FOR LIVE PROGRAM ONLY Form 990 Schedule C: …media.straffordpub.com/products/form-990-schedule-c-mastering... · of Political Campaign and Lobbying Activities ... Mastering Complex

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Form 990 Schedule C: Mastering Complex Reporting

of Political Campaign and Lobbying Activities Avoiding Excise Taxes, Penalties, Fines, and Revocation of Tax-Exempt Status Due to Noncompliance

TUESDAY, APRIL 4, 2017, 1:00-2:50 pm Eastern

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April 4, 2017

Form 990 Schedule C

Deborah Kaminski, Director of Tax Exempt Organizations

DZH Phillips, San Francisco

[email protected]

Eric K. Gorovitz, Principal

Adler & Colvin, San Francisco

[email protected]



Notice

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY

THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY

OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT

MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR

RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

You (and your employees, representatives, or agents) may disclose to any and all persons,

without limitation, the tax treatment or tax structure, or both, of any transaction

described in the associated materials we provide to you, including, but not limited to,

any tax opinions, memoranda, or other tax analyses contained in those materials.

The information contained herein is of a general nature and based on authorities that are

subject to change. Applicability of the information to specific situations should be

determined through consultation with your tax adviser.

3/31/2017 dzhphillips.com

FORM 990 SCHEDULE C:

Mastering Complex Reporting of Political Campaign and Lobbying Activities

3/31/2017 dzhphillips.com 6

Eric K. Gorovitz Principal, Adler & Colvin

Mr. Gorovitz's practice spans the full range

of nonprofit and tax-exempt legal issues,

with emphasis on political advocacy and

nonprofit corporate governance. He

frequently presents on non-profit issues.

[email protected]


Deborah Kaminski

Director Of Tax Exempt Organizations,

DZH Phillips

Ms. Kaminski has spent 20 years in the

nonprofit taxation and trust industry. She

specializes in taxation of non-traditional

investments, trust dissolutions, distribution

calculations, excess-benefit transactions, and

tax advisory services regarding nonprofit

entities. She also helps clients identify and

resolve compliance oversight.

[email protected]


AGENDA

Schedule C Parts I &

II Lobbying and Political Action

Part III Proxy tax

Planning

Considerations


INTRODUCTION

a. Distribution of lobbying and political activities across the exempt organization

spectrum

b. 501(c)(3) – Charitable, Religious, Educational, Scientific

i. Private foundation: no lobbying

ii. Public charity: limited lobbying

iii. No candidate campaign intervention

c. 501(c)(4) – Civic Leagues & Social Welfare Orgs.

d. 501(c)(5) – Labor, Agricultural & Horticultural Orgs.

e. 501(c)(6) – Business Leagues


FORM 990 “TRIGGER” QUESTIONS


FORM 990 “TRIGGER” QUESTIONS

Part IV, Line 3: Political activities? Sch. C, Part I

(All Types)

Part IV, Line 4: Lobbying, or 501(h) election? Sch. C, Part II

(501(c)(3) only)

Part IV, Line 5: Subject to proxy tax? Sch. C, Part III

(501(c)(4-6) only)


FORM 990, SCHEDULE C

Part I: Political Activities (All Types)

Part II (A&B) : Lobbying Activities (501(c)(3) only)

Part III: Proxy Tax (501(c)(4-6) only)

Part IV: Supplemental Info (All types)


BAGELS AND POLITICS

Two entities:

501(c)(3): Bagels Are Good Eating League (B.A.G.E.L.) conducts research and

educates the public about the features and merits of quality bagels

501(c)(6): American Bagel Association (A.B.A.) is a membership organization

that promotes the line of business of bagel making in various ways


Public education:

o Hosting non-partisan candidate forum $ 50,000

o Education about quality bagels $ 250,000

o Research and reports on bagel issues $ 500,000

o Nonpartisan analysis of seed preferences $ 25,000

Public Education: $ 825,000

Influencing legislation on bagels:

o Grant to support a state ballot measure $ 20,000

o Encouraging the public to contact Congress $ 50,000

o BAGEL Lobby Day (including 200 volunteer hours) $ 55,000

Influencing Leg. $ 125,000 $ 950,000

Contribution to pro-bagel candidate: $ 50,000 $ 50,000

Total Program Expenses $1,000,000 $1,000,000

BAGEL ACTIVITIES


BAGEL FUNCTIONAL EXPENSE

ALLOCATION

Form 990, Page 10

Program Expenses: $1,000,000

Fundraising Expenses: $ 100,000

Capital Expenses $ 100,000

Total Expenses: $1,200,000


BAGEL’S FORM 990:

