Be Aware: Federal Tax Requirements For Association Lobbying Expenditures

A provision of the 2017 tax code puts a new obligation on local associations: When you send your dues billing, you need to let your members know what portion of your dues goes toward lobbying.

REALTOR® associations engaged in state and federal lobbying activity have, for years, been subject to federal proxy tax. With the passage of the Tax Cuts and Jobs Act of 2017, the proxy tax expanded to local lobbying activity, meaning many local REALTOR® associations not otherwise engaged in state or federal lobbying activity are now subject to the proxy tax.

Lobbying expenses under the Internal Revenue Code (IRC Sec. 162(e)) include expenditures paid or incurred in connection with:

  1. Influencing legislation;
  2. Participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office;
  3. Attempting to influence the general public with respect to election, legislative matters, or referendums; and
  4. Any direct communication with a covered executive branch official in an attempt to influence the person’s official actions or positions.

View the IRS webpage on this issue.

How to Notify Your Members

The proxy tax is a tax assessed to all 501(c)(6) tax-exempt organizations that engage in lobbying activity if the organization chooses not to (or forgets to) notify its members of the estimated portion of the member dues that fund lobbying activity. Such a notice must tell members that they cannot deduct the lobbying portion of their dues from their tax liability. For example a REALTOR® association that has calculated that 15% of the association’s dues are used for local, state and federal lobbying activity—and that would like to avoid paying the proxy tax—must provide members a statement similar to the following on their dues statement:

For income tax purposes, member dues paid are deductible as a business expense. However, XYZ REALTOR® Association estimates that 15% of all dues paid to XYZ Association go toward non-deductible lobbying expenditures. All members are advised that this percentage of dues paid in tax year 2020 is non-deductible for income tax purposes.

What Counts as Lobbying Activity?

Many local associations routinely meet with candidates to determine RPAC contributions. Does this constitute lobbying activity? The answer is probably yes. Association expenses connected to candidate-related RPAC expenditures (not the value of the contributions themselves) would be part of the calculation, as would be other association expenses that further the association’s political purposes. It’s a good idea to consult with your CPA or tax advisor for association-specific applications.

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