Expenditure Test

Instead of the substantial part test, a 501(c)(3) may elect to have its lobbying activities measured using the expenditure test. This is known as a 501(h) election and is made using Form 5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization to Make Expenditures to Influence Legislation. Note: This option is not available to churches.

Under the expenditure test, a 501(c)(3)’s lobbying activity will not jeopardize its tax-exempt status so long as its expenditures related to that activity normally do not exceed an amount specified in Code section 4911.

Under the expenditure test, a 501(c)(3) that engages in excessive lobbying over a four-year period may lose its tax-exempt status, making all its income for that period taxable. If the 501(c)(3) exceeds its lobbying expenditure dollar limit in a particular year, it must pay an excise tax equal to 25 percent of the excess.