- 7.27.12.1 Introduction
- 7.27.12.2 IRC § 6033(e)(1) - Reporting Requirements
- 7.27.12.3 IRC § 6033(e)(2) - Proxy Tax
- 7.27.12.4 Certain Lobbying and Political Expenditures
- 7.27.12.5 Political Expenditures by Exempt Organizations
- Exhibit 7.27.12-1 IRC § 6033(e)(1) - Reporting Requirements
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This IRM contains specific information about the notification requirements for certain legislative and political expenditures under IRC § 6033(e)(1) and the tax imposed under IRC § 6033(e)(2) on an organization that does not provide such notification.
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This IRM also provides basic information about IRC §§ 162(e) and 527(f) as they relate to IRC § 6033(e).
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In general, organizations exempt from tax under IRC § 501 other than organizations described in IRC § 501(c)(3) shall include on Form 990, Return of Organization Exempt From Income Tax:
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The total expenditures for legislative or political activity to which IRC § 162(e)(1) applies, and
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The total amount of dues or other similar amounts paid to the organization to which the expenditures are allocable.
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Normally, expenditures to which IRC § 162(e)(1) applies shall be treated as paid out of dues. If IRC § 162(e)(1) expenditures exceed the dues for any taxable year, such excess will be treated as expenditures which are paid or incurred in the following taxable year.
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These organizations must also, at the time of assessment or payment of dues or similar amounts, provide a notice to each person making such payments. The notice should contain a reasonable estimate of the portion of the dues allocable to such expenditures.
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The reporting requirements do not apply to an organization which establishes to the satisfaction of the Secretary that substantially all of the dues paid to the organization are not deductible without regard to IRC § 162(e). See Exhibit 7.27.12-1.
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The reporting requirements do not apply to any amount on which tax is imposed by reason of IRC § 527(f). However, this exception does not necessarily apply to the organization's total expenditures for an exempt function.
Note:
If the tax under IRC § 527(f) is based on the net investment income of the organization because it is less than the aggregate amount expended for political activity, a reporting requirement may still exist for the amount of the difference because this difference is not subject to the tax under IRC § 527(F).
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A proxy tax may be assessed on certain exempt organizations described in IRC § 501(c) that must report legislative and political expenditures under IRC § 6033(e)(1). The only organizations to which the proxy tax may apply are:
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Certain IRC § 501(c)(4) social welfare organizations that are not veterans organizations
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Certain IRC § 501(c)(5) agricultural and horticultural organizations
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Certain IRC § 501(c)(6) organizations
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A tax is imposed in an amount equal to the product of the highest corporate rate for the taxable year, as imposed by IRC § 11, and the aggregate amount not included in required notices on any organization that:
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Elects not to provide such notices, or
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Otherwise fails to include in such notices the amount allocable to expenditures to which IRC § 162(e)(1) applies.
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The tax imposed on an organization that otherwise fails to include the proper amount allocable to IRC § 162(e)(1) expenditures may be waived if the organization agrees to adjust its estimates for the following taxable year to correct any failures.
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The proxy tax is treated in the same manner as an income tax and is reported on Form 990-T, Exempt Organization Business Income Tax Return.
Note:
The reporting requirements of IRC § 6033(e) do not apply to any amount on which tax is imposed by reason of IRC § 527(f) For example, if the political organization's taxable income under IRC § 527(f) is the amount of the organization's net investment income, because it is less than the aggregate amount expended for political activity, the difference could be subject to the proxy tax. However, this exception does not necessarily apply to the organization's total expenditures for an exempt function as defined in IRC § 527(F).
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With certain exceptions, deductions are not allowed for amounts paid or incurred in connection with influencing legislation, direct lobbying. See IRC § 162(e)(1)(A).
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Deductions are allowed for direct lobbying in the case of any legislation of any local council or similar governing body for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.
Example:
In direct connection with appearances before, submission of statements to, or sending communications to the committees, or individual members, of such council or body with respect to legislation or proposed legislation of direct interest to the taxpayer. See IRC § 162(e)(2)(B)(i).
Example:
In direct connection with communication of information between the taxpayer and an organization of which the taxpayer is a member with respect to any such legislation or proposed legislation of direct interest to the taxpayer and such organization. See IRC § 162(e)(2)(B)(ii).
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In general, no deduction is allowed for expenditures for participation or intervention in a political campaign on behalf of any candidate for public office. See IRC § 162(e)(1)(B).
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In general, no deduction is allowed for expenditures in connection with any attempt to influence the general public or segments thereof with respect to legislative matters, grassroots lobbying; elections; or referendums. See IRC § 162(e)(1)(C).
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In house expenditures for direct lobbying of $2000 or less are deemed de minimus. See IRC § 162(e)(5)(B).
Note:
In house expenditures do not include any expenditures for grass roots lobbying or political expenditures.
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If a substantial part of the activities of a trade association, labor union, or similar organization consists of legislative or political activities, a deduction is allowed only for that portion of a member's dues to the organization the taxpayer can clearly establish is attributable to other activities. See Treas. Reg. § 1.162-20(c)(3).
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IRC § 527(f) states that an organization exempt from tax under IRC § 501(a) as an organization described in IRC § 501(c) which expends funds directly or through another organization for the purpose of influencing, or attempting to influence the selection, nomination, election or appointment of any individual to any Federal, State, or local public office, or the election of presidential or vice-presidential electors is subject to tax on the lesser of:
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The net investment income of the organization for the taxable year, or
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The aggregate amount expended during the taxable year for such purpose
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A separate segregated fund maintained by an organization exempt from tax under IRC § 501(a) as an organization described in IRC § 501(c) will be treated as a separate organization. See IRC § 527(f)(3).