How to use this tool
Enter three numbers for one tax year:
- Exempt purpose expenditures: what you spend to carry out your charitable purposes, including program costs, salaries and an allocable share of overhead. Include your lobbying spending in this total.
- Planned total lobbying: direct lobbying plus grassroots lobbying.
- Planned grassroots lobbying: the part aimed at getting the general public to contact legislators.
The tool returns your lobbying nontaxable amount, your grassroots nontaxable amount, any excess, the excise tax on that excess and the 150% ceilings.
The rule behind it
A 501(c)(3) organization may lobby, but under the default rule, lobbying cannot be a "substantial part" of its activities, a standard with no dollar figure. Section 501(h) lets an eligible public charity choose a measurable test instead by filing Form 5768. The form says the election must be signed and postmarked within the first tax year to which it applies. Churches, their integrated auxiliaries and private foundations cannot elect. The lobbying limits guide explains when electing makes sense.
The lobbying nontaxable amount (IRC 4911(c)(2)) is the lesser of $1,000,000 or:
| Exempt purpose expenditures | Lobbying nontaxable amount |
|---|---|
| Up to $500,000 | 20% of expenditures |
| $500,000 to $1,000,000 | $100,000 + 15% of the excess over $500,000 |
| $1,000,000 to $1,500,000 | $175,000 + 10% of the excess over $1,000,000 |
| Over $1,500,000 | $225,000 + 5% of the excess over $1,500,000 |
The $1,000,000 cap is reached at $17,000,000 of exempt purpose expenditures.
The grassroots nontaxable amount is 25% of the lobbying nontaxable amount (IRC 4911(c)(4)).
The excise tax. IRC 4911(a) imposes a tax equal to 25% of excess lobbying expenditures. The excess is the greater of (a) total lobbying over the lobbying nontaxable amount or (b) grassroots lobbying over the grassroots nontaxable amount. The two are not added together.
Loss of exemption. Under IRC 501(h)(1) and Regulation 1.501(h)-3(b), an electing charity loses exemption only if, over the current year and the three years before it, its lobbying spending exceeds 150% of the sum of its lobbying nontaxable amounts, or its grassroots spending exceeds 150% of the sum of its grassroots nontaxable amounts.
Worked example
A hypothetical environmental education charity has $1,200,000 in exempt purpose expenditures, including its lobbying. It plans $210,000 of lobbying, of which $30,000 is grassroots.
- Lobbying nontaxable amount: $175,000 + 10% × $200,000 = $195,000.
- Grassroots nontaxable amount: 25% × $195,000 = $48,750.
- Lobbying excess: $210,000 − $195,000 = $15,000. Grassroots: $30,000 is under $48,750, so no excess.
- Excise tax: 25% × $15,000 = $3,750.
- 150% ceilings for this year: $292,500 overall and $73,125 grassroots.
The charity owes a modest tax but is well inside the ceilings. Trimming $15,000 of lobbying would avoid the tax.
Under the 501(h) rules, communications to voters that take a position on a ballot measure count as direct lobbying, because the public is treated as the legislature (Reg. 56.4911-2(b)(1)(iii)). Supporting or opposing candidates is different: it is prohibited outright for every 501(c)(3). See political activity rules.
What this tool does not cover
The calculator does not decide which activities count as lobbying, apply the affiliated-group rules for related organizations, or average your four years for you unless you enter each year. It also does not cover the fundraising costs that are left out of exempt purpose expenditures, such as payments to outside fundraising firms (Reg. 56.4911-4(c)). Electing charities report these figures each year on Schedule C of Form 990; see annual filing requirements.
Frequently asked questions
Is the 25% excise tax a penalty that ends our exemption?
No. The tax applies to the excess for one year. Exemption is at risk only when spending normally exceeds 150% of the limits over the four-year base period.
Can a private foundation make the 501(h) election?
No. Section 501(h) is open only to certain public charities, and churches and their integrated auxiliaries are specifically excluded.
Do we include lobbying in exempt purpose expenditures?
Yes. Regulation 56.4911-4(b) includes lobbying expenditures in exempt purpose expenditures, whether or not they serve a charitable purpose.
When does the election take effect?
Under IRC 501(h)(6), it covers every tax year that ends after the election is made, until you revoke it.
Sources
- Cornell LII: 26 U.S. Code § 4911. law.cornell.edu
- Cornell LII: 26 U.S. Code § 501 (subsection h). law.cornell.edu
- eCFR: 26 CFR 1.501(h)-3, Lobbying or grass roots expenditures normally in excess of ceiling amount. ecfr.gov
- eCFR: 26 CFR 56.4911-4, Exempt purpose expenditures. ecfr.gov
- eCFR: 26 CFR 56.4911-2, Lobbying expenditures. ecfr.gov
- IRS: Form 5768 (Rev. September 2016). irs.gov
IRS forms, fees and inflation-adjusted amounts change. We review this page when the IRS publishes new instructions.
501Nonprofit.com is a private company, not the IRS. This page is general information, not legal or tax advice for your organization. Example organizations and figures are hypothetical.
