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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If Garden, Inc. makes the election under § 501(h) to make lobbying expenditures on a limited basis, its lobbying expenditures are deemed to be reasonable if they do not exceed certain prescribed limits based on the organization's annual exempt purpose expenditures. In this case, Garden's exempt purpose expenditures were $900,000, so the allowable lobbying expenditures would be $180,000 (20% of $900,000). Since Garden's actual lobbying expenditures were $210,000, the excess amount subject to tax is $30,000 ($210,000 - $180,000). The tax liability on this excess amount is calculated as 25% (the lobbying tax rate) multiplied by $30,000, which equals $7,500. Therefore, Garden's tax liability resulting from the lobbying expenditures would be $7,500 x 1.67 (the federal tax rate for qualifying § 501(c)(3) organizations) = $12,500.