Section 501(c)(3) of the Internal Revenue Code grants tax exemption to certain nonprofit organizations "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation."

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The IRS requires the inclusion of certain language as a condition of granting a tax-exempt status to a nonprofit corporation. This language restricts the purposes of the organization to those permitted under the particular tax exemption, may restrict the ability of the organization to benefit persons that are affiliated with the organization, may restrict the ability of the organization to take part in political or lobbying activities, and that controls the disposition of the assets upon the dissolution of the corporation.

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Indeed, in Regan v. Taxation with Representation, 461 U.S. 540 (1983) the U.S. Supreme Court told us that no substantial portion of a 501(c)(3)’s assets may be dedicated to legislative activity.  What determines how much is substantial?  Courts have held that as little as 5% of an organization’s expenditures can be deemed a substantial part under certain circumstances.  Consequently, if a nonprofit needs or intends to engage in legislative activity, it would be wise to make the “h election.”

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                                                                           The 501(h) Election

A 501(c)(3) may, however, under section 501(h) of the Internal Revenue Code elect to dedicate a percentage of its expenditures to legislative activity with the caveat that the organization may lose its exempt status if its lobbying expenditures exceed the permitted amounts by more than 50% over a 4-year period.  Thus, if the stringent accounts measures must be put into place and there are state requirement regulating “lobbying.”   Click here to view IRS Form 5768.

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We are nonprofit specialists with years of experience in this area.  Whether you’re considering the benefits of forming a nonprofit or looking for legal support for an existing organization, we can help.  Please give us a call to discuss your business needs.

Please give us a call to discuss your business needs.