As a nonprofit organization, a big part of your work has to do with advocating for your mission or cause. However, there’s a difference between advocacy and lobbying — and deciding between them can make all the difference in your tax-exempt status with the Internal Revenue Service.
Whether you have a 501(c)(3) or 501(c)(4) designation, whether your organization promotes social welfare, and whether your goals are primarily service-related or politically motivated can all have an impact on how advocacy and lobbying affect your organization and its mission.
Feeling a little overwhelmed by these terms? Here’s some information that can help you decide whether to advocate or lobby for your nonprofit organization.
What Is Nonprofit Advocacy?
Advocacy makes your voice heard regarding the issues most closely related to your organization’s purpose or mission. Advocating for your mission may include:
- Contacting your city, state, and federal representatives to explain your mission and share information about the work that you’re doing.
- Inviting representatives or members of the community to visit your site or to engage in informational sessions about your organization.
- Creating an email or social media campaign to share information and to promote events, projects, or initiatives.
Typically, nonprofit advocacy takes a long time. It is an ongoing effort to engage representatives, policymakers, the community, donors and other stakeholders. It’s more about education and promotion of services than trying to make a particular legislative change.
Advocacy can be used by all nonprofit organizations to help further their goals, regardless of tax-exempt status or IRS designation.
What Is Nonprofit Lobbying?
Lobbying supports or opposes a specific piece of legislation, regulation, or candidate or official. Staff or volunteers may work to influence legislation or legislators on behalf of the organization, or an organization may ask for public support on a specific issue. Types of legislation that nonprofit organizations frequently lobby for or against include:
Lobbying efforts take place most often right before a vote. However, some organizations do lobby in support of a specific piece of legislation, long before it’s voted on by legislators or the public. For many nonprofits, lobbying educates their donors about specific legislation that can benefit or harm the public, the nonprofit’s mission or its constituents.
The line between lobbying and advocacy can be hard to navigate, especially if your nonprofit is new to this type of engagement. As a general rule of thumb, it may be best to not lobby as a nonprofit. Too much lobbying could strip an organization of its exempt status, and even earn a fine.
While lobbying efforts can be a productive and essential part of your organization’s operations, it may not be worth the risk depending on your tax-exempt status or the primary aims of your mission. If you’re a 501(c)(3) or 501(c)(4) organization, understanding these designations can help you determine how you should handle advocacy and lobbying efforts.
501(c) Designations: Lobbying and Advocacy
501(c) designations are for specific types of tax-exempt nonprofit organizations. Registering as a 501(c) organization allows nonprofits to be exempt from some federal taxes. As nonprofits already know, this designation has to be protected through accurate reporting and proper management to stay exempt.
There are numerous 501(c) categorizations under the U.S. internal revenue code, but two of the most common are the 501(c)(3) and 501(c)(4) organization types. These groups are the ones most likely to be affected by the rules around lobbying as well.
The 501(c)(3) designation applies to organizations that have religious, charitable, scientific, literary or educational purposes. This status allows organizations to reduce their federal taxes — and state and local taxes, in some cases. It also allows their donors to possibly deduct contributions for their taxes, although this is subject to change with new tax laws. 501(c)(3) organizations must provide annual reporting, including tax returns (990s), to the public.
By law, 501(c)(3) designees cannot participate in any political campaigning or related activities. Violating that rule can result in a loss of status. There is a small loophole that allows public charities to engage in lobbying efforts to affect legislation, though the money spent on these activities can’t be a “substantial part” of the organization’s budget, according to the Internal Revenue Service. Usually, this means no more than 20 percent of the operating budget can go to lobbying.
Bottom line: As a 501(c)(3), you can advocate for your organization or mission, but you can’t directly engage in political lobbying efforts.
The 501(c)(4) designation applies to social welfare organizations and has its own rules regarding tax exemptions and political lobbying. Contributions to a 501(c)(4) are usually not tax-deductible by donors.
Unlike a 501(c)(3), a 501(c)(4) organization can participate in political activities and campaigning, as long as the funds they use represent less than half of their total budget. Their contributions cannot be given directly to any candidate. The catch here is that these efforts are not deductible and are taxable by the IRS. Also, their primary focus must still be on their foundational social welfare mission — not on lobbying efforts.
It can also make a difference whether a 501(c)(4) lobbies for legislation or a candidate. Lobbying for legislative change is much less restricted than lobbying for specific candidates. Lobbying for candidates may be possible, however, as long as the organization’s money is going to funds that are not directly tied to the candidate’s campaign.
To lobby for members of the United States House of Representatives or the Senate, organizations must register with the Office of the Clerk or the Secretary of the Senate, respectively. 501(c)(4) organizations must also tell their members about how much of their spending will be allocated toward lobbying and campaign activities — or pay a proxy tax to the IRS.
Bottom line: A 501(c)(4) can directly engage in political campaigning or lobbying, but contributions are subject to limitations and aren’t tax deductible.
Following the Rules
No matter what designation your nonprofit has, the most important thing is to follow the IRS rules. There can be much gray area regarding these practices — and even a little subjectivity in some of the regulations themselves. That’s why it’s always in a nonprofit organization’s best interest to take as much time and care as they can to ensure they’re not inadvertently pushing any boundaries or breaking any rules.
Lobbying and advocacy are both great strategies to help further a nonprofit organization’s goals. However, there is some risk if advocacy crosses the line into lobbying, or if lobbying exceeds legal limits, which could lead to a loss of tax-exempt status. Losing your 501(c) status can cause significant issues for your organization, including loss of donor funding needed to keep the doors open.
Talk with your legal counsel and financial advisor or tax preparer before making any significant changes or decisions regarding your tax status or lobbying efforts. Also make sure you, your staff and your volunteers remain in compliance with all federal and tax regulations moving forward.