Nonprofit organizations that conduct federal lobbying must be cognizant of at least two different definitions of lobbying in order to comply with applicable federal tax law and federal lobbying disclosure laws.
The Internal Revenue Code (the “Code”) sets forth different requirements and definitions for organizations recognized as exempt under Section 501(c)(3) than the requirements imposed on trade and professional organizations exempt under Section 501(c)(6) and labor unions and farm bureaus exempt under Section 501(c)(5). While the Code includes a definition of lobbying that applies specifically to public charities exempt under 501(c)(3); trade and professional associations and labor unions and farm bureaus are subject to the obligations set forth in Section 162(e) of the Code. The federal Lobbying Disclosure Act (the “LDA”) applies to all nonprofit organizations and provides a different definition of “lobbying,” which requires organizations to track and disclose the amount spent on such activities. Set forth below are the different definitions and reporting requirements for 501(c)(3) public charities and other non-501(c)(3) tax exempt organizations under the federal tax law and under the LDA.
FEDERAL TAX LAW
SECTION 501(c)(3) PUBLIC CHARITIES
Nonprofit organizations that qualify for federal income tax exemption as public charities under Section 501(c)(3) of the Code are subject to heightened restrictions on lobbying and political activities. Carrying on propaganda, or otherwise attempting to influence legislation may not constitute a “substantial part” of the activities of an organization exempt under Section 501(c)(3); exceeding the “substantial part” limit places an organization at risk of losing its exempt status. Further, such organizations are prohibited from engaging in any political activities. Whether an organization’s attempts to influence legislation are substantial will be determined by a vague facts and circumstances “substantial part” test, unless an organization elects to have such determination made pursuant to an expenditure test, by filing a 501(h) election with the Internal Revenue Service (“IRS”).
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