To gather systematic evidence on the role of nonprofits in the public policymaking process, my research team and I surveyed more than 1,700 tax-deductible nonprofits drawn randomly from IRS records. The results demonstrate that most charitable nonprofits sharply limit their advocacy before state legislatures and Congress because they worry about violating the lobbying provisions of the Internal Revenue Code. (The largest charitable nonprofits, such as the American Cancer Society and the American Heart Association, are sophisticated enough not to be intimidated by the law, but these mega-organizations are a sliver of the nonprofit world.)
A few definitions might be helpful here. Charitable nonprofits, whose tax-deductible status is an enormous benefit for their fund- raising efforts, are often referred to as 501(c)(3)s, after that portion of the IRS Code. Nonprofits that cannot offer a tax deduction to their contributors -- such as labor unions and trade associations -- are regulated under different provisions of section 501. These 501(c)(5)s and 501(c)(6)s are free to engage in unlimited lobbying.
That the Sierra Club case still reverberates today is testament to how scared nonprofits are of the IRS. This is ironic because the modest, cobwebby Tax Exempt Office at the IRS hardly has the resources to engage in anything more than symbolic oversight of nonprofits. Contrary to what many nonprofit leaders believe, the IRS is not on the lookout for evidence of any form of lobbying. Only the visible signs of excessive lobbying -- activity that presents a challenge to the "substantial" standard -- has drawn the agency's interest.
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