1. Breakfast with the IRS Justin Lowe, Tax Law Specialist
Exempt Organizations, Internal Revenue Service
(202)
"Material provided in this presentation is for educational use only and is not intended to establish IRS position or practice and may not be relied on or cited as precedent. For more detailed information, please refer to the "Charities and Nonprofits" section of IRS.gov."

3. § 527 Tax Treatment
Prior to July 2000: All political organizations tax-exempt
July 2000: New reporting and disclosure requirements created
November 2002: Reporting and disclosure requirements amended

4. Automatic Tax-Exemption
Committees of state or local candidates
State or local party committees
Organizations required to report under FECA as political committees
Organizations that never receive or expect to receive more than $25,000 in any year

5. § 527 Political Organization
An organization that is organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures for a § 527 exempt function

6. § 527 Exempt Function
Section 527 exempt function activity is defined as attempting to influence the selection, nomination, election or appointment of any individual to Federal, State, or local public office, office in political party, or Presidential electors.

7. Types of § 527 Organizations
Federal, state and local:
Candidate Committees
Political Parties
Political Action Committees (PACs)

8. Organizational Requirements
No formal organizational requirements necessary – political organization may be, but need not be, incorporated (opening a bank account sufficient)
Employer Identification Number (EIN) needed – even if no employees
Form SS-4

10. Employer ID Number

11. Form SS-4

12. Form 8871 Not Filed Notice

13. Form 8871 Not Filed Notice
Political organizations that do not file Form 8871 will receive notice
Organizations that are automatically tax-exempt fill out Section I, sign Section III and return to IRS
Organizations that file Form 8871 late may use Section II to explain reasonable cause

14. Notice Response

15. Automatic Tax-Exemption
Committees of state or local candidates
State or local party committees
Organizations required to report under FECA as political committees
Organizations that never receive or expect to receive more than $25,000 in any year

16. Tax-Exempt v. Taxable Tax-Exempt Political Organizations
Automatic – only Form 1120-POL
Otherwise – Form 8871, Form 8872 and Form 990 in addition to Form 1120-POL
Taxable Political Organizations
File Form 1120-POL
All income, including contributions, subject to 35% tax

17. Taxation of § 527 Organizations
Taxable income taxed at highest corporate rate (currently 35%)
Principal campaign committees of candidates for U.S. Congress taxed at graduated corporate rates (beginning at 15%)

18. Taxable Income All income (including investment income) except:
Contributions
Membership dues and assessments
Political fundraising or entertainment event income, provided not regularly carried on trade or business
Sale of political campaign materials, provided not regularly carried on trade or business
Bingo income

19. Deductions Allowed
Only expenses directly connected to earning taxable income deducted
Includes expenses such as brokerage fees for investment accounts
Does not include fundraising expenses or political campaign expenditures
$100 specific deduction allowed

20. Form 1120-POL

21. Form 1120-POL
Form 1120-POL required to be filed if organization has taxable income after taking $100 specific deduction
Activity can be structured to avoid receipt of taxable income so no Form 1120-POL required
Organization may file Form 1120-POL to start statute of limitations period running
Form 1120-POL due 15th day of 3rd month after year end (March 15th for calendar year)

22. Form 8871
Required to be filed within 24 hours of establishment or within 30 days of material change to be tax-exempt
Must be filed electronically at
Organization is taxable political organization until Form 8871 is filed
IRS may waive tax for reasonable cause

23. Political Organization Filing and Disclosure

24. Form 8872 Only required if Form 8871 filed QSLPOs not required to file
Failure subjects organization to assessment of 35% of contributions and expenditures not properly disclosed
IRS may waive assessment for reasonable cause

25. Form 8872

26. Form 8872 Periodic reports of contributions and expenditures
Even-numbered years: monthly or quarterly with pre- and post-election reports
Odd-numbered years: monthly or semiannually
Organizations with contributions or expenditures exceeding $50,000 for the year must file electronically

