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Political Organizations Under Section 527 of the Internal Revenue Code, Date: January 11, 2005 1 (January 11, 2005)

handle is hein.tera/crstax0124 and id is 1 raw text is: Order Code RS21716 Updated January 11, 2005 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 and conducting similar activities. Those that qualify under section 527 of the Internal Revenue Code are taxed only on certain income. Under the Code, 527 organizations are subject to reporting requirements that involve registration, the periodic disclosure of contributions and expenditures, and the annual filing of tax returns. Section 527 organizations must also comply with applicable campaign finance laws. This report will briefly describe these organizations and the reporting requirements they face under the Code. The report will be updated as events warrant. Background. 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. By the early 1970s, it was apparent that these organizations had sources of income besides contributions, and the IRS began requiring those with investment and other types of income to file tax returns and pay tax at the corporate rate. P.L. 93-635, enacted in 1975, added section 527 to the IRC to address the tax treatment of political organizations. The section grants tax-exempt status to qualifying political organizations. This treatment is the focus of this report, but it should be noted that section 527 has two other purposes: it imposes a tax on 501(c) organizations that make political expenditures1 and it clarifies that expenditures by political organizations on behalf of an individual are generally not income to the individual. Congressional Research Service A+ The Library of Congress These organizations are not treated as 527 organizations for purposes of the reporting requirements discussed in this report.

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