Background:
The Internal Revenue Code (IRC), in section 6033(e), imposes reporting and notice requirements on certain tax-exempt organizations described in sections 501(c)(4), 501(c)(5), and 501(c)(6) that incur nondeductible lobbying and political expenditures. Nondeductible lobbying and political expenditures are described in section 162(e), and 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 elections, 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.

Organizations that do not provide notices of amounts of membership dues allocable to nondeductible lobbying expenditures are subject to tax (commonly called a “proxy tax”) under IRC section 6033(e)(2) on the amount of the expenditures. An organization must report the tax on Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), at line 37. For information on computing the tax, please see the Instructions for Form 990-T.

Application:
The section 6033(e) reporting and notice requirements do not apply to the following organizations:

• Section 501(c)(3) organizations.
  
  
• Organizations whose lobbying and political expenditures consist solely of in-house lobbying expenditures that do not exceed $2,000.
  
  
• Organizations that establish to the satisfaction of the IRS that substantially all the dues or similar amounts they receive are not deducted by its members as business expenses.

Revenue Procedure 98-19, 1998-7 I.R.B. 30 provides guidance concerning the last exception listed above. First, it states that section 6033(e) does not apply to organizations exempt section 501(a), other than the following organizations:

• Social welfare organizations described in section 501(c)(4), other than veterans’ organizations.
  
  
• Agricultural and horticultural organizations described in section 501(c)(5) [Note: Section 6033(e) does not apply to labor organizations].
  
  
• Organizations described in section 501(c)(6).

For other organizations, Rev. Proc. 98-19 provides that section 6033(e) does not apply to:

• Section 501(c)(4) and section 501(c)(5) organizations that receive more than 90 percent of all annual dues from members in amounts less than $75 per member. Note: The $75 amount is increased for years after 1998 by a cost-of-living adjustment under section 1(f)(3), rounded to the next highest dollar. For tax years beginning in 2003, this amount is $85.
  
  
• Organizations that receive more than 90 percent of all annual dues from the following organizations:
  
  
  • Section 501(c)(3) organizations;
    
    
  • State or local government entities or entities whose income is excluded from tax under section 115; or
    
    
  • Organizations exempt from tax under section 501(a) other than section 501(c)(4) social welfare organizations that are not veterans’ organizations, section 501(c)(5) agricultural or horticultural organizations, or section 501(c)(6) organizations.
    
    
• Organizations that establish that substantially all annual dues are not deductible without regard to section 162(e) in accordance with section 5.06 of Rev. Proc. 98‑19.

For more information, see Political Campaign and Lobbying Activities of IRC 501(c)(4), (c)(5) and (c)(6) Organizations.