Compliance
Lobbying Compliance and Campaign Finance Deadlines in August 2026
July 30, 2026 | Ben Zuegel, Vinnie Cannamela
Key Takeaways:
- Federal law allows 501(c)(3) organizations to lobby for their interests while maintaining tax-exempt status, provided they stay within IRS-defined limits using either the substantial part test or the 501(h) election.
- The substantial part test permits lobbying as long as it doesn't constitute a substantial portion of activities (generally interpreted as under 5% based on court precedent), while the IRS 501(h) election provides clear spending limits ranging from 20% of exempt purpose expenditures for smaller organizations up to a $1,000,000 cap for larger ones.
- Nonprofits must track all direct communications with legislators, grassroots campaigns, and overhead costs associated with influencing specific legislation to ensure nonprofit lobbying compliance and avoid penalties ranging from excise taxes to loss of tax-exempt status.
- The 501(h) election offers advantages for most charitable nonprofits by providing a bright-line spending limit and excluding volunteer activity from calculations, making it easier to maintain compliance compared to the substantial part test for nonprofits.
- Maintaining detailed records of lobbying activities, including timesheets, calendars of direct communications, and expense receipts, is essential for demonstrating compliance during IRS audits and accurately completing Form 990 reporting requirements.
1,541,475. That’s the number of charitable nonprofits (entities organized under § 501(c)(3) of the Internal Revenue Code (IRC) (Title 26 U.S. Code)) in the United States in 2024 according to Independent Sector. There are 70,358 501(c)(4)’s, 43,717 501(c)(5)’s, and 58,071 501(c)(6)’s in the United States. In total, 501(c) organizations contributed an estimated $1.5 trillion to the United States economy in 2024, approximately 5% of the country’s total gross domestic product (GDP).
Despite making up such a significant portion of the United States economy, many nonprofits—especially charitable nonprofits—operate under the misunderstanding that federal law prohibits them from advocating for their interests and the interests of those they serve. It is important for nonprofit leaders to know that federal law does not prohibit 501(c) organizations from lobbying the government. In this article, we’ll review how nonprofit organizations, including 501(c)(3)s, can lobby for their interests while maintaining their tax exempt status.
What Are the Federal Limits on Nonprofit Lobbying?
Before engaging in lobbying, nonprofits must understand the federal limits that apply to their activities. The Internal Revenue Service (IRS) has two methods of determining how much lobbying is permissible for charitable nonprofits. Each method has its benefits and drawbacks, and each organization will need to determine which method works best for their advocacy goals. Failing to adhere to the limits imposed by these methods can have severe consequences, from a tax on the lobbying expenditures exceeding the limit to loss of nonprofit status. Knowing what the organization’s limits are is important to prevent these outcomes.
How Does the Substantial Part Test Work?
The first method, and the default method, is known as the "substantial part test.” This method comes directly from § 501(c)(3), which states that “corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, … or educational purposes … no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation …”. In other words, organizations meeting this definition qualify for tax exempt status under § 501(c)(3) provided that the organization does not provide a financial benefit to any one person or shareholder and that no substantial part of the organization’s activities are for lobbying.
What constitutes a “substantial part” of an organization’s activities? The Internal Revenue Code is silent on this; the best those in the nonprofit community have is a court case from the Sixth Circuit Court of Appeals (Seasongood v. Commissioner (1955)) which determined that 5% of an organization’s time and effort towards lobbying activity constituted no substantial part of the organization’s total activity.
What Is the 501(h) Election and Its Limits?
The uncertainty created by Congress’ failure to define “substantial part” led to the creation of the other method of determining permissible lobbying activity: the 501(h) election. Named for the section of the IRC the election occupies, organizations taking this election are given a bright line limit on how much lobbying they may do in any one tax year. The bright line limit imposed by the 501(h) election is based on the total exempt purpose expenditures of the organization (e.g., expenditures for the charitable or educational purpose of the organization) with limits based on these expenditures. The limits are displayed in the table below.
Under the 501(h) election, at no time may a 501(c)(3)’s lobbying expenditures exceed $1,000,000. Additionally, there is a separate limit for grassroots expenditures (e.g., expenditures for communications asking members of the general public to influence legislation on the organization’s behalf). This additional limit is 25% of the organization’s total lobbying nontaxable amount.
How Do Tracking Requirements Differ Between Methods?
Both methods require organizations to track their lobbying somewhat differently. The substantial part test measures and quantifies lobbying activity, and the 501(h) election measures lobbying expenditures. Under both tests, the actions of staff and overhead allocable to influencing legislation should be tracked, but under the substantial part test, volunteer activity on behalf of the organization also counts towards the organization’s lobbying limit, whereas under the 501(h) election, there is no requirement to track and quantify volunteer activity.
What Are the Pros and Cons of Each Method?
Each method of determining a nonprofit’s lobbying limitations has its own benefits and drawbacks. For the substantial part test, the benefits mostly reside with large nonprofits (e.g., those with exempt purpose expenditures exceeding $21,000,000) where 5% of exempt purpose expenditures exceeds the $1,000,000 cap set by the 501(h) election. The major drawback to the substantial part test is that it’s up to the IRS to determine whether a nonprofit has exceeded a limit that doesn’t really exist save for one case that did not make it to the Supreme Court (meaning the precedent is really only binding in the Sixth Circuit—Kentucky, Michigan, Ohio, and Tennessee). In other words, what the IRS deems “substantial” could change from year to year, commissioner to commissioner, making this method the least stable of the two.