Part IV, Line 3: Political activities? Yes. (UH-OH . . .) Sch. C, Part I

Part IV, Line 4: Lobbying, or 501(h) election? Yes. Sch. C, Part II

Part IV, Line 5: Subject to proxy tax? No. SKIP Sch. C, Part III


50,000

200


Line 1: Description of filing organization’s own political

activities; not SSF activities; narrative on Part IV (just lines for

text)

Line 2: Political activity expenditures

Line 3: Estimate of volunteer hours on political activities

(using “any reasonable method” for estimation)

Part 1-A

HOW TO COMPLETE


Used for c3 to disclose excise taxes under IRC § 4955 for

political campaign activity. SHOULD BE BLANK because c3

should never conduct these activities.

Amount of tax = 10%

Line 4 requires description of steps taken to correct improper

expenditures

i. Recovery

ii. Safeguards to prevent

Part 1-B

HOW TO COMPLETE


BAGEL’S FORM 990:

Part IV, Line 3: Political activities? Yes. (UH-OH . . .) Sch. C, Part I

Part IV, Line 4: Lobbying, or 501(h) election? Yes. Sch. C, Part II

Part IV, Line 5: Subject to proxy tax? No. SKIP Sch. C, Part III


LOBBYING

a. All activities intended to influence foreign, national, state

or local legislation

b. Two Types:

i. Direct lobbying: attempting to influence the legislators

ii. Grassroots Lobbying: attempting to influence

legislation by influencing the general public


Limit for Public Charities

a. How much is “Substantial”?

b. Consequences for engaging in “substantial” lobbying

i. Sec. 4911 excise tax (electing charity)

ii. Sec. 4912 excise tax (non-electing charity)

ii. Possible loss of tax-exemption

c. 501-h Election for clear definitions

i. Establishes the Lobbying Ceiling Amount

ii. Establishes an annual and 4-year-aggregate limit for both total

and grassroots lobbying expenses

iii. Counts expenditures only; no-cost activities don’t affect limit

iv. Form 5768 – in effect until rescinded by org.

v. Not available to Churches, Private Foundations

“NO SUBSTANTIAL PART”


24

LOBBYING

Schedule C, Part II-A (501(h) Elector)

a. Lines 1a-j:

a. Direct and grassroots lobbying expenditures for the tax

year

b. Calculate total and grassroots lobbying limits for the tax

year

c. Limits are portion of “exempt purpose expenditures”

b. Lines 2a-f:

a. Aggregate lobbying limits, expenditures over 4 years

b. Calculate “ceiling amounts” (150% of aggregate limit)

c. Excess (if any) determines whether exempt status at risk


EXEMPT PURPOSE

EXPENDITURES

Included:

i. Program expenses (lobbying and non-lobbying)

ii. Staff compensation (including deferred comp)

iii. Depreciation

iv. Administrative expenses allocated to exempt purpose accomplishment

v. Limited fundraising expenses

Excluded:

i. Most fundraising expenses (internal or external)

ii. Capital expenses

iii. Expenses to generate unrelated income

iv. UBIT




Lines 1a-j

a. Yes/no questions about specific types of lobbying

activity

b. “Detailed” explanation required (on Part IV) for any

“yes” response

c. Expense amounts include in-house staff, an

overhead allocation, supplies

Lines 2a-d

a. Calculate tax for excess lobbying

b. Requires filer to determine on its own whether

lobbying activities cause filer to be not described in

501(c)(3) because lobbying on Line 1j was “substantial”

Schedule C, Part II-B (Non-electing charities)

LOBBYING



Case Study # 2

American Bagel Association - ABA

[Trade Association exempt under §501(c)(6)]

REVENUE

o Membership dues $ 250,000

(Members told 60% ABA, 40% SSF)

BAGEL and other c3 organizations: $ 40,000

Bagel bakeries: $ 150,000

Individual bagel industry workers: $ 60,000

o Bagel-eating contest $ 50,000

Total Revenue $ 300,000

ACTIVITIES & EXPENSES

o Bagel-eating contest $ 100,000

o Support for BAGEL ballot measure $ 50,000

o Work performed in coordination with candidate $ 30,000

o Payments from member dues to SSF (527) $ 50,000

o Payments to DNC (527) $ 70,000

Total Expense $ 300,000

Member volunteer hours working for candidate: 100 hours.


ABA’S FORM 990:

Part IV, Line 3: Political activities? Yes. Sch. C, Part I

Part IV, Line 4: Lobbying, or 501(h) election? N/A. SKIP Sch. C, Part II

Part IV, Line 5: Subject to proxy tax? Yes. Sch. C, Part III


200,00

0

100


Reporting of Sec. 527 “exempt function activity”

c3s should never have anything to report here.

Line 1: Filer’s OWN funds spent on filers OWN activities

Line 2: Filers OWN funds transferred to OTHERS for 527 exempt function activity

Line 3: Total of Lines 1 & 2; transfers to 1120-POL for calculation of tax

Line 4: Yes or No if you filed 1120-POL

Part 1-C

HOW TO COMPLETE


Line 5: Filer’s payments to 527s

i. Columns a-c identify RECIPIENT 527

ii. Column d: filer’s OWN funds paid to 527

iii. Column e: “Prompt and direct” transfers to 527; NOT filer’s funds

Part 1-C (continued)

HOW TO COMPLETE



ABA’S FORM 990:

Part IV, Line 3: Political activities? Yes. Sch. C, Part I

Part IV, Line 4: Lobbying, or 501(h) election? N/A. SKIP Sch. C, Part II

Part IV, Line 5: Subject to proxy tax? Yes. Sch. C, Part III


I’ll take a bagel

with everything,

including the

proxy tax.


a. Summary

a. Imposed under IRC 6033(e)

b. Rev. Proc. 98-19 limits application to c4, c5 agricultural and horticultural

orgs (not labor unions), & c6, with various exceptions

c. Purpose: Correction for presumed impermissible deduction (IRC 162) of

dues payments to a membership organization that org uses for lobbying or

political activities

d. Two options:

a. notify members, at time of assessment or payment of dues, of the

amount of their dues that is not deductible, or

b. pay 35% tax on the amount for which notice was not provided

e. If the notice exceeds the amount actually expended, excess can be

carried over to next year

Schedule C, Part III

PROXY TAX


f. Exceptions:

i. 90% of dues were not deductible by members

1. c3s

2. Government

3. Certain other EOs

ii. Only de minimis (< $2000) in-house lobbying expenditures

iii. c4 or c5 if 90% of dues come via payments of $112 or less/year

(indexed for inflation)

iv. c5 labor unions

v. c4 veterans orgs.

Schedule C, Part III (continued)

PROXY TAX



c. Part III-B: Calculation of proxy tax

a. Only complete if either

i. “NO” to Part III-A Lines 1 and 2; or

ii. “YES” to Part III-A, Line 3

b. Line 1: dues collected from members

c. Line 2: nondeductible (under IRC §162(e)) expenditures - report

current year (line a), carryover from prior year (line b), total (line c)

d. Line 3: Aggregate amount of proxy tax notice (dollars)

e. Line 4: excess of expenditures over notice that org agrees to carry

over into next year’s estimate

f. Line 5: amount of expenditures subject to tax

Schedule C, Part III (continued)

PROXY TAX


PLANNING AND STRATEGIES

a. Legal strategies and considerations:

i. Advance planning issues summary

ii. Common timing items(build your war chest for the future)

iii. When to call counsel

b. Tax Strategies

i. Planning implications of reporting requirements

ii. Frame the process with clients in advance -

iii. What is the organization’s goal for participation in the electoral

process? What do they want to achieve and how? Who are the

constituents?

iv. 501h decision-making

v. Tax Strategy: Paying the proxy tax is an option for 4/5/6 orgs that

want to allow members a biz deduction.



QUESTIONS? Deborah Kaminski

(415) 624-2264

[email protected]

Eric K. Gorovitz

(415) 421-7555

[email protected]

Documents

FOR LIVE PROGRAM ONLY Form 990 Schedule C: …media.straffordpub.com/products/form-990-schedule-c-mastering... · of Political Campaign and Lobbying Activities ... Mastering Complex