply to a public charity that remains subject to the default “substantial part” test. As a result, a public charity that fails to file the Section 501(h) election faces uncertainty in both determining exactly what activities constitute “lobbying” and measuring whether those activities are a “substantial part” of the charity’s overall activities.

501(h) Election. As an alternative to the ambiguous “substantial part” test, public charities (other than churches) may file an election to be treated under Section 501(h), which subjects the charity to the lobbying “expenditure test” of Section 4911 of the Code.29 This 501(h) election is accomplished by filing a single page form, IRS Form 5768, Election/Revocation of Election by an Eligible 501(c)(3) Organization to Make Expenditures to Influence Legislation, at any time during the tax year for which it is to be effective. In contrast to the “substantial part” test, under the expenditure test, lobbying only occurs when there is an expenditure of money and the limits on permissible lobbying expenditures are clearly defined. Section 501(h) establishes specific dollar limits that are calculated as a percentage of the charity’s total exempt purpose expenditures. Under 501(h), a charity may use up to 20% of the first $500,000 of its exempt purpose expenditures to lobby. For larger organizations, this dollar amount increases, on a sliding scale, to a maximum of $1 million.

In addition to the certainty of a bright-line test, public charities receive a number of benefits by making the Section 501(h) election.30 The election provides for the imposition of an initial penalty tax for excessive lobbying instead of the immediate loss of tax-exempt status for exceeding lobbying limits. Only electing charities that exceed their limits over a four year period will risk losing their exemption, because the IRS considers the electing charity’s lobbying expenditures as a moving average over a four-year period. (A non-electing public charity could lose its exemption for a single year’s excessive lobbying under the “substantial part” test.) Electing organizations need not track and report time spent by volunteers to conduct lobbying activities. Although some charities may express concern that the election will increase the likelihood of an audit, the IRS has stated “emphatically” that is not the case.31 For these reasons, tax exempt organization practitioners generally recommend that the election be made by any public charity that engages in any lobbying activities.

Private Foundation Support of Lobbying Activities

If your practice involves representation of charitable organizations that receive grants from private foundation, you have likely noticed language in grant agreements prohibiting the recipient organization from utilizing any part of the grant funds to attempt to influence legislation. It is a common misconception among private foundations that no part of their grant funds can be used for any lobbying activities. In reality, IRS rules specifically allow private foundations to provide grants to public charities that engage in lobbying, subject to certain restrictions.32

The primary restriction imposed on private foundations funding public charity lobbying is that the grant may not be “earmarked” for lobbying purposes. A grant is considered earmarked for lobbying if it is conditioned upon an oral or written agreement that the grant be used for lobbying purposes. Under IRS regulations, grants by private foundations to public charities fall into two categories:

  1. General Support Grants. Private foundations may make general support grants to public charities that lobby, so long as the grant is not “earmarked” for lobbying purposes. It is in the public charity’s discretion as to how the funds are used. Since a certain amount of lobbying may be a legitimate activity for the public charity, it may use the general purpose grant funds to pay for its lobbying expenditures. A private foundation is not required to seek information regarding a charity’s lobbying budget in order to make a general support grant.
  2. Specific Project Grants. Private foundations may make specific project grants to nonprofits even if a component of the special project includes lobbying activities. In this situation, the private foundation may fund up to the amount of the non-lobbying part of the specific project. This special project grant rule is designed to allow the private foundation to support organizations with projects that include a lobbying component. In determining whether the amount of the grant will exceed the amount budgeted for non-lobbying activities, the private foundation may rely on budget documents or other sufficient evidence supplied by the grantee organization showing the proposed (bifurcated) budget of the specific project, unless it has reason to doubt such information.

