Section Library
Lobbying
Many incorrectly assume that organizations which are exempt from income tax under Internal Revenue Service (IRS) Section 501(c)(3) may not engage in any lobbying activities, but few realize that these organizations are not subject to the Omnibus Budget Reconciliation Act of 1993. Therefore, neither AWWA nor AWWA sections need disclose the portion of dues payments that relate to legislative activities. Limitations are imposed upon the legislative activities of charitable organizations, however, such organizations may expend significant funds and resources on legislative activities without impairment of exempt status. It is important to distinguish between legislative activities and political activities. Legislative activities are allowed (to a certain extent); political activities are not (political activities are concerned with the nomination, campaigning on election of specific candidates or political party activities).
Legislative activities include direct lobbying and grass roots lobbying.
Direct lobbying is defined as a communication directly to a legislator or certain other government officials that: 1) refers to a specific legislation, and 2) reflects an organizational view on that specific legislation.
Grass roots lobbying is defined as a communication to a general audience that has three key elements: 1) reference to specific legislation, 2) reflection of an organizational view on that legislation, and 3) encouragement for the recipients to take action on that legislation with a legislator, a government official, or a government employee.
Payments that will not be considered lobbying/legislative expenses include providing technical advice or a response to a written request by a government body, the results of which are made available for nonpartisan research. Appearance before, and any communication with any legislative body that may have an impact on the tax exempt organization are also not considered lobbying expenses.
IRS Section 501(c)(3) requires that no more than an insubstantial part of a Section 501(c)(3) organization's activities can involve legislative activity. What is considered "insubstantial" in testing the amount of legislative activities of an educational organization? Historically, something less than five percent of total time and effort devoted to legislative activities has been deemed "insubstantial." Measurement as to whether an organization's lobbying activities are substantial is based upon the particular facts and circumstances. It is important to bear in mind that an organization's efforts and activities may well be regarded as more important than simply an expenditure or diversion of funds. It is important to note that the "five percent test" is not based solely on expenditures. An organization may be required to take into account the value of volunteer lobbying efforts and other application of resources. An organization may lose its exempt status if it incurs lobbying expenses in excess of an insubstantial amount.
Organizations that lobby must report these activities on Form 9906. This applies to both direct and grassroots lobbying.
SECTION 501(h) ELECTION
A Section 501(c)(3) organization may make an election under IRS Section 501(h) which will allow the organization to spend up to 20% of its first $500,000 of expenditures, 10% of its next $500,000 of expenditures, 10% of its third $500,000 of expenditures, and 5% of its remaining expenditures not to exceed $1,000,000 per year for lobbying. Grass roots lobbying may not exceed 25% of the total lobbying expenditures.
The election under Section 501(h) is made by filing Form 5768 and is effective for the year filed and all future tax years. The election may only be revoked on a prospective (future year) basis.
If a section makes a 501(h) election, the section is not subject to the "no substantial part" test and is instead provided with the specific lobbying expenditure test.