With the 2023 Louisiana Legislative Session under way, it is a good time to highlight the lobbying election available to qualifying public charities exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code.
Nonprofit organizations that qualify for federal income tax exemption as public charities under section 501(c)(3) of the Internal Revenue Code ("501(c)(3) organizations") have a favorable tax status but are also subject to heightened restrictions on lobbying and political activities.
"Political" activities are prohibited entirely, but 501(c)(3) organizations may engage in "lobbying" activities provided they do not constitute a "substantial part" of the organization's activities. Said differently, exceeding the "substantial part" limit places a 501(c)(3) organization at potential risk of losing its tax-exempt status. The default "substantial part" test is vague and organizations following this rule alone operate with some level of uncertainty. Thankfully, 501(c)(3) organizations conducting (or that want to conduct) lobbying activities have a choice: a public charity may make a one-time "lobbying election" under section 501(h) of the Internal Revenue Code as an alternative for tracking and reporting its lobbying activities.
Making a lobbying election entitles 501(c)(3) organizations to the clear definitions and generous limits on lobbying that were added to the Internal Revenue Code in 1976. Those organizations who do not make the election must abide by the older, less clear, and less generous limits of the "substantial part" test mentioned above.
Notably, eligible organizations who make the election do so without altering their 501(c)(3) tax-exempt status, and, contrary to popular impression, electing has different – but not additional – recordkeeping and IRS reporting requirements. All public charities, whether or not they elect, are required to report their total spending on lobbying. Non-electing charities will also be required to describe their lobbying in detail.
The lobbying election is made by filing Form 5768 with the IRS. The election is effective for all tax years of the organization which end after the date the election is made and begin before the date the election is revoked. Thus, the election is effective from the beginning of the tax year in which the form is filed. To illustrate, if an eligible organization whose taxes are calculated on a calendar year basis files Form 5768 on December 31, 2023 the election is effective for its tax year beginning January 1, 2023. The election may be revoked at any time by filing a voluntary notice of revocation.
501(c)(3) organizations should sit down with their tax and government relations professionals to discuss whether the section 501(h) lobbying election can benefit their organization today or in the future based on their organization's unique needs, goals, and circumstances – including a constantly changing legislative and political landscape.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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