Political Organization Income Tax Return

Generally, a political organization is treated as an organization exempt from tax. Certain political organizations, however, must file an annual income tax return, Form 1120-POL, for any year it has any political organization taxable income in excess of the $100 specific deduction allowed under section 527 of the Code. In addition, for tax years beginning after June 30, 2000, a political organization that has $25,000 or more in gross receipts for the tax year is also required to file Form 1120-POL, even if it has no taxable income.

For tax years beginning after June 30, 2000, a political organization that has $25,000 or more in gross receipts for the tax year must file Form 990 or 990-EZ (and Schedule B of the form). See Forms 990 and 990-EZ, earlier.

Political organization. A political organization is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.

Exempt function. An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local public office or office in a political organization, or the election of the Presidential or Vice Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. It also includes certain office expenses of a holder of public office or an office in a political organization.

Beginning July 1, 2000, certain political organizations are required to notify the IRS that they are section 527 organizations. These organizations must use Form 8871. Certain of the notifying section 527 organizations must use Form 8872 to file periodic reports with the IRS dealing with their contributions and expenditures. For a discussion on these forms, see Reporting Requirements for a Political Organization, later.

Political organization taxable income. Political organization taxable income is the excess of:

1. Gross income for the tax year (excluding exempt function income) over
2. Deductions directly connected with the earning of gross income.

To figure taxable income, allow for a $100 specific deduction, but do not allow for the net operating loss deduction, the dividends-received deduction, and other special deductions for corporations. Newsletter funds cannot claim the specific deduction of $100.

Exempt organization not a political organization. An organization exempt under section 501(c) of the Code must file Form 1120-POL, for any year in which it:

1. Spends any amount for an exempt function, or
2. Has net investment income,

whichever is less.

Separate fund. A section 501(c) organization can set up a separate segregated fund that will be treated as an independent political organization. The earnings and expenditures made by the separate fund will not be attributed to the section 501(c) organization.

Section 501(c)(3) organizations are precluded from, and suffer loss of exemption for, engaging in any political campaign on behalf of, or in opposition to, any candidate for public office.

Due date. Form 1120-POL is due by the 15th day of the 3rd month after the end of the tax year. Thus, for a calendar year taxpayer, Form 1120-POL is due on March 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the organization may file the return on the next business day.

Form 1120-POL is not required of an exempt organization that makes expenditures for political purposes if its gross income does not exceed its directly connected deductions by more than $100 for the tax year.

Failure to file. A political organization that fails to file Form 1120-POL, or fails to include the required information on the form, is subject to a penalty of $20 per day for each day such failure continues. The maximum penalty imposed on failures regarding any one return is the lesser of $10,000 or 5% of the gross receipts of the organization for the year. In the case of an organization having gross receipts exceeding $1,000,000 for any year, the penalty is increased to $100 per day with a maximum penalty of $50,000.

For more information about filing Form 1120-POL, refer to the instructions accompanying the form.

Failure to pay on time. An organization that does not pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the organization can show that the failure to pay on time was due to reasonable cause.

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