Taxation of Political Action Committee and IRS Filing Requirements

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September 24, 2010

Taxation of Political Organization Taxable Income

A political organization is subject to tax on its “political organization taxable income”.  I.R.C. Section 527(c) defines this amount as the gross income of the organization, other than exempt function income, less deductions modified under I.R.C. Section 527(c)(2) directly connected with the production of the taxable income including a $100 specific deduction.

IRS Tax Filing Requirements

Political parties, campaign committees for candidates for federal, state or local office and political action committees are all political organizations subject to tax under I.R.C. Section 527.  Unless a specific exemption applies, organizations subject to I.R.C. Section 527 generally are required to file (1) an initial notice with the IRS on Form 8871, (2) a periodic report regarding contributions and expenditures on Form 8872, (3) annual income tax returns on Form 1120-POL and (4) annual information returns on Form 990.  Organizations required to report to the Federal Election Commission as political committees are not required to file notices and reports with the IRS in order to be tax-exempt under I.R.C. Section 527.  However, they are subject to other tax compliance requirements applicable to political organizations which generally may include filing the Form 1120-POL if the organization has taxable income.  Political committees that may be exempt from the IRS initial notice and periodic report filing requirements include any committee, club, association or other group of persons which receives contributions aggregating in excess of $1,000 during a calendar year or which makes expenditures aggregating in excess of $1,000 during a calendar year and any separate segregated fund established under the provisions of Section 441(b) of the Federal Election Campaign Act.  Please consult your tax advisor to confirm whether an exemption from the IRS filing requirements will apply.  A political organization even if it is exempt from IRS filing requirements still may be required to file reports with the Federal Election Commission.