Expansion on the Section 501(h) Election

For an organization to remain eligible for tax-exempt status under section 501(c)(3), it must not engage in too much lobbying activity.  Section 501(c)(3) provides in relevant part that an organization shall be eligible for tax-exemption so long as "... no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h))...".  Since under the "no substantial part" test there is very little guidance to help section 501(c)(3) organizations know what is too much lobbying, in 1976 the Congress added subsection (h) to section 501. Subsection (h) generally allows section 501(c)(3) organizations to elect to have the question of whether they are engaging in too much lobbying decided on the basis of how much money they spend on lobbying, i.e., the level of their lobbying expenditures.  We will refer to this election as the "(h) election."  Generally, section 501(c)(3) organizations are permitted under the (h) election to spend up to 20% of the first $500,000 of their budget on lobbying and reduced percentages of budget amounts above $500,000 with an overall cap of $1 million.  Of the permissible amounts, only 25% may be spent on grassroots lobbying.  Generally grass roots lobbying involves contacting members of the general public and in turn urging them to contact legislators to urge them to act favorably or unfavorably on some proposed legislation.

The (h) election provides very clear guidance as to what is and is not lobbying, etc., and its rules are liberal in the sense of characterizing activity, that might be considered lobbying under the rules that apply if a group has not made the election, as not constituting lobbying.  Many close observers of the nonprofit sector think that groups that do lobbying at any significant level are well advised to make the election.  It appears, however, that few have done so.

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