Q&A #30 – Can a 501(c)(3) organization engage in advocacy related to state ballot initiatives?

Question: My 501(c)(3) organization engages in public policy advocacy, and an issue that is very pertinent to our mission is the subject of a certain ballot initiative in our state. Are we permitted to engage in advocacy on this ballot initiative, or is this considered a prohibited political campaign activity?

Answer: Assuming your organization is a 501(c)(3) public charity (rather than a private foundation) you are generally free to engage in advocacy related to state ballot initiatives, up to certain limits. This is because advocacy related to referenda, ballot initiatives, constitutional amendments, and similar procedures is generally considered a form of “lobbying” on legislation, rather than a political campaign activity. The individual members of the general public who are voting on the measure are treated as the “legislators” for this purpose, and this is considered “direct lobbying” (as opposed to “grass roots lobbying,” which has a slightly different treatment under the tax law). See Treas. Reg. § 56.4911-2(b).

Public communications related to a ballot initiative will generally be considered lobbying if specific legislation or proposed legislation is identified and the organization’s view on the legislation is expressed. However, some communications may fit within an exception for “nonpartisan analysis, study, or research,” and you should explore with this or another exception may apply.

If a communication does fall within the definition of lobbying, it is important to track the time and expense of the communication (including an appropriate allocation of staff time) to ensure the limits on allowable lobbying activities are not exceeded and the activities are accurately reported on the Form 990, Schedule C. Most 501(c)(3) organizations that engage in lobbying activities are well-advised to file the “501(h)” election (Form 5768), which allows you to apply a more clear and concrete lobbying limit based on expenditures. The 501(h) election must be filed before the end of the tax year to be effective for that tax year.

If a communication does fall within the definition of lobbying, it is important to track the time and expense of the communication (including an appropriate allocation of staff time) to ensure the limits on allowable lobbying activities are not exceeded and the activities are accurately reported on the Form 990, Schedule C. Most 501(c)(3) organizations that engage in lobbying activities are well-advised to file the “501(h)” election (Form 5768), which allows you to apply a more clear and concrete lobbying limit based on expenditures. The 501(h) election must be filed before the end of the tax year to be effective for that tax year.

Planning Tip – Accurately tracking and calculating lobbying expenditures requires training staff to identify lobbying communications and efforts, seek guidance when this is unclear, and keep contemporaneous records of expenses incurred for the activity and time spent on lobbying communications. Time sheets are an essential tool for this, along with other documented accounting system policies, procedures and compliance measures. Staff are sometimes resistant to filling out time sheets and tracking lobbying expenses, so take the time to explain the importance of these practices and make sure there is consistent enforcement.

Lastly, you will need to check the applicable state law to determine whether there are reporting requirements or other compliance rules in the state related to these activities.

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