Mission-based Advocacy Toolkit from Alliance for Children & Families

Part (h) provides authority for what is known as “The Expenditure Test.”
© January 2006 The Alliance for Children and Families 9
Part I: The Basics of Government
Nonprofits can “elect,” or choose, to come under that part of the tax code by filling out
IRS Form 5768: a simple, one-page form requiring just 2 signatures and a date. A copy
of this form is located in the Appendix, on p. 86.
In 1990, the IRS published Regulations governing organizations that elect to come under
part (h), so for over a decade those rules have been clearly spelled out. It is smart for
virtually all non-profits to make this choice, for several reasons.
A. Under (h) the amounts you can spend on lobbying are clear:
- 20% of an agency’s budget, up to the first $500,000 (with declining amounts
up to $1 million) can be spent on DIRECT lobbying;
- 25% of that amount (not of what you spend, but what you are allowed to
spend) can be spent on INDIRECT or GRASSROOTS lobbying.
If your budget is $500,000 you can spend $100,000 of it on DIRECT Lobbying, $25,000
on GRASSROOTS lobbying. Given the very narrow definition of lobbying, it is hard to
imagine a direct service organization spending more than one-fifth of its budget on
“direct communications with elected officials or their staff, urging positions on pending
legislation.” (Even full-time advocacy organizations spend most of their time discussing
issues, providing information, offering ideas for hearings, or generally being helpful –
but not lobbying.) You have to keep clear records, but you have to do that anyway.
B. The penalties for violating the provisions of (h) are manageable:
• you get to calculate your amounts on a rolling 4-year average (so if you overspend
for lobbying one year, just be careful to under-spend the next year), and
• if you exceed your allowable amounts over all 4 years, you just pay a fine on
the excess amount – but you likely WON’T lose your non-profit status.
C. There are five major categories of exempt activity (freebies):
• Non-partisan Research/Analysis is exempt, does not count as lobbying.
• Membership communications (magazines, newsletters, conferences) are
exempt unless it “directly encourages” members to lobby.
• Examination of broad social problems doesn’t count – even if it requires
legislation.
• Testimony, technical assistance, and other responses to requests for
information from a legislative body (e.g., a committee of Congress) don’t
count.
• “Self Defense” activity to help your organization survive – e.g., to fight
attempts to end non-profit status or fight harmful tax policies - doesn’t count.