501c3 Organizations

• Organizations qualifying for tax-exempt status under Section 501c3 of the Internal Revenue Code must be organized and operated exclusively for certain public purposes. These groups are commonly called charities, but the list of allowable purposes includes religious and educational ones. Donations to these organizations are generally tax deductible as charitable contributions. A 501c3 organization is not allowed to participate in partisan political activity or political campaigns. Doing so could result in the forfeiture of tax-exempt status.
  
  

Lobbying

• Charities are permitted to engage in lobbying to a limited extent. The tax code defines lobbying as attempting to influence legislation through communications with either governing officials and their staffs or the general public. Charities are usually allowed to lobby only when it is an "insubstantial" part of their activities. However, charities that plan to lobby usually elect to be subject to the Section 501h test that provides quantifiable limits. Section 501h permits them to spend 20 percent of their exempt-purpose expenditures up to $500,000 on lobbying, with smaller percentages applying to amounts over $500,000. Up to 50 percent above the limit can be spent -- with a taxed applied -- before the organization imperils its tax-exempt status.
  
  

Advocacy

• Charities are unrestricted in advocacy efforts that are not classified as lobbying. Advocacy is speaking up to plead the case of another or to fight for a cause. As an example, it is permissible without limits for a charity to advocate better working conditions, even if one of the solutions to the problem might be legislation. It is even permissible without limits for a charity to contact government employees to take a position on proposed regulations as opposed to legislation.
  
  

501c5 Organizations

• Labor unions fall under Section 501c5 of the tax code, which applies to labor, agricultural and horticultural organizations. Contributions to them are not deductible as charitable contributions, but union dues are sometimes deductible within limits as business expenses. These groups are not restricted in their political activities, even if they are partisan or in support of a candidate.
  
  

Charity and Union Joint Efforts

• Charities and labor unions may work together on many causes without endangering the tax-exempt status of the charity. When planning these efforts, the charity should give priority to advocacy or other activities that are not subject to expenditure limits. If the charity and union plan to lobby together, the charity should make certain it has elected to be covered to by the 501h test, so that clear, quantifiable limits apply to expenditures.
  
  The charity must steer clear of partisan political activity and support of candidates when working with unions. If the groups wish to work together on politics, the charity may participate in a voter registration drive or sponsoring a candidates' forum, if all candidates are invited to the forum.