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Measuring Lobbying Activity: Expenditure Test

Organizations other than churches and private foundations may elect the expenditure test under section 501(h) as an alternative method for measuring lobbying activity. Under the expenditure test, the extent of an organization’s lobbying activity will not jeopardize its tax-exempt status, provided its expenditures, related to such activity, do not normally exceed an amount specified in section 4911. This limit is generally based upon the size of the organization and may not exceed $1,000,000, as indicated in the table below. 

 

 If the amount of exempt purpose expenditures is:  Lobbying nontaxable amount is:
 ≤ $500,000  20% of the exempt purpose expenditures
 >$500,00 but ≤ $1,000,000  $100,000 plus 15% of the excess of exempt purpose expenditures over $500,000
 > $1,000,000 but ≤ $1,500,000  $175,000 plus 10% of the excess of exempt purpose expenditures over $1,000,000
 >$1,500,000 but ≤ $17,000,000  $225,000 plus 5% of the exempt purpose expenditures over $1,500,000
 >$17,000,000  $1,000,000

Organizations electing to use the expenditure test must file Form 5768, Election/Revocation of Election by an Eligible IRC Section 501(c)(3) Organization to Make Expenditures to Influence Legislation, at any time during the tax year for which it is to be effective.  The election remains in effect for succeeding years unless it is revoked by the organization.  Revocation of the election is effective beginning with the year following the year in which the revocation is filed. 

Under the expenditure test, an organization that engages in excessive lobbying activity over a four-year period may lose its tax-exempt status, making all of its income for that period subject to tax.  Should the organization exceed its lobbying expenditure dollar limit in a particular year, it must pay an excise tax equal to 25 percent of the excess.

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