Lobbying expenditures of trade associations.

• Author: Talisman, Harold

Much attention has been drawn to the political activities of taxexempt organizations. Sen. Alan Simpson said at a recent Finance Committee hearing that he may offer legislation to restrict the activities of certain organizations exempt under Sec. 501(c)(4) and has held hearings to scrutinize the political activities of taxexempt organizations that receive Federal funds. In addition, the director of the IRS's Exempt Organization Division stated that audits of tax-exempts will be increased significantly beginning in 1995. Potential areas of concern for Sec. 501(c)(6) entities include disclosure and lobbying.

Trade associations, chambers of commerce, business leagues and similar organizations exempt from income taxation under Sec. 501(c)(6) are permitted to sponsor or oppose legislation so long as they promote the common business interests of their members. An organization may qualify for exemption under Sec. 501(c)(6) even if its sole purpose is to influence legislation, as long as such legislation is relevant to its exempt function.

Congress amended Sec. 162(e) to disallow the deduction for lobbying expenses, except at the local level, for amounts paid or incurred after 1993. In addition, the Revenue Reconciliation Act of 1993 (RRA) imposed new disclosure requirements for taxexempt organizations. Other than those exempt under Sec. 501(c)(3), organizations must now report to their members a reasonable estimate of the portion of the dues or similar payments allocable to nondeductible lobbying expenditures, in order to prevent members from deducting the portion of their dues so allocated. Further, Sec. 6033(e) now requires taxexempt organizations to include on any return claiming a trade or business deduction the total nondeductible lobbying expenditures for the tax year and the total amount of the dues or similar payments allocable to such expenditures.

If an organization elects not to provide the required disclosures or fails to specify the actual (not estimated)...