Can a Nonprofit Lobby?

The Short Answer: Some Lobbying Is Allowed

A 501(c)(3) organization does not have to avoid lobbying entirely to keep its tax-exempt status. The Internal Revenue Code disqualifies an organization only if "a substantial part of its activities" involves attempting to influence legislation, per the IRS's lobbying guidance. Educational activity, such as publishing research or holding public forums on policy issues, generally does not count as lobbying at all, as long as it does not take a position urging specific legislative action.

What Counts as Legislation

For these rules, "legislation" includes action by Congress, state legislatures, local councils, and similar governing bodies, including ballot measures put directly to voters. It does not include executive, judicial, or administrative actions, such as a federal agency's rulemaking, which fall outside the lobbying definition even though they can involve similar advocacy work.

The Default Rule: The Substantial Part Test

Without any election, an organization's lobbying is measured under the "substantial part" test, which looks at the organization's facts and circumstances rather than a fixed percentage. The IRS does not publish a bright-line number for what counts as "substantial," which leaves some organizations uncertain about exactly how much lobbying is safe without additional guidance.

The Alternative: The 501(h) Expenditure Test

An eligible 501(c)(3) organization can instead elect to be measured under section 501(h) of the tax code by filing Form 5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation. Once elected, the organization is judged against a specific dollar formula instead of the vague substantial part standard, and the election stays in effect until revoked.

The 501(h) Dollar Limits

Under the expenditure test, the nontaxable amount of lobbying expenditures is calculated on a sliding scale tied to the organization's total exempt-purpose spending for the year: 20% of the first $500,000, plus 15% of the next $500,000, plus 10% of the next $500,000, plus 5% of any amount above that, up to an overall cap of $1,000,000 in lobbying expenditures per year, per the IRS. Within that total, grassroots lobbying, meaning communications aimed at influencing the general public's opinion on legislation rather than lobbying legislators directly, is capped separately at one quarter of the organization's overall lobbying limit.

What Happens if You Go Over the Limit

Under the 501(h) election, exceeding the dollar limit in a given year triggers a 25% excise tax on the excess amount, per the IRS. The organization does not automatically lose its tax-exempt status for a single year that runs over, but a pattern of lobbying expenditures substantially and repeatedly above the limit, measured over time, can put the exemption itself at risk.

Who Cannot Make the 501(h) Election

The 501(h) election is not available to every 501(c)(3). Churches and certain church-affiliated organizations are excluded from electing, and private foundations are subject to a separate and generally stricter set of rules under a different section of the tax code, rather than either the substantial part test or the 501(h) formula. Organizations in either category should confirm their specific rules before assuming the expenditure test applies to them.

Why Many Nonprofits Choose the Election Anyway

For an eligible organization that does meaningful legislative advocacy, the 501(h) election trades the uncertainty of the substantial part test for a specific, calculable limit tied to its own budget. That certainty is the main reason many advocacy-active charities file Form 5768 even though the underlying activity, lobbying within the rules, is allowed either way.

Separate Lobbying From Political Campaign Activity

Lobbying and political campaign intervention are governed by entirely different rules. Lobbying is limited but allowed; participating in or opposing a candidate for public office is completely prohibited for a 501(c)(3), with no dollar threshold or exception. Keep these two categories distinct in your organization's own tracking.

Track Lobbying Spending Even Without the Election

Even if you do not make the 501(h) election, keeping a running record of time and money spent on activities that could count as lobbying makes it much easier to demonstrate the activity was not "substantial" if the IRS ever asks, and makes switching to the 501(h) election later straightforward.

The Election Can Be Revoked, Not Just Made

Form 5768 is also used to revoke a prior 501(h) election if your organization's lobbying activity and risk tolerance change. Revoking returns the organization to the substantial part test going forward.

Grassroots vs. Direct Lobbying Changes the Math

Because grassroots lobbying has a smaller sub-limit than the overall cap, an organization planning a public-facing advocacy campaign should estimate that spending against the grassroots limit specifically, not just the overall lobbying limit, before committing a budget to it.

This Is Not Legal or Tax Advice

Whether a specific activity counts as lobbying, and whether the substantial part test or the 501(h) election fits your organization better, depends on your specific activities and budget. A nonprofit attorney or tax professional can help you make that call before you spend significantly on advocacy.