The 501(h) election provides a bright line limit for nonprofits that may be more cautious or sit firmly under the $17,000,000 threshold. The benefit of the bright line is that it provides clarity on what the IRS considers a “substantial part” of a nonprofit’s activity. The drawback, again mainly for large nonprofits, is the opportunity cost of adhering to the limits in the 501(h) election when the limit under the substantial part test could be higher.
Regardless of method, it is imperative that nonprofits understand that they can lobby but they must track their activity to ensure they do not jeopardize their nonprofit status.
What Should Nonprofits Track During Lobbying Activities?
Once a nonprofit decides to engage in lobbying, it’s essential to know what activities and records need to be tracked to remain compliant.
Which Activities Count Toward Lobbying Limits?
Charitable nonprofits lobbying the federal government may already be aware that there is activity that needs to be tracked for the purposes of the Lobbying Disclosure Act (LDA); and they may already be aware that their activities/expenditures need to be tracked for tax purposes. What many do not realize is that these definitions differ, with the IRC’s being much more expansive.
For purposes of tracking their progress towards their lobbying limits, nonprofits should track communications (either direct or indirect) that are meant to influence a piece of specific legislation. The table below shows the differences between the two methods.
What Records Should Nonprofits Maintain?
If there is a key to a successful compliance program for a nonprofit engaging in lobbying activity, it’s recordkeeping. Maintaining adequate records can help the nonprofit justify their final lobbying amounts in the event of an audit; they can help the nonprofit’s accountant prepare the form 990; and they can help rebut any untrue presumptions made under IRS regulations (this is particularly important if the nonprofit is engaging in a mass media campaign within the two weeks prior to a vote on “highly publicized” legislation and the campaign had nothing to do with the upcoming vote).
Keep a copy of the filed IRS Form 5768 for easy reference. It may be important information to provide to active Board members or inquiring members. Nonprofits will also want to keep a copy of their determination letter if they have one (any nonprofit can also request a status letter from the IRS confirming the nonprofit's nonprofit status) and keep any records that are used to calculate the monetary value of lobbying activity/expenditures. This could include time sheets with lobbying specific codes used to denote activity, calendars showing when direct communication took place and for how long, receipts for lobbying or overhead expenses, or information about any grassroots campaigns completed. If the nonprofit is lobbying using the substantial part test, it will also want to keep records of volunteer activity and documentation on how the nonprofit quantified that activity.
What This Means for Your Organization
Nonprofits, particularly 501(c)(3)’s and 501(c)(4)’s, not only can lobby but do lobby and report their activity to the IRS. A little knowledge about the limits and the components of a nonprofit lobbying compliance program can go a long way in ensuring the nonprofit not only achieves its public policy goals but maintains its tax status while doing so.
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Frequently Asked Questions
What is the difference between the substantial part test and the 501(h) election for nonprofit lobbying?
The substantial part test is the default IRS method that limits lobbying to no more than a "substantial part" of a nonprofit's activities (generally interpreted as 5% based on court precedent), while the 501(h) election provides specific dollar limits based on exempt purpose expenditures. The substantial part test measures activities and includes volunteer time, whereas the 501(h) election measures only expenditures and excludes volunteer activity. The 501(h) election caps total lobbying expenditures at $1,000,000 regardless of organizational size.
Can a 501(c)(3) organization lobby the executive branch without it counting toward their lobbying limits?
Yes, communications with executive branch officials do not count toward a 501(c)(3)'s lobbying limits under either the substantial part test or the 501(h) election. Only communications intended to influence specific legislation before legislative bodies—including federal, state, local, and international legislative bodies—count as lobbying activity for IRS purposes. This means nonprofits can engage with executive agencies on regulatory matters without affecting their lobbying calculations.
Do I need to track volunteer lobbying hours if my nonprofit made the 501(h) election?
No, organizations that have filed IRS Form 5768 to make the 501(h) election do not need to track or count volunteer lobbying activity toward their limits. Under the 501(h) election, only paid staff time and direct expenditures count as lobbying expenditures. However, nonprofits using the substantial part test must track and quantify volunteer lobbying activity as it counts toward their overall lobbying limit.
What records should a nonprofit keep to prove compliance with IRS lobbying limits?
Nonprofits should maintain their filed IRS Form 5768 (if applicable), IRS determination or status letter, and detailed records documenting the monetary value of all lobbying activities and expenditures. This includes timesheets with lobbying-specific codes, calendars showing direct communications, receipts for lobbying and overhead expenses, and documentation of grassroots campaigns. Organizations using the substantial part test must also keep records of volunteer activity and how that activity was quantified.
What is the grassroots lobbying limit under the 501(h) election?
Grassroots lobbying expenditures under the 501(h) election are limited to 25% of the organization's total lobbying nontaxable amount. Grassroots lobbying refers to communications asking members of the general public to contact legislators or influence legislation on the organization's behalf. This is a separate, more restrictive limit within the overall lobbying expenditure cap calculated based on exempt purpose expenditures.
