Garden, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $210,000 during the taxable year. Exempt purpose expenditures are $900,000. If Garden makes the election under § 501(h) to make lobbying expenditures on a limited basis, its tax liability resulting from the lobbying expenditures is:

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Under § 501(h), a qualifying § 501(c)(3) organization that elects to make lobbying expenditures on a limited basis can spend a certain percentage of its exempt purpose expenditures on lobbying without losing its tax-exempt status. The tax liability for exceeding the allowable limit is calculated based on a sliding scale. For the first $500,000 of exempt purpose expenditures, the organization can spend up to 20% on lobbying ($100,000 in this case). For the next $400,000 (from $500,000 to $900,000 in exempt purpose expenditures), the organization can spend an additional 15%, which is $60,000. Therefore, the maximum allowable lobbying expenditure without incurring tax is $160,000 ($100,000 + $60,000). Garden, Inc. has lobbying expenditures of $210,000, which is $50,000 over the limit. The tax rate on the excess lobbying expenditures is 25%, so the tax liability is $12,500 ($50,000 * 25%).