Lobbying cont'd

The IRS uses two tests to determine whether lobbying is substantial:

• The substantial part test and
• The expenditure test.

Substantial Part Test

The substantial part test looks at all the pertinent facts and circumstances. It considers a variety of factors, including the time that both compensated and volunteer workers devote to lobbying and the expenditures the organization devotes to lobbying.

Under this test, a 501(c)(3) conducting excessive lobbying in any taxable year may lose its tax-exempt status and may be subject to an excise tax equal to 5 percent of its lobbying expenditures for the year that it lost its tax-exempt status. In addition, a tax equal to 5 percent of the lobbying expenditures for the year may be imposed against organization managers who agree to the making of such expenditures knowing that they will likely result in the loss of tax-exempt status.