[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.501(h)-1]

[Page 43]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.501(h)-1  Application of the expenditure test to expenditures 
to influence legislation; introduction.

    (a) Scope. (1) There are certain requirements an organization must 
meet in order to be a charity described in section 501(c)(3). Among 
other things, section 501(c)(3) states that ``no substantial part of the 
activities of [a charity may consist of] carrying on propaganda, or 
otherwise attempting to influence legislation, (except as otherwise 
provided in subsection (h)).'' This requirement is called the 
substantial part test.
    (2) Under section 501(h), many public charities may elect the 
expenditure test as a substitute for the substantial part test. The 
expenditure test is described in section 501(h) and this Sec. 1.501(h). 
A public charity is any charity that is not a private foundation under 
section 509(a). (Unlike a public charity, a private foundation may not 
make any lobbying expenditures: If a private foundation does make a 
lobbying expenditure, it is subject to an excise tax under section 
4945). Section 1.501(h)-2 lists which public charities are eligible to 
make the expenditure test election. Section 1.501(h)-2 also provides 
information about how a public charity makes and revokes the election to 
be covered by the expenditure test.
    (3) A public charity that makes the election may make lobbying 
expenditures within specified dollar limits. If an electing public 
charity's lobbying expenditures are within the dollar limits determined 
under section 4911(c), the electing public charity will not owe tax 
under section 4911 nor will it lose its tax exempt status as a charity 
by virtue of section 501(h). If, however, that electing public charity's 
lobbying expenditures exceed its section 4911 lobbying limit, the 
organization is subject to an excise tax on the excess lobbying 
expenditures. Further, under section 501(h), if an electing public 
charity's lobbying expenditures normally are more than 150 percent of 
its section 4911 lobbying limit, the organization will cease to be a 
charity described in section 501(c)(3).
    (4) A public charity that elects the expenditure test may 
nevertheless lose its tax exempt status if it is an action organization 
under Sec. 1.501(c)(3)-1(c)(3)(iii) or (iv). A public charity that does 
not elect the expenditure test remains subject to the substantial part 
test. The substantial part test is applied without regard to the 
provisions of section 501(h) and 4911 and the related regulations.
    (b) Effective date. The provisions of Sec. 1.501(h)-1 through Sec. 
1.501(h)-3, are effective for taxable years beginning after August 31, 
1990. An election made before August 31, 1990, under the provisions of 
Sec. 7.0(c)(4) or the instructions to Form 5768, will be effective 
under these regulations without again filing Form 5768.

[T.D. 8308, 55 FR 35588, Aug. 31, 1990]