501(c)(3) and Lobbying - The Basics
The basic tenet is 501(c)(3) organizations have a strict prohibition against lobbying activities. The premise of 501(c)(3) organizations is they must serve a public purpose and social activities must be "insubstantial". However, there are two sets of rules that apply to lobbying by 501(c)(3) organizations; based on whether they have chosen to file Form 5768 with the Internal Revenue Service (IRS).
-- File Form 5768
This is also called "taking the 501(h) election," in reference to a section of the federal tax code. Under this election, 501(c)(3) organizations report how much money they spend on lobbying each year to the IRS. The IRS has very clear guidelines on how much a 501(c)(3) organization is allowed to spend.
-- Don't File Form 5768
Under this election, 501(c)(3) organizations face the "insubstantial part" test. They cannot make lobbying a "substantial part" of their activities. This is a very vague guideline. For example, sending a letter to (or visiting) your elected representative is probably okay. Attending a public meeting and speaking on behalf of an issue is probably okay. But, any 501(c)(3) organization that wants to get politically involved should take the 501(h) election and come under the clear rules.
Lobbying Facts for all 501(c)(3) organizations
There are numerous good reasons to lobby. The various levels of government make decisions about tax incentives, control millions of dollars in grant funding, and have the potential to help - or hurt - the activities of your organization.
Grassroots lobbying is special. Outreach to members of the general public (e.g. radio commercials or mass mailings) on specific policy issues constitutes a special kind of lobbying and special rules apply for how much you can spend on this type of work.
The IRS does not consider all work with the government "lobbying". There are numerous exceptions, including some work with government agencies and work done by volunteers.
You can NEVER endorse or oppose a candidate for elected office at any level - from the school board to the House of Representatives to the U.S. President. Your organization must be careful to avoid taking any action (especially during an election year) that might give the appearance of endorsing a specific candidate. 501(c)(3) organizations are prohibited from conducting political campaign activities to influence elections to public office
You CAN work on ballot-issues, referenda, and other issue campaigns. All 501(c)(3) organizations are also permitted to educate individuals about issues, or fund research that supports their political position without overtly advocating for a position on a specific bill. Think tanks such as the Cato Institute, Center for American Progress, and Heritage Foundation and other 501(c)(3) organizations produce reports and recommendations on policy proposals that do not count as lobbying under the tax code.
Public charities (but not private foundations) are permitted to conduct a limited amount of lobbying to influence legislation. Although the law states that "no substantial part" of a public charity's activities may be devoted to lobbying, charities with very large budgets may lawfully expend a million dollars (under the "expenditure" test) or more (under the "substantial part" test) per year on lobbying.
Note: There is a clear distinction between "lobbying" (permitted with restrictions) and "campaigning" (strictly prohibited).