Instructions For Schedule C (Form 990 Or 990-Ez) - Political Campaign And Lobbying Activities - 2010 Page 6
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8completing Part III-B, must send dues
Proxy Tax
significant judgment with respect to
notices to its members at the time of
lobbying activities.
IF ...
THEN ...
assessment or payment of dues, unless
Special Rules
the organization chooses to pay the proxy
The organization’s
The organization is
tax instead of informing its members of
actual lobbying and
liable for a proxy tax
Ratio and gross-up methods. These
the nondeductible portion of its dues.
political expenses are on the excess.
methods:
These dues notices must reasonably
•
more than it
May be used even if volunteers
estimate the dues allocable to the
estimated in its dues
conduct activities, and
nondeductible lobbying and political
notices,
•
May disregard labor hours and costs of
expenditures reported in Part III-B, line
clerical or support personnel (other than
The organization:
All the members’
2a. An organization that checked “Yes”
lobbying personnel) under the ratio
(a) Elects to pay the
dues remain eligible
for Part III-A, line 3, and thus is required
method.
proxy tax, and
for a section 162
to complete Part III-B, must send dues
(b) Chooses not to
trade or business
Alternative gross-up method. This
notices to its members at the time of
give its members a
expense deduction.
method may disregard:
assessment or payment of dues and
notice allocating dues
•
Labor hours, and
include the amount it agreed to carryover
to lobbying and
•
Costs of clerical or support personnel
in its reasonable estimate of the dues
political campaign
(other than lobbying personnel).
allocable to the nondeductible lobbying
activities,
and political expenditures reported in Part
Third-party costs. These are:
•
III-B, line 2a.
The organization:
The IRS may permit a
Payments to outside parties for
(a) Makes a
waiver of the proxy
conducting lobbying activities,
reasonable estimate
tax.
•
Dues paid to another membership
Dues, Lobbying, and Political Expenses
of dues allocable to
organization that were declared to be
nondeductible
IF ...
THEN ...
nondeductible lobbying expenses, and
lobbying and political
•
Travel and entertainment costs for
activities, and
The organization’s
The organization
lobbying activity.
(b) Agrees to adjust
lobbying and political must: (a) Allocate all
Direct contact lobbying. Treat all hours
expenses are more
membership dues to
its estimate in the
spent by a person in connection with
than its membership
its lobbying and
following year*.
dues for the year,
political activities, and
direct contact lobbying as labor hours
*A facts and circumstances test determines
(b) Carry forward any
allocable to lobbying activities.
whether or not a reasonable estimate was made in
excess lobbying and
good faith.
Do not treat as direct contact lobbying
political expenses to
the hours spent by a person who engages
the next tax year.
in research and other background
Allocation of costs to lobbying
activities related to direct contact
The organization:
The organization
activities and influencing legislation.
lobbying, but who makes no direct contact
(a) Had only de
need not disclose to
An organization that is subject to the
minimis in-house
its membership the
with a legislator, or covered executive
lobbying disclosure rules of section
expenses ($2,000 or
allocation of dues,
branch official.
6033(e) must use a reasonable allocation
less) and no other
etc., to its lobbying
De minimis rule. If less than 5% of a
method to determine total costs of its
nondeductible
and political activities.
direct lobbying activities; that is, costs to
person’s time is spent on lobbying
lobbying or political
influence:
activities, and there is no direct contact
expenses (including
•
Legislation, and
lobbying, an organization may treat that
any amount it agreed
•
The actions of a covered executive
person’s time spent on lobbying activities
to carryover); or
branch official through direct
as zero.
(b) Paid a proxy tax,
communication (for example, President,
instead of notifying its
Purpose for engaging in an activity.
Vice-President, or cabinet-level officials,
members on the
The purpose for engaging in an activity is
and their immediate deputies) (section
allocation of dues to
based on all the facts and circumstances.
162(e)(1)(A) and section 162(e)(1)(D)).
lobbying and political
If an organization’s lobbying
expenses; or
communication was for a lobbying and a
Reasonable methods of allocating
(c) Established that
non-lobbying purpose, the organization
costs to direct lobbying activities include,
substantially all of its
must make a reasonable allocation of
but are not limited to:
membership dues,
•
costs to influencing legislation.
The ratio method,
etc., are not
•
The gross-up and alternative gross-up
Correction of prior year lobbying
deductible by
methods, and
costs. If in a prior year, an organization
members.
•
A method applying the principles of
treated costs incurred for a future
section 263A.
lobbying communication as a lobbying
Members of the organization cannot
cost to influence legislation, but after the
For more information, see Regulations
take a trade or business expense
organization filed a timely return, it
sections 1.162-28 and 1.162-29. The
deduction on their tax returns for the
appears the lobbying communication will
special rules and definitions for these
portion of their dues, etc., allocable to the
not be made under any foreseeable
allocation methods are discussed under
organization’s lobbying and political
circumstance, the organization may apply
Special Rules, later.
activities.
these costs to reduce its current year’s
An organization that is subject to the
lobbying costs, but not below zero. The
lobbying disclosure rules of section
organization may carry forward any
6033(e) must also determine its total
amount of the costs not used to reduce its
costs of:
current year’s lobbying costs to
•
De minimis in-house lobbying,
subsequent years.
•
Grassroots lobbying, and
Example 1. Ratio method.
•
Political campaign activities.
X Organization incurred:
There are no special rules related to
1. 6,000 labor hours for all activities,
determining these costs.
2. 3,000 labor hours for lobbying
All methods. For all the allocation
activities (3 employees),
methods, include labor hours and costs of
3. $300,000 for operational costs, and
personnel whose activities involve
4. No third-party lobbying costs.
-6-
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