27. Form 8872 Contributor and Payee information disclosed Name Address
Amount of Contribution or Expenditure
Occupation (if contributor or payee is individual)
Employer (if contributor or payee is individual)
Date of Contribution or Expenditure
Purpose (for expenditures)

28. Form Schedule A

29. Form 8872 – Schedule B

30. QSLPO Organization limits activities to state and local elections
Organization required to and reports Form 8872 information to a state agency
State agency makes report available
Organization makes report available
No federal candidate or officeholder involvement

31. Form 990 Annual information return Only required if Form 8871 filed
Caucus or association of state or local officials not required to file
QSLPO required to file when gross receipts equal $100,000 or more
All others required to file when gross receipts equal $25,000 or more
Due 15th day of 5th month after year end (May 15th for calendar year)

32. Public Disclosure
Form 8871, Form 8872 and Form 990 required to be publicly available
Form 1120-POL not publicly available
Filed forms available on IRS web site at
Mailed in filings available as pdf images
Electronic filings searchable on all fields and downloadable

33. Solicitation Notice
 Must provide notice that contributions are not deductible for Federal income tax purposes as charitable contributions (section 6113)
 Notice provides safe harbor
 Exception for small organizations (less than $100,000 annually)

34. Notice

35. Employment Taxes

36. Other Exempt Organizations
§ 501(c)(3) – Charitable Organizations
§ 501(c)(4) – Social Welfare Organizations
§ 501(c)(5) – Labor, Agricultural and Horticultural Organizations
§ 501(c)(6) – Business Leagues, Trade Associations, etc.

37. §501(c)(3) Status: Charitable Organizations
An organization must be organized and operated exclusively for an exempt purpose—charitable, religious, educational, scientific, etc.

38. § 501(c)(3) and Elections
Participating in, or intervening in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office – Absolutely prohibited
Encouraging people to participate in the electoral process in non-biased, neutral manner – § 501(c)(3) purpose

39. Political Campaign Activity
Any and all activities that favor or oppose one or more candidates for public office
Includes candidate endorsements and contributions to campaigns
Includes distributing materials prepared by others that favor or oppose candidates
All facts and circumstances will be considered

40. IRS Activity Political Activities Compliance Initiative (PACI)
“Fast Track” evaluation of allegations
Review of public campaign disclosures
Guidance
Fact Sheet (plain language)
Revenue Ruling (precedential)
21 examples illustrating application of facts and circumstances test

41. § 501(c)(4) Status: Social Welfare Organizations
An organization must be operated exclusively for the promotion of social welfare--promoting the common good and general welfare of the people in the community

42. § 501(c)(5) Status: Labor, Agricultural & Horticultural Organizations
An organization must be operated for the betterment of conditions of those engaged in their pursuits and their earnings may not inure to the benefit of any member.

43. § 501(c)(6) Status: Business Leagues, Trade Associations, etc.
Organizations that are associations of persons with a common business interest which promote the common interest and do not conduct a regular trade or business for profit

44. § 501(c)(4), (c)(5), or (c)(6) Status
Primary activity must be in furtherance of exempt purpose
May engage in non-exempt purpose activities without jeopardizing exemption provided less than primary activity
Lobbying may be exempt purpose activity
Political campaign activity is not exempt purpose activity

45. § 527(f) Tax Consequences
Taxed on lesser of political expenditures or investment income
May set up separate segregated fund - taxed as political organization

46. Receive Tax‑Deductible Charitable Contributions YES NO
527
Receive Tax‑Deductible Charitable Contributions
YES NO
May Receive Contributions or Fees Deductible as a Business Expense
Substantially Related Income Exempt from Federal Income Tax
Investment Income Exempt from Federal Income Tax
Engage in Legislative Advocacy
LTD
Engage in Candidate Election Advocacy
Engage in Public Advocacy Not Related to Legislation or Election of Candidates

47. For More Information
IRS Charities & Nonprofits Website:
Subscribe to EO Update – link at bottom of page
IRS Political Organization Website:
TE/GE Customer Account Services:
(877) (toll-free)
P.O. Box 2508
Cincinnati, OH 45201

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