In Summary

Many 501(c)(3) organizations mistakenly believe they risk losing their tax exemption if they engage in any political or lobbying activity. Although they must carefully navigate applicable restrictions, 501(c)(3) organizations can serve an important role of education and advocacy in our political system. It is our hope that the IRS will soon provide further guidance clarifying the scope of permissible political activity, allowing organizations to more fully engage in public policy discourse without fear of penalties and loss of exemption. In the meantime, public charities should proceed with caution when undertaking any activity which could be construed under the “facts and circumstances” test as impermissible intervention in a political campaign.

In contrast to the absolute prohibition against political campaign intervention, certain public charities (but not private foundations) may engage in insubstantial levels of lobbying activity. By taking advantage of the clear and generous limits under a 501(h) election, public charities may bring their voices to the public debate. Although private foundations cannot directly engage in lobbying activity, so long as they avoid “earmarking” and otherwise comply with IRS rules, they too may support efforts to influence public opinion and legislation on critical public policy issues through grants to public charities.

Stephanie A. Mattoon

Michael L. Sullivan


End Notes
1 Note that there may be additional restrictions applicable to 501(c)(3) organizations under federal and state election laws, which are beyond the scope of this article.
2 26 U.S.C. § 501(c)(3). Additional exempt purposes under Section 501(c)(3) include: religious, scientific, educational, literary, testing for public safety, fostering amateur sports competition, or prevention of cruelty to children or animals.
3 Id.
4 Treas. Reg. § 1.501(c)(3)–1(c)(3)(i) – (iii).
5 Id.
6 As of August 17, 2015.
7 Association of Bar of City of New York v. Commissioner, 858 F.2d 876 (2d Cir. 1988), cert. denied, 490 U.S. 1030 (1989).
8 Treas. Reg. § 1.501(c)(3)–1(c)(3) (iii).
9 The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations, IRS (Jan. 6, 2015),
10 See Rev. Rul. 2004-6.
11 Rev. Rul. 78–248, 1978–1 C.B. 154 (illustrating prohibited and permissible “voter education” activities).
12 I.R.S. FS–2006–17 (Feb. 2006).
13 Rev. Rul. 2007–41, 2007–1 C.B. 1421.
14 Id.
15 Election Year Issus, IRS Exempt Organizations Continuing Professional Education (CPE) Technical Instruction Program (FY2002) 345.
16 Rev. Rul. 2007-41,2007-1 C.B. 1421.
17 Id.
18 The Restriction of Political Campaign Intervention by Section 501(c)(3) Tax-Exempt Organizations, IRS (Jan. 6, 2015),
19 Branch Ministries, Inc. v. Rossotti, 211 F.3d 137 (D.C. Cir. 2000).
20 The Rules of the Game: A Guide to Election-Related Activities for 501(c)(3) Organizations, Alliance for Justice (2d Ed.),
21 Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review, Treasury Inspector General for Tax Administration (14 May 2013).
22 Notice of Proposed Rulemaking, Guidance for Tax-Exempt Social Welfare Organizations on Candidate-Related Political Activities REG-134417-13, 78 Fed. Reg. 71535 (December 23, 2013).
23 Treas. Reg. § 1.501(c)(3)–1(c)(3)(i) – (ii)(b).
24 I.R.C. § 4945(e).
25 Treas. Reg. § 56.4911-2(b).
26 Id. § 56.4911-2(d).
27 See Haswell v. U.S. 500 F.2d 1133, 1142 (1974).
28 IRM IRS examiners are instructed to consider: “(a) the amount of effort expended by the organization’s membership when they are urged to act. (keep[ing] in mind that a single article in an organization’s publication requesting legislative action might trigger thousands of members to contact their legislators, but the expense may be minimal.); and (b) the time, effort and money expended on reaching or developing a position on whether to support or oppose particular legislation.”
29 I.R.C. § 4911.
30 See generally Worry-Free Lobbying for Nonprofits: How to Use the 501(h) Election to Maximize Effectiveness, Alliance for Justice,
31 Id.
32 Treas. Reg. § 53.4945-2.


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