Public charities may engage in a limited amount of legislative lobbying under either the “substantial part” test or by electing to operate such activities under the Section 501(h) of the tax code. The IRS evaluates the “substantial part” test on the basis of the facts and circumstances, such as the time (by both paid and volunteer workers) and the expenditures devoted to lobbying by the organization.

Under the 501(h) expenditure test, public charities may spend:

• on Direct Lobbying:
  20% of the first $500,000 of its exempt purpose expenditures;
  15% of the next $500,000, and so on, up to one million dollars a year.
• on Grassroots Lobbying:
  5% of the first $500,000 of its exempt purpose expenditures;
  3.75% of the next $500,000, and so on, up to $250,000 a year.

Direct lobbying is defined as an attempt to influence legislation by stating a position on specific legislation to legislators or other government employees who participate in the formulation of legislation, or urging your members to do so.

Grassroots lobbying is defined as an attempt to influence legislation by stating a position on specific legislation to the general public and asking the general public to contact legislators or other government employees who participate in the formulation of legislation.

The term "lobbying" does not include the following activities:

• providing technical assistance or advice to legislative body or committee in response to a written request;
• making available nonpartisan analysis, study or research;
• providing examinations and discussions of broad, social, economic and similar problems;
• communicating with a legislative body regarding matters which might affect the existence of the organization, its powers and duties, its tax-exempt status, or the deduction of contributions to the organization (the "self-defense" exception); and,
• updating the members of your own organization on the status of legislation, without a call to action.

The 501(h) election is effective beginning in the fiscal year in which the election is made. So, for example if an organization that has the calendar year as its fiscal year files Form 5768 to make the election before December 31, the 501(h) rules will apply for the organization's lobbying activity beginning in January of that same year. The election remains in effect unless and until the organization revokes it.

Organizations that make the 501(h) election for calculating their lobbying expenses have two options for reporting lobbying expenses on the LDA disclosure form.

1. They may use the broader definition of lobbying in the Internal Revenue Code to calculate expenses for LDA reports. In that case, the amount the organization reports would include their local, state and grassroots, as well as federal, lobbying expenditures. For more information on the tax definition of lobbying, see Lobbying Guidelines for Public Charities.
2. In the alternative, organizations electing 501(h) may apply the LDA rules that include only federal lobbying activities.