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Information on politics and lobbying and how Schedule C filing requirements are impact - Tate Tryon CPAs.
Information on politics and lobbying and how Schedule C filing requirements are impact - Tate Tryon CPAs.
Politics and Lobbying: A Deep Look at Schedule C presented by Deborah G. Kosnett, CPA Tate & Tryon, CPAs, Washington, DC Speaker Biography Deborah G. Kosnett, CPA, is a Tax Principal with Tate & Tryon, CPAs and Consultants, in Washington, DC, a firm specializing solely in not-for-profit organizations. She has 25 years' experience as a tax advisor to not-for-profit organizations throughout the country. Prior to joining Tate & Tryon in 1999, Ms. Kosnett was a senior tax manager with both KPMG and Ernst & Young in Washington, DC, where she worked with numerous exempt organizations, as well as with not-for-profit hospitals and multi-entity health systems. Ms. Kosnett is a frequent contributor to American Society of Association Executives (ASAE) publications, including “2011 Form 990: Reporting Requirements for AMCs,” and “Need-to-Knows in the New 990.” She is also a regular presenter at conferences held by AICPA, ASAE, the Greater Washington Society of CPAs, and the Finance and Administration Roundtable, and is a co-author of ASAE's "Guide to the Newest Form 990.” Ms. Kosnett currently serves on the AICPA's Exempt Organizations Technical Resource Panel, where she assists with numerous initiatives, including the TRP's Form 990 Task Force. American Institute of CPAs Politics and Lobbying . . . Not the same thing! Political activity – influencing, or attempting to influence, the selection, nomination, election, or appointment of any individual to any Federal, state, or local public office Lobbying – generally, any attempt to influence legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation Different types of organizations = different lobbying rules American Institute of CPAs Who Files Schedule C? §501(c)(4), Other §501(c)(3) (5), (6) §501(c)s §527’s Lobbying - charities Yes No No No Lobbying - other No Yes Maybe No Political Activity NO! Yes Yes Yes* American Institute of CPAs Schedule C Trigger Questions American Institute of CPAs Schedule C Part I – Political Activity American Institute of CPAs Part I – Political Activity Reporting American Institute of CPAs Part I-A: (almost) Everyone Report both direct and indirect political campaign activities Line 3: Report Line 1: requires a Line 2: Correctly- volunteer hours for Part IV narrative handled PAC the organization’s description – even contributions are own political if only activity is NOT reported here; activities – not through a everything else is those of connected connected PAC PAC American Institute of CPAs Part I-B: §501(c)(3)’s ONLY The term “political expenditure” means any Part I-B asks amount paid or incurred Part I-B is about excise by a section 501(c)(3) organization in any never filled taxes imposed participation in, or out … unless a intervention in (including by §4955 in the publication or §501(c)(3) did connection distribution of something it statements), any political with political campaign on behalf of shouldn’t expenditures (or in opposition to) any candidate for public have! office. – IRC §4955(d)(1) American Institute of CPAs Section 4955 Excise Taxes Tax imposed on political expenditures of §501(c)(3) organizations Organization excise tax = 10% Manager excise tax = of the amount of 2.5% of the amount of the Additional excise tax expenditure political expenditure on the organization • Imposed upon on any manager • 100% of uncorrected who knowingly agreed to political expenditure expenditure (unless not willful, and due to reasonable cause) • 50% of uncorrected expenditure upon any • Joint and several liability! organization manager refusing to make correction American Institute of CPAs What is a “Correction?” Recovering the political expenditure (to the extent possible) Establishing safeguards to prevent future political expenditures Line 4 requires a description of the steps taken to correct the activity that triggered the § 4955 tax American Institute of CPAs IRM – Termination Assessments 184.108.40.206.4 (02-23-1999) Termination Assessments and Injunctions The Service is authorized to make an immediate determination and assessment of income tax, or of the tax imposed by IRC 4955, for the current or preceding year of an IRC 501(c)(3) organization, if the Service finds that the organization has made political expenditures and that such expenditures constitute a flagrant violation of the prohibition against making political expenditures. For this purpose, the organization’s current taxable year is treated as if it terminates on the date taxability is determined. IRC 6852. Any taxes assessed under IRC 6852 against the organization or its managers become due and payable immediately. The Service may seek an injunction to bar political expenditures by an IRC 501(c)(3) organization after it has notified the organization of its intention to seek an injunction if the organization does not immediately cease making political expenditures and after the Commissioner personally has determined that the organization has flagrantly participated in a political campaign and that an injunction is appropriate to prevent further abuse. The Service also may seek such