We have received an increasing number of questions recently about the limitations on lobbying expenditures and political activities of tax-exempt organizations. This issue appears especially of interest to healthcare providers, in light of the current Congressional activity on the possible repeal and replacement of the Affordable Care Act, and the upcoming Maine ballot question on MaineCare expansion.
Some organizations, especially those that hold government grants or contracts, may encounter specific restrictions in their grant or contract documents. For most tax-exempt organizations, however, the major limitations on political and lobbying activities derive from section 501(c)(3) of the Internal Revenue Code. Relevant to this limitation, section 501(c)(3) affords exemption only to organizations:
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)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.
(Emphasis added.) The second of these two limitations (sometimes referred to as the “Johnson Amendment”) completely prohibits political campaign activities for or against candidates. Tax-exempt organizations would therefore be well advised to steer clear of any political activity that could be considered partisan, or that could be viewed as supporting or opposing a particular candidate. The limitation on “attempting to influence legislation,” however, involves a “no substantial part” test, which has historically proven difficult to define. Some “rules of the road” based on available IRS guidance include:
- Personal advocacy by individuals (including the organization’s directors, officers, or employees) will generally not be attributed to the organization, as long as it occurs on their own time, and as long as they either do not identify themselves with the organization, or (perhaps better) clearly state that they are acting on their own behalf and not on behalf of the organization.
- Conversely, activities done on work time may well be attributed to the organization.
- Truly neutral educational and informational activities are generally not considered “carrying on propaganda, or otherwise attempting, to influence legislation,” though obviously there’s a distinct risk that such activities may be taken as favoring one side over the other.
- Usually, what is considered a “substantial” part of the organization’s activities is based on its share of overall expenditures. Accordingly:
- Actions that do not require an expenditure, such as allowing the organization’s name to be listed in support of, or in opposition to, proposed legislation, are less likely to create an issue.
- There is no bright line test of what is a “substantial part” of the organization’s activities based on a percentage of the organization’s overall expenditures; the IRS has informally stated that, in general, lobbying activities that amount to less than 5% of total activities would likely be considered insubstantial, whereas lobbying activities that exceed roughly 16-20% of total activities would generally be considered substantial.
- However, “substantial” is a very fact-specific term, and under some circumstances, activities not involving expenditures might be of concern.
- As noted in section 501(c)(3), certain tax-exempt organizations have the option of electing to be governed by section 501(h) of the Internal Revenue Code, which addresses the uncertainties of defining a “substantial part” of the organization’s activities by allowing eligible organizations to have their permissible expenditures for attempting to influence legislation expressly defined. However, not all section 501(c)(3) tax-exempt organizations are eligible to make a section 501(h) election, and for those that do, careful record-keeping is still required.
A good starting place for additional information on this complicated topic is the Internal Revenue Service website:
- A brief summary, with links to more in-depth coverage, can be found at:
- Limitations on political campaign activities are summarized at:
- Limitations on attempting to influence legislation are summarized at:
- The IRS published a very thorough article entitled “Lobbying Issues” in its 1997 Continuing Professional Education text, available at https://www.irs.gov/pub/irs-tege/eotopicp97.pdf. (Please be forewarned that this article is a 106-page PDF document.)
If you would like to discuss any specific issues related to this complicated topic, or if you would like us to provide more detailed guidance on any specific proposed activities, please contact Ben Townsend at (207) 621-4390 or email@example.com.