Rules of Advocacy & Lobbying: Community & Public Foundations
The rules of advocacy and lobbying for community and public foundations differ somewhat from private foundations.
As a community or public foundation, the law allows the following:
Yes, community and public foundations may engage in advocacy activities as described under our Rules of Advocacy. This includes a range of activities that do not involve the expression of a view or an attempt to influence a particular piece of legislation.
Yes, community and public foundations may engage in lobbying—so long as it does not make up more than an “insubstantial” amount of your overall activities.
To determine how much of your activity may be allocated to lobbying within the limits of the law’s “insubstantial” amount requirement, you have two options:
- The “insubstantial part” test
- The 501(h) expenditure test
The “insubstantial part” test is the default option the IRS will use to examine your activities, unless you specifically opt for the 501(h) expenditure test.
The insubstantial part test is somewhat vague, and the IRS has never provided specific guidance for what qualifies as an “insubstantial” amount of overall activity. A federal court ruled in 1952 that 5% of an organization’s “time and effort” was considered an insubstantial amount of its overall activities. With no additional guidance beyond this, it is generally accepted that a public charity may allocate up to 5% of its activities to lobbying.
It is important to note, though, that the IRS will consider time and energy (by employees or volunteers), funding, and other factors to determine how much of your foundation’s activity was devoted to lobbying in any given year.
The 501(h) expenditure test is the option that is typically used by foundations that make lobbying a regular component of their strategy and work. This test, which a foundation may opt for by completing the IRS Form 5768, provides a sliding scale for how much a public charity may spend on lobbying activities depending on the size of the organization’s budget. This option is significantly more generous in how much lobbying activity is allowed as compared with the “insubstantial part” test.
Quick reference on what each of these options permit:
|"Insubstantial" Part Test||501(h) Expenditure Test|
|Amount of Lobbying Permitted||Approximately 5% of overall activities||Sliding scale based on budget (up to $1 million maximum)|
|What Counts Against Lobbying Limits||All resources: time, energy, dollars, etc.||Dollars spent on lobbying|
|Consequences of Exceeding Limits||Loss of tax-exempt status||Excise tax|
|How to Inform the IRS of your Choice||None (default test)||Complete IRS Form 5768|
It is important to note that many states impose lobbying registration requirements. To learn more about what your state requires, check out this resource on State Advocacy Rules.
Yes, community and public foundations may fund lobbying up to their own lobbying limit (under whichever option is chosen—the “insubstantial part” or 501(h) expenditure test).
There are a couple of ways to reconcile granting to public charities that engage in lobbying activities. The first is through a general support grant. Your foundation may decide to support a number of organizations that engage in lobbying activities, and as long as there is no written or oral agreement earmarking those funds for lobbying, this will not count toward your lobbying limit.
The second way your foundation may fund lobbying is through a project-specific grant. With this type of grant, community and public foundations can fund just the lobbying-related elements of a project (as a portion of, or up to your own foundation’s lobbying limit), just the non-lobbying elements of a project, or some combination of both.
For example, let’s say your foundation receives a grant proposal for $50,000 to fund a project with a total budget of $100,000.
|Example Budget: Project-Specific Grant|
|Lobbying Budget for Project:||$10,000|
|Non-lobbying Budget for Project:||$90,000|
Total Cost of Project:
In this example, the amount and purpose of your grant will ultimately be up to your foundation based on strategy and situation. However, the law allows you to fund as much as $100,000 of this project—including the $10,000 of that is specifically designated for lobbying activities, per the project budget. However, that $10,000 would be counted toward your foundation's lobbying limit.