Instructions For Schedule C (Form 990 Or 990-Ez) 2008 (Page 6 of 8) in pdf

Allocation of costs to lobbying

direct contact lobbying, but who makes no

Dues, Lobbying, and Political Expenses

activities and influencing legislation.

direct contact with a legislator, or covered

IF ...

THEN ...

An organization that is subject to the

executive branch official, as direct contact

lobbying disclosure rules of section

lobbying.

The organization’s

The organization

6033(e) must use a reasonable allocation

De minimis rule. If less than 5% of a

lobbying and political must: (a) Allocate all

method to determine total costs of its

person’s time is spent on lobbying

expenses are more

membership dues to

direct lobbying activities; that is, costs to

than its membership

its lobbying and

activities, and there is no direct contact

influence:

dues for the year,

political activities, and

lobbying, an organization may treat that

•

Legislation, and

(b) Carry forward any

person’s time spent on lobbying activities

•

The actions of a covered executive

excess lobbying and

as zero.

branch official through direct

political expenses to

Purpose for engaging in an activity.

communication (for example, President,

the next tax year.

The purpose for engaging in an activity is

Vice-President, or cabinet-level officials,

The organization:

The organization

based on all the facts and circumstances.

and their immediate deputies) (section

(a) Had only de

need not disclose to

If an organization’s lobbying

162(e)(1)(A) and section 162(e)(1)(D)).

minimis in-house

its membership the

communication was for a lobbying and a

Reasonable methods of allocating

expenses ($2,000 or

allocation of dues,

non-lobbying purpose, the organization

costs to direct lobbying activities include,

less) and no other

etc., to its lobbying

must make a reasonable allocation of

but are not limited to:

nondeductible

and political activities.

costs to influencing legislation.

•

The ratio method,

lobbying or political

•

Correction of prior year lobbying

expenses (including

The gross-up and alternative gross-up

costs. If in a prior year, an organization

any amount it agreed

methods, and

•

treated costs incurred for a future

to carryover); or

A method applying the principles of

lobbying communication as a lobbying

(b) Paid a proxy tax,

section 263A.

instead of notifying its

cost to influence legislation, but after the

For more information, see Regulations

members on the

organization filed a timely return, it

sections 1.162-28 and 1.162-29. See the

allocation of dues to

appears the lobbying communication will

special rules and definitions for these

lobbying and political

not be made under any foreseeable

allocation methods given below.

expenses; or

circumstance, the organization may apply

An organization that is subject to the

these costs to reduce its current year’s

substantially all of its

lobbying disclosure rules of section

lobbying costs, but not below zero. The

membership dues,

6033(e) must also determine its total

organization may carry forward any

etc., are not

costs of:

amount of the costs not used to reduce its

•

deductible by

De minimis in-house lobbying,

current year’s lobbying costs to

•

members.

Grassroots lobbying, and

subsequent years.

•

Political campaign activities.

Example 1. Ratio method.

There are no special rules related to

X Organization incurred:

Members of the organization cannot

determining these costs.

1. 6,000 labor hours for all activities,

take a trade or business expense

All methods. For all the allocation

2. 3,000 labor hours for lobbying

deduction on their tax returns for the

methods, include labor hours and costs of

activities (3 employees),

portion of their dues, etc., allocable to the

personnel whose activities involve

3. $300,000 for operational costs, and

organization’s lobbying and political

significant judgment with respect to

4. No third-party lobbying costs.

activities.

lobbying activities.

X Organization allocated its lobbying

Proxy Tax

Special Rules

costs as follows:

IF ...

THEN ...

Ratio and gross-up methods. These

Costs

methods:

The organization’s

The organization is

allocable

•

May be used even if volunteers

actual lobbying and

liable for a proxy tax

Lobbying

Total

Allocable to

conduct activities, and

political expenses are on the excess.

labor

costs of

third-party lobbying

•

May disregard labor hours and costs of

more than it

hrs.

operations

costs

activities

clerical or support personnel (other than

estimated in its dues

3,000

× $300,000 + $ -0- = $150,000

lobbying personnel) under the ratio

notices,

6,000

method.

Total

The organization:

All the members’

labor

Alternative gross-up method. This

(a) Elects to pay the

dues remain eligible

hrs.

method may disregard:

proxy tax, and

for a section 162

•

Example 2. Gross-up method and

Labor hours, and

(b) Chooses not to

trade or business

•

alternative gross-up method.

Costs of clerical or support personnel

give its members a

expense deduction.

A and B are employees of Y

(other than lobbying personnel).

notice allocating dues

Organization.

to lobbying and

Third-party costs. These are costs paid

political campaign

1. A’s activities involve significant

to:

•

activities,

judgment with respect to lobbying

Outside parties for conducting lobbying

activities.

activities,

The organization:

The IRS may permit a

•

2. A’s basic lobbying labor costs

Dues paid to another membership

(a) Makes a

waiver of the proxy

(excluding employee benefits) are

organization that were declared to be

reasonable estimate

tax.

$50,000.

nondeductible lobbying expenses, and

of dues allocable to

•

3. B performs clerical and support

Travel and entertainment costs for

nondeductible

activities for A.

lobbying and political

lobbying activities.

4. B’s labor costs (excluding

activities, and

Direct contact lobbying. Treat all hours

employee benefits) in support of A’s

(b) Agrees to adjust

spent by a person in connection with

activities are $15,000.

its estimate in the

direct contact lobbying as labor hours

following year*.

5. Allocable third-party costs are

allocable to lobbying activities.

$100,000.

*A facts and circumstances test determines

Do not treat the hours spent by a

whether or not a reasonable estimate was made in

person who engages in research and

If Y Organization uses the gross-up

good faith.

other background activities related to

method to allocate its lobbying costs, Y

-6-

Instructions For Schedule C (Form 990 Or 990-Ez) 2008 Page 6

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