other injunctive relief as may be appropriate to ensure that the organization’s funds are preserved for IRC 501(c)(3) purposes. IRC 7409. American Institute of CPAs Part I-C: Everyone BUT §501(c)(3) American Institute of CPAs Most Non-§501(c)(3)s … May make political expenditures, as long as they do so within the confines of Federal and state laws that otherwise govern political activity … • §501(c)(1) federal instrumentalities cannot make any election expenditures (2 USC §441(b)) • §501(c)(2) and (25) title holding organizations likely cannot make political expenditures (or lobby, either) … as long as it is not their primary activity! Federal Election Campaign Act imposes restrictions on some corporate direct political activity Some states impose restrictions on political activity American Institute of CPAs Beware: Definitions are Important! For Schedule C purposes, § 527’s definition of “exempt function expenditure” controls: §527(e)(2) Exempt Function The term “exempt function” means the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office or office in a political organization, or the election of Presidential or Vice-Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed §271(b)(3) Expenditures … the term “expenditures" includes a payment, distribution, loan, advance, deposit, or gift, of money, or anything of value, and includes a contract, promise, or agreement to make an expenditure, whether or not legally enforceable. American Institute of CPAs The Federal Election Campaign Act Prior to Citizens United, FECA prohibited corporations (and labor groups) from using general treasury funds to make contributions or expenditures in connection with federal elections Under FECA, a political contribution is anything of value (money, goods and services, in-kind contributions), loans/guarantees, advances) given to a PAC’s hard money account, to a candidate committee, or to a campaign committee The Citizens United decision has enabled corporations to make so- called “independent expenditures” in connection with Federal election campaigns American Institute of CPAs Ripped from the Headlines . . . American Institute of CPAs Ripped from the Headlines . . . American Institute of CPAs Schedule C Part II – Lobbying (Charities) American Institute of CPAs Different Orgs, Different Rules §501(c)(3) §501(c)(4), (5), (6) How much Limited – “no Unlimited (as long as substantial part” related to exempt lobbying purpose) Taxation/ - Excise taxes on 35% “proxy” tax excess OR Revocation - Loss of exemption Nondeductible dues for excess lobbying pass-through Exceptions to Some narrow Some narrow (different) exceptions exceptions lobbying American Institute of CPAs §501(c)(3) – What is Lobbying? An attempt to influence (propose, support, or oppose) legislation, by propaganda or otherwise • Congressional, state, or local legislative action • Does not include executive branch action or agency regs • Public referenda, initiative or constitutional amendment • Formal and informal contacts with legislative members, staff, even executive branch (if regarding legislation) Both direct and grassroots lobbying Exceptions – • Written requests to present testimony on pending legislation • Nonpartisan, published research (that does not encourage enactment or defeat) • Indirect influence via pursuit of exempt purpose American Institute of CPAs How is Lobbying Activity Measured? “No Substantial Part” test §501h “Expenditure” test (default) • Schedule C, Part II-A • Schedule C, Part II-B • Looks only at dollars spent • Looks at expenditures, • Requires a one-time election volunteer activities (revocable) • Vague and subjective! • Provides clearer lobbying definitions • Measures both direct and grassroots lobbying • Churches, integrated auxiliaries (and related) CANNOT make the election American Institute of CPAs The §501h Election Spending limits based on total “exempt Lobbying/Grassroots purpose” expenditures Nontaxable Amounts (lobbying + “other”) 20% of first $500,000 15% of next $500,000 10% of next $500,000 Overall ceiling is 150% 5% of remainder, up to … of a 4-year average Direct spending limit of $1 • 25% tax on excess for any million one year (Form 4720) Grassroots spending limit of • Exemption is revoked if 4-year ceiling is exceeded $250,000 American Institute of CPAs §501h – More Precise §4911 Definitions Direct – attempt to affect legislation through direct contact with legislative bodies, or others involved in formulating legislation Grassroots – attempt to affect legislation by affecting public opinion • Contacts with members are considered direct lobbying Four significant exceptions – • Dispensing the results of nonpartisan analysis, study, research • Providing technical advice or assistance per legislative body’s written request • “Self-defense” exception (organization’s existence, powers, duties, exempt status, deductibility of contributions) • Communications with members that inform but do not directly encourage American Institute of CPAs Part II-A – Lobbying Under §501h American Institute of CPAs §501h with Affiliate –Excess $$ in 2011 American Institute of CPAs §501h – Expenditure Test Failure! American Institute of CPAs What Happens When a §501(c)(3) Fails? It may NOT become a § 501(c)(4) (even though it might otherwise qualify) Becomes a taxable organization (usually a corporation) GCM 39813: tax treatment of – • Gross receipts of trade/business activities - taxable • Income from investment and other formerly “excluded” activities - taxable • “Good faith” contributions – generally nontaxable under §102 • Donors may be subject to gift tax American Institute of CPAs Part II-B – No §501h Election Unlike Part II-A, II-B directly asks if lobbying causes the organization to fall out of § 501(c)(3)! American Institute of CPAs §4912 – Disqualifying Lobbying Expenditures Paid by disqualified §501(c)(3)’s • Does not apply to those with a 501h election • Nor to private foundations • Nor to organizations unable to make a 501h election 5% tax on disqualifying expenditures – • Paid by organization itself, and • Paid by any organization manager approving the expenditures knowing they were likely to disqualify the organization • Joint and several liability! American Institute of CPAs Schedule C Part III – Lobbying (Other) American Institute of CPAs Non- §501(c)(3) Lobbying Not restricted as long as related to exempt purpose §162(e) denies a deduction for most lobbying and political expenditures Nondeductible expenditures relate to – • Influencing legislation • Participation in or intervention in any political campaign • Attempting to influence the general public w/respect to elections, legislative matters, referenda • Direct communications with a “covered executive branch official” Denial applies to dues paid to lobbying organizations Organizations may elect to pay a 35% “proxy” tax instead American Institute of CPAs Exceptions Local legislation De minimis exception – in-house (only!) expenditures of $2,000 or less Political expenditures already taxed under §527 (Form 1120-POL) Organizations where “substantially all” (90% or more) dues were not deductible by members American Institute of CPAs Lobbying Expenditure Calculation May use “any reasonable method” • You may even switch methods from to calculate lobbying year to year expenditures IRS offers specific • Ratio method, gross-up method, methods: 2 easy, 1 §263A method hard Be sure to include 3rd • Outside lobbyists party costs, PAC • Dues paid to other lobbying organizations admin expenses • Travel/entertainment costs American Institute of CPAs Notification Requirements Notify members of nondeductible dues (invoice or acknowledgement) Calculation is always a rolling estimate – “true up” annually, revise percentage Overages may be rolled forward (“waiver”) May an “under-age” be rolled forward? Discussion in IRS EO CPE article for FY 2003 says “yes” . . . “… the legislative history clearly indicates that organizations that overstate the portion of dues that are not deductible may be able to take this excess into account. Until such time as guidance is issued, a reasonable method would be to treat an overstatement similarly to an understatement and take the excess amount into account in the following year by subtracting it from the estimate of lobbying and political campaign expenses for that year.” American Institute of CPAs Simple, Straightforward, All-Purpose Notification "Dues payments, contributions or gifts to XYZ Association are not tax deductible as charitable contributions for federal income tax purposes. However, they may be deductible as ordinary and necessary business expenses subject to restrictions imposed as a result of XYZ's lobbying activities as defined by the Budget Reconciliation Act of 1993. XYZ estimates that the nondeductible portion of your 20XX dues -- the portion that is allocable to lobbying -- is ___%.“ American Institute of CPAs Part III – §501(c)(4), (5) and (6) Lobbying American Institute of CPAs Real-Life Schedule C - Political • § 501(c)(4) • Corporation The • Supported in 2010 by $6.9 “ABC million in contributions, plus Action minimal investment income • 2010 expenditures: $7 million League” • Can realistically be called an “independent expenditure PAC” American Institute of CPAs American Institute of CPAs American Institute of CPAs American Institute of CPAs Real-Life Schedule C – 501h Election • § 501(c)(3) • Corporation • Supported in 2009 by $29 The “XYZ million in government grants Foundation” and contributions, $285K in program services, $3.3 million in other • 2009 expenditures: $30 million American Institute of CPAs American Institute of CPAs American Institute of CPAs American Institute of CPAs Real-Life Schedule C – §162(e) Lobbying • § 501(c)(6) • Corporation The • Supported in 2010 by $5.8 “Amalgamated million in contributions, $28.8 Widget million in services, $400K in Makers” other • 2010 expenditures: $34 million American Institute of CPAs American Institute of CPAs American Institute of CPAs American Institute of CPAs Resources and Further Reading Alliance for Justice Center for Lobbying in the Public Interest IRS – Tax Information for Political Organizations IRS – TEOs and Political Campaign Intervention IRS – Lobbying, Charities IRS – Lobbying, Business Leagues IRS StayExempt Course on Politics and Charities FEC – Federal Campaign Finance Law & Regulations IRC EO CPE 2004 – Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5) and (c)(6) Organizations American Institute of CPAs Questions? Don’t forget to fill out your online evaluations! http://data.express-evaluations.com/eval/aicpa/web/main.php American Institute of CPAs
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