Manage risk while engaging in lobbying and political activities

With the severe funding cuts outlined in President Donald Trump’s proposed budget, it’s more important than ever for not-for-profits to advocate for themselves on the federal stage.

Before engaging in lobbying or political activities, not-for-profits will want to determine which activities are allowed, given the different tax implications. Entities can manage risk and protect their tax-exempt status by understanding the complex rules that govern their lobbying and political activities.

Understanding lobbying restrictions

Lobbying is an activity in support of or in opposition to legislation. It’s different from political activities, which are activities supporting or opposing a candidate for elective office.

As lobbying efforts ramp up, not-for-profits will want to be aware of how different tax-exempt entities’ activities are limited by regulatory agencies — including the IRS, Federal Election Commission (FEC), and state or local agencies. They also need to be aware of the restrictions on different tax-exempt organizations.

• 501(c)(3) organizations. These are groups that operate for religious, charitable, scientific, or educational purposes and can’t engage in a substantial amount of lobbying activity. It’s important to note that unlike a 501(c)(3) organization treated as a public charity, private foundations within the meaning of IRC Section 509(a) may not make expenditures for lobbying.
• 501(c)(4) organizations. These are commonly called social welfare organizations. They may engage in lobbying and other political activities, as long as these activities don’t become their primary purpose.
• 501(c)(5) organizations. These are labor and agricultural groups. They may engage in lobbying and other political activities, as long as these activities don’t become their primary purpose.
• 501(c)(6) organizations. These are business leagues, chambers of commerce, real estate boards, and boards of trade. They may engage in lobbying and other political activities, as long as these activities don’t become their primary purpose. A violation of these prohibitions may result in the denial or revocation of an organization’s tax-exempt status and the imposition of certain excise taxes.