501(c)(3) Tax-Exempt Organizations and Lobbying Revisited: Grassroots Lobbying

1/23/2020

By: Zack R. Gardner, Esq.

In my last article regarding lobbying and 501(c)(3) tax-exempt organizations, I discussed the extent to which these organizations may take part in Direct Lobbying activities. “Direct Lobbying” refers to communications with legislators or legislative staff members that specifies and expresses a view on a particular piece of legislation. Another type of lobbying, Grassroots Lobbying, is also governed by general rules under Internal Revenue Code § 4911.

In the context of 501(c)(3) tax-exempt entities, Grassroots Lobbying refers to attempts to influence legislation by trying to affect the general public’s opinion with respect to—and encourage action on—a particular piece of legislation.  Much like Direct Lobbying, the different types of communications with the public refer to and reflect on a particular view of said legislation. 

Grassroots Lobbying has two tests that limit the amount of time or money that can be spent on such activities.  The first test, the “Substantial Part Test,” described in my previous article, applies much the same to Grassroots Lobbying as it does to Direct Lobbying.  The Expenditure Test for Grassroots Lobbying is based on the lobbying nontaxable amount for Direct Lobbying as set forth in Internal Revenue Code § 4911(c)(2).  See the table below for the applicable amounts:

If the exempt purpose expenditures are:  The Direct Lobbying nontaxable amount is no more than:  The Grassroots Lobbying nontaxable amount is no more than:
Not over $500,000 20% of the exempt purpose expenditures
5% of the exempt purpose expenditures
 
Over $500,000 but not over $1,000,000 $100,000, plus 15% of the excess of the amount over $500,000 $25,000 plus 3.75% of the excess of the amount over $500,000 
Over $1,000,000 but not over $1,500,000 $175,000 plus 10% of the excess of the amount over $1,000,000 $43,750 plus 2.5% of the excess of the amount over $500,000 
Over $1,500,000 $225,000 plus 5% of the excess of the amount over $1,500,000 $56,250 plus 1.25% of the excess of the amount over $1,500,000 

The Grassroots Lobbying nontaxable amount for a tax-exempt organization is equal to 25% of the applicable Direct Lobbying nontaxable amount expended by the tax-exempt organization during a taxable year. For example, if a 501(3)(c) tax-exempt organization has exempt purpose expenditures of less than $500,000, then their Grassroots Lobbying nontaxable amount would be equal to no more than 5% of the entity's total exempt purpose expenditures.

Ultimately, the rules surrounding Grassroots Lobbying are in place to limit the amount of expenditures tax-exempt organizations are spending in attempts to influence legislation.  The rules expressly do not, among other things, limit tax-exempt organizations from:

  1.       Making available the results of nonpartisan analysis, study, or research;

  2.       Providing technical advice or assistance to a governmental body, committee, or other subdivision thereof in response to a written request where such advice would otherwise constitute the influencing of legislation; or

  3.       Appearances before, or communications to, any legislative body with respect to a possible decision of such body which might affect the existence of the organization, its powers and duties, tax-exempt status, or the deduction of contributions to the organization.


As with Direct Lobbying, a tax-exempt organization wishing to use the Expenditures Test must elect to do so by filing a Form 5768 with the IRS, and the election stays in place until a revocation is filed. If your tax-exempt organization needs any assistance with this or any other legal need, please reach out to us at (865) 546-7311.

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