Reporting Lobbying Activities

Public charities may engage in limited lobbying activities. In fact, the official IRS terminology is “insubstantial” activity.  If lobbying activities become a substantial part of  a 501(c)(3)’s activities, then the organization runs the risk of losing their exempt status and/or be liable for excise taxes. 

What is considered a lobbying activity?

1. Direct contact with members of the legislative body and other governmental officials in support or opposition of legislation. 

2. Communicating with the public in a referendum, initiative, or similar activity.

3. Activities encouraging the general public to take action about specific legislation (commonly referred to as grassroots lobbying). 

If your organization is a 501(c)(3), (4), (5) or (6) entity and involved in lobbying activities, you are required to communicate certain information to the IRS via the Form 990 or Form 990-EZ.

For a 501(c)(3) org, there are two methods of reporting lobbying expenditures:

1. Expenditure method (based upon an election by filing Form 5768. This election is not allowed for public safety orgs, private foundations, certain 509(a)(3) supporting orgs, and churches.) Limitations are invoked for grassroots lobbying and the total lobbying expenditures. Excess lobbying expenditures are reported on schedule G of Form 4720 and taxed at 25%.

2.  Substantial activity method requires disclosure of activities and amounts expended for lobbying activities (if the expenditures are substantial, resulting in the 501(c)(3) organization not performing it’s exempt purpose, and it’s status is revoked, the entity is required to complete schedule H of Form 4720. An excise tax of 5% of the lobbying expenditures is imposed against the organization and a tax of 5% is imposed on any manager who willfully and without reasonable cause consented to the expenditures, knowing that they would result in the org no longer qualifying as a 501(c)(3) org.

Section 501(c)(4), (5) and (6) organizations are required to report their total lobbying expenses, political expenses and membership dues on Schedule C of Form 990. Section 6033(e) of the IRS code requires these organizations to tell their members what portion of their membership dues were allocable to the political or lobbying activities of the organization. If an organization does not give its members this information, then the org is subject to a proxy tax, reported on Form 990-T.

Organizations must understand the rules governing lobbying activities and the related reporting requirements. It can be complicated and excessive expenditures can result in the revocation of your exempt status and/or excise taxes.