New tax reporting requirements for political organizations.

• Author: Sair, Edward A.

Signed by President Clinton on July 1, 2000, P.L. 106-230 imposes three different reporting and disclosure requirements on all political organizations described as Sec. 527 organizations:

1. An initial notice to the IRS of an organization's Sec. 527 status;

2. Periodic reports on contributors and expenditures; and

3. Modified annual returns.

   In October 2000, the Service released Rev. Rul. 2000-49, to provide guidance on applying the new law to various types of political organizations.

   Background

   Virtually all political organizations are Sec. 527 political organizations. Many Sec. 527 organizations report to the Federal Election Commission and file Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, with the IRS if they have taxable income under the Sec. 527 rules. By structuring activities so that they do not expressly engage in advocacy, certain organizations stayed outside the scope of Federal Election Campaign Act (FECA) criteria for political committees. The lack of Federal oversight of certain Sec. 527 organizations' political activities attracted those who wanted to participate anonymously in the political process, while alarming those who believed that there should be full disclosure of all political activities.

   Forms, Exemptions and Deadlines

   Form 8871: Political Organization Notice of Section 527 Status. In general, the requirement to file Form 8871 applies to Sec. 527 organizations. However, the following organizations are not subject to the notice and filing requirements:

1. Organizations required to report under FECA;

2. Organizations qualified under Sec. 501(c) that fall under Sec. 527(f)(1), which requires the filing of Form 1120-POL because they have made "exempt function" expenditures; or

3. Organizations that do not expect their gross receipts to exceed $25,000.

   For newly formed organizations, Rev. Rul. 2000-49 states that if an organization reasonably anticipates that its annual gross receipts will be less than $25,000 for its first six tax years, it is not required to file Form 8871. However, if an organization does have annual gross receipts of $25,000 or more for any tax year, it is required to file Form 8871 within 30 days of receiving $25,000.

   Separately segregated funds. Many exempt and nonexempt organizations have established separately segregated funds under Sec. 527(f)(3). As a result, these funds are treated as separate organizations for reporting and filing purposes. As such, they do not meet...