Political organizations and the new disclosure requirements.

• Author: Moore, Philip E.

CPAs are often involved with political campaigns and usually serve in a treasury or fiduciary capacity with political committees or candidates. As

such, they should be aware that, on July 1, 2000, the President signed P.L. 106-230, which amended Sec. 527.

New Sec. 527(i) requires that a political organization provide both electronic and written notice to the IRS, within 24 hours after the date on which the organization is established, that it is to be treated as a political organization. Under Sec. 527(i), the notice must include (1) the name and address of the organization, its business address (if different) and its electronic mailing address; (2) the purpose of the organization; (3) the names and addresses of its officers, highly compensated employees, contact person, custodian of its records and a listing of its board of directors; (4) the name and address of, and relationship to, any related entities (within the meaning of Sec. 168(h)(4)); and (5) any other information required by the Service. The IRS released Form 8871, Political Organization Notice of Section 527 Status, for this purpose. This form is to be filed with the IRS Service Center in Ogden, Utah or over the IRS Website at www.irs.gov/bus_info/eo/pol-file.html.

An organization will not be treated as a political organization under Sec. 527 until Form 8871 is filed; until the filing, its exempt-function income (minus any deductions directly connected with the production of that income) will be taxable income.

There are several exceptions to this new notification requirement. The first excludes an organization that reasonably anticipates that its gross receipts will be less than $25,000 for any tax year. The second excludes those entities brought under Sec. 527 because of Sec. 527(f)(1). Sec. 527(f)(1) provides that, if a Sec. 501(c) organization exempt from tax under Sec. 501(a) spends any sums for an exempt function, the organization is subject to tax as if it were a political organization, on the lesser of its net investment income or the amount spent during the year for the exempt function. In addition, the new notification rules do not apply to any person required to report under the Federal Election Campaign Act of 1971 as a political committee.

Form 8871, along with any papers, correspondence, etc., with respect to the notice, will be public information. In addition, the Service will make available, on the Internet and at IRS offices, a list of all political...