IRS Guidelines: How Nonprofits Can Navigate and Thrive in Advocacy
It’s the best time of year — the leaves are changing, fall décor is everywhere, and pumpkin spice is in abundance. You may have also heard about a small election happening in November. I kid, but this time of year during an election can be filled with emotions — joy, anticipation, hope, fear, dread, and uncertainty. For nonprofit organizations, there can be confusion about how to get involved, what is appropriate, and how the IRS rules factor in. Is it even a good idea to participate in advocacy? Yes, of course, but there are limits.
In the ever-evolving landscape of human services and social safety nets, nonprofit organizations play a crucial role in driving social change, addressing inequities, and advocating for vulnerable communities. Advocacy, particularly during an election year, allows nonprofits to use this critical moment, when the community at large is discussing broad societal issues, to educate their stakeholders about the most impactful issues that directly affect the populations they serve. However, nonprofits must adhere to specific regulations regarding lobbying, as outlined by the IRS. This blog explores the benefits of nonprofit advocacy and civic engagement, especially during election years, while providing guidance on navigating IRS rules on lobbying.
Amplifying the Voices of Vulnerable Communities
Nonprofit organizations often serve marginalized or underserved populations, including low-income families, individuals experiencing homelessness, or communities of color. These groups may have limited access to policymakers or lack the political power to advocate for their own needs. By engaging in advocacy and civic engagement, nonprofits help these communities bridge the gap and gain a seat at the table.
Strengthening Community Engagement
Advocacy efforts can mobilize communities and strengthen civic engagement. When nonprofits encourage their stakeholders — donors, volunteers, or the populations they serve — to engage in advocacy, it builds a sense of collective responsibility and action. Increased civic engagement can lead to more robust support for the organization’s work and higher voter turnout, particularly for issues that align with the nonprofit’s mission.
Raising Awareness of Critical Issues
In election years, the media and public pay closer attention to political and social issues. Nonprofits can use this heightened attention to raise awareness of their causes, framing their advocacy efforts in ways that educate the public and influence voter perspectives. Advocacy during an election year can be a powerful tool to increase public understanding of the issues that impact a nonprofit’s work, driving policy change, funding, and community support.
Navigating IRS Rules for Nonprofit Lobbying
While advocacy is a powerful tool, 501(c)(3) tax-exempt organizations must be thoughtful about the activities they engage in to comply with IRS rules to ensure they do not risk their tax-exempt status. The IRS distinguishes between advocacy and lobbying, with different rules governing each.
What Is Lobbying?
Lobbying refers to activities that influence legislation, which may involve direct contact with legislators or efforts to mobilize the public to contact lawmakers. The IRS allows nonprofits to lobby, but there are limitations on how much lobbying a 501(c)(3) can do. The determination isn’t necessarily based on time spent, but on how that time translates to dollars spent.
The IRS defines lobbying as either direct or grassroots lobbying. Direct lobbying occurs when a nonprofit communicates directly with legislators or government officials to influence specific legislation. Grassroots lobbying involves mobilizing the public and volunteers to contact legislators and advocate for or against specific legislation. This type of lobbying is often broader and can include public campaigns, petitions, and media outreach.
Reporting Expenditures
The IRS uses the “substantial part” test to determine how much lobbying a nonprofit can engage in. Under this rule, nonprofits are allowed to lobby as long as it does not constitute a “substantial part” of their overall activities. However, the IRS does not define "substantial" in exact terms, leaving room for interpretation. Many nonprofits prefer to limit lobbying activities to ensure compliance.
To gain clarity on how much lobbying is permissible, nonprofits can file a 501(h) election with the IRS. This election allows nonprofits to use a more defined spending test to determine how much lobbying they can do without jeopardizing their tax-exempt status. The 501(h) election sets clear limits on lobbying expenditures based on the nonprofit’s budget:
For organizations with budgets up to $500,000, up to 20% can be spent on lobbying. The percentage decreases as the organization’s budget increases, but the dollar amount increases, allowing larger nonprofits more room to lobby. The 501(h) election provides clear guidance for nonprofits seeking to lobby while staying within IRS guidelines.
Prohibited Activities
Most importantly, 501(c)(3) tax-exempt organizations are strictly prohibited from engaging in partisan political activities. These organizations cannot endorse or oppose political candidates, contribute to political campaigns, or coordinate with political parties. While they can engage in nonpartisan voter education and registration efforts, they must remain neutral regarding political campaigns and partisan activities.
So What Can You Do? Advocate, Educate, Engage!
Advocate for your organization’s issues during an election year.
Educate all the candidates on public interest issues within the purview of your organization.
Support or oppose specific legislation.
Publish legislative scorecards.
Conduct nonpartisan public education and training sessions about participation in the political process.
Host voter registration drives.
Prepare candidate questionnaires and voter guides.
Conduct nonpartisan get-out-the-vote efforts.
Canvass the public on issues.
Sponsor candidate debates.
Work with political parties to get positions included on the party’s platform.
Publicly endorse or oppose ballot measures.
Propose ballot measures.
Contribute or loan money to ballot measure campaigns.
Host ballot measure campaign events at your offices.
Publicize your organization’s views on ballot measures through TV, radio, or print ads.
Allocate a portion of your newsletter to lobbying for or against a ballot measure.
Nonprofits have a unique opportunity to advocate for the communities they serve and influence policy, particularly during election years when public attention is heightened. So enjoy this fall and all it offers, including the power of your participation in our democratic process!