Compliance
The Basics of Lobbying Compliance for Nonprofit Organizations
August 18, 2026 | Bradley Coffey
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.
