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Political Organizations Under Section 527 of the Internal Revenue Code, Date: January 23, 2004 1 (January 23, 2004)

handle is hein.tera/crstax0123 and id is 1 raw text is: Order Code RS21716 January 23, 2004 CRS Report for Congress Received through the CRS Web Political Organizations Under Section 527 of the Internal Revenue Code Erika Lunder Legislative Attorney American Law Division Summary Political organizations have the primary purpose of influencing federal, state, or local elections. Those that qualify under section 527 of the Internal Revenue Code are generally treated as tax-exempt organizations, but are taxed on certain income. Section 527 organizations are subject to reporting requirements involving (1) registration, (2) periodic disclosure of contributions and expenditures, and (3) the annual filing of tax returns. In the 108th Congress, three bills have been introduced, S. 1059, H.R. 429, and H.R. 2368, that would affect 527 organizations; all would reduce the rate at which certain income is taxed. Prior to 1975, the Internal Revenue Code (IRC) was silent as to the tax treatment of organizations whose primary purpose is influencing elections. The Internal Revenue Service (IRS) treated contributions to political organizations as gifts, which meant that the organizations did not have taxable income and were not required to file tax returns. In the early 1970s, as it became apparent that these organizations had sources of income besides contributions, the IRS began requiring those with investment and other types of income to file tax returns and pay tax at the corporate rate. In 1975, Congress enacted section 527 to clarify the tax treatment of political organizations.' Section 527 has three purposes: (1) it clarifies that expenditures by political organizations on behalf of an individual are generally not income to the individual, (2) it imposes a tax on 501 (c) organizations that make political expenditures,2 and (3) it generally grants tax-exempt status to qualifying political organizations. The last rule is the focus of this report. P.L. 93-625. IRC §§ 84 and 2501 (a)(5) were also enacted to address the donor's tax treatment. Prior to 1975, political contributions were subject to the gift tax but qualified for a limited deduction or credit. Section 84 requires a donor of appreciated property to include the amount of appreciation in gross income. Section 2501 (a)(5) exempts contributions from the gift tax. The provisions allowing a deduction or credit were repealed by P.L. 95-600 and P.L. 99-514. 2 These organizations are not considered 527 organizations for the reporting requirements that are discussed in this report. Congressional Research Service ** The Library of Congress

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