One restriction put on nonprofits is the ability to perform lobbying. Time and money that nonprofits spend on lobbying is reported on Schedule C of their 990s and, if an organization devotes too much of its resources to lobbying, it can lose its nonprofit status with the IRS.
The IRS defines lobbying as “attempting to influence legislation.” The legislation in question by be at any level of government – federal, state or local – and can be targeted at a government legislative body, or a public referendum, ballot initiative, or similar process. Lobbying activities cover “proposing, supporting, or opposing legislation [as well as advocating] the adoption or rejection of legislation.”
There are 2 types of lobbying to keep track of – direct lobbying, and grass roots lobbying. Lobbying is direct if you are going straight to the source – contacting legislators, employees of a legislature, or government officials involved in lawmaking, and trying to influence legislation. Grass roots lobbying tries to influence legislation by encouraging the general public to take action to influence legislation, e.g. including a call to action in a newsletter or mailing to your constituents encouraging them to contact legislators. Whether direct or grass roots, to be considered lobbying, it must reference a piece of legislation, and support or oppose it.
To determine if lobbying is a substantial part of its overall activities, a nonprofit can use 2 methods to measure its lobbying – the substantial part test, or the expenditure test. In either case, if the IRS determines the amount of lobbying activity is excessive, the organization will be liable for taxes in its income in the period in question, must pay excise taxes on some or all of its lobbying expenditures, and may lose its tax-exempt status.
There are some politically-related activities that are not considered lobbying, and are permissible for nonprofits in any amount; page 2 of this article by the Alliance for Justice mentions a few. Publicizing results of nonpartisan analysis or research on a piece of legislation, updating or informing members or constituents about a piece of legislation without a call to action, participating in a discussion of policy issues without supporting or opposing specific legislation, and responding to requests from a legislative body or committee for technical advice on pending legislation are not considered lobbying and are not restricted by the IRS.
Also worth noting is that these regulations only cover compliance with the IRS. Individual states have their own regulations around lobbying that often differ from IRS requirements. Additionally, some states require individuals and/or firms to register with the state if they are performing lobbying activities. Check with your state government for the application regulations.