Tax Brief: Schedule C Political Campaign and Lobbying Activities
The IRS Form 990’s Schedule C is designed to provide information about a not-for-profit organization’s political campaign and lobbying activities. It is critical for not-for-profits to be aware of Schedule C as it is one of the few ways that your organization can end up paying various taxes. This article will explore the relevant reporting requirements for Schedule C for different types of organizations and activities.
Part I – Political Campaign Activities
Part I of the form is to be completed by organizations that engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office. All organizations exempt under section 501(c) and section 527 will need to complete Part I-A. Section 501(c)(3) organizations need to complete Part I-B. Organizations exempt under 501(c), besides 501(c)(3) organizations, need to complete Part I-C.
Part I-A is where not-for-profit organizations disclose the expenses they have incurred related to political campaign activities. It is also where organizations need to disclose how many volunteer hours they provided to political campaigns. There is also a step that requires organizations to report a detailed description of the political campaign activities they performed; however, the information is actually disclosed in Part IV.
Part I-B is for 501(c)(3) not-for-profits only. This section is where 501(c)(3) organizations report any excise tax they had to pay related to the performance of political campaign activities. The excise tax is calculated and paid according to IRS Form 4720 Return of Certain Excise Taxes. If your not-for-profit organization is considering engaging in political campaign activities it is a good idea to review Form 4720 and get an idea of the additional costs it could bring to your organization.
Part I-C is for organizations exempt under section 501(c) but does not include section 501(c)(3) not-for-profit organizations. Similar to Part I-B, this section is where certain not-for-profits report the organization’s expenses related to political campaign activities. These expenses are then carried over to IRS Form 1120-POL U.S. Income Tax Return for Certain Political Organizations where organizations calculate and pay any tax owed. Again, if your not-for-profit organization is considering engaging in political campaign activities it is a good idea to review Form 1120-POL and get an idea of the additional costs it could bring to your organization. Organizations need to also report the contact information, including EIN, and amounts paid to any section 527 political organizations on Part I-C.
Part II – Lobbying Activities
Part II-A is required to be completed by section 501(c)(3) organizations that made the 501(h) election and engaged in lobbying activities. The 501(h) election allows not-for-profits a simple way to calculate how much, if any, of their lobbying activities will be subject to tax.
Part II-B is required to be completed by section 501(c)(3) organizations that did not make the 501(h) election and engaged in lobbying activities. On Party II-B organizations report the amounts and types of lobbying activities performed and rely on the IRS to decide how much, if any, should be taxed.
Part III – Proxy Tax
Part III-A is required to be completed by section 501(c)(4), 501(c)(5), and 501(c)(6) organizations. This section consists of three simple yes or no questions: 1) Was at least 90% of member dues received by the organization nondeductible by the members; 2) Did the organization spend no more than $2,000 on lobbying during the period; and 3) Did the organization agree to carry over the lobbying and political campaign activity expenditures from the prior year.
You then have to fill out Part III-B if you either answered no to both questions 1 and 2 in Part III-A or if you answered yes to question 3. On Part III-B you use the amount of dues or similar funds you collected from members, nondeductible lobbying and political expenditures, and any carryovers from prior years to calculate the tax your organization owes. This tax