Tax-Exempt Organizations — Lobbying and Political Expenditures (Portfolio 453)

Description

Bloomberg Tax Portfolio, Tax-Exempt Organizations — Lobbying and Political Expenditures, No. 453, analyzes the federal tax treatment of expenditures made to influence legislation and political campaigns, as well as the taxation of political candidates, political organizations, and public office holders.

Expenditures for lobbying and political campaigning generally are nondeductible, except for expenses of direct lobbying at the local level. Organizations that are tax-exempt under §501(c)(3) are subject to loss of their exempt status and other sanctions if they exceed the limitations that apply to lobbying activities or intervene in political campaigns. Some other types of exempt organizations are permitted to lobby or campaign to varying degrees. Also, campaign organizations are largely exempt from federal income tax.

This Portfolio: (1) describes in detail the limited conditions under which lobbying expenditures can be deducted under §162 and explains the deduction limitations imposed by §162(e) and by the specific deduction prohibitions of §271 and 276; (2) discusses how political organizations (such as PACs and campaign funds) are taxed and subject to reporting requirements under §527; (3) analyzes the taxation of candidates and of political office holders; and (4) analyzes the limitations on the lobbying and political activities of all organizations exempt from tax under §501(c), the safe harbor rule of §501(h), and the sanctions that can be imposed on an organization for exceeding the limits.

The only topic involving the tax impact of lobbying and political expenditures that this Portfolio does not discuss in detail is the tax treatment of political expenditures of private foundations, for which see 474 T.M., Private Foundations — Taxable Expenditures (Sec. 4945).

Table of Contents

I. Introduction
II. Deductibility of Political Expenditures
III. Deductibility of Lobbying Expenditures
IV. Allocation of Costs to Nondeductible Expenses; Dues Paid to Tax-Exempt Organizations
V. The Expenses of a Professional Lobbyist or Advertising Agency
VI. Taxation of Candidates and Public Office Holders
VII. Taxation of Political Organizations and Exempt Organizations That Campaign – 527
VIII. Tax Incentives for Individual Political Campaign Contributions
IX. Limitations on Political Activities of Tax-Exempt Organizations
X. Limitations on Lobbying and Political Activities of Other Exempt Organizations
XI. Constitutional Considerations