Get Your Action Activated
Your 501(c)(3) nonprofit might want to set up a 501(c)(4) so it can lobby or organize a grass roots campaign on legislation. That way, you can have an affiliated organization do the lobbying while still preserving your tax exempt status for your non-lobbying activities. But there’s a way to do it without going through the rigmarole of setting up a separate legal entity. Tax-exempt nonprofits can do lobbying by electing to be governed by the Internal Revenue Service’s 501(h) expenditure test. Just have your president or treasurer complete and sign IRS form 5768. Electing to be governed by the 501(h) test provides organizations clearer guidelines and higher limits on lobbying activity than the “insubstantial part test” of the 501(c)(3) code. And, under 501(h), there’s less risk of having your tax exempt status revoked. If the IRS finds you exceeded your limits, you just pay a 25 percent excise tax on the excess.
For more on deciding whether to start a 501(c)(4), see the State Policy Network’s article “The Practical Implications of Affiliated 501(c)(3)s and 501(c)(4)s,” in its Leadership Training Series. Also check out the Alliance Defense Fund’s fact sheet, “Electing the 501(h) Expenditure Test.”