This is a reminder about REALTOR® Association’s proxy tax obligations under the Internal Revenue Code. The proxy tax is a tax assessed to all 501c6 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. That means national, state and local REALTORS® associations. 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.
Lobbying expenses under the Internal Revenue Code (IRC Sec. 162(e)) include expenditures paid or incurred in connection with:
- Influencing legislation;
- Participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office;
- Attempting to influence the general public with respect to election, legislative matters, or referendums; and
- Any direct communication with a covered executive branch official in an attempt to influence the person’s official actions or positions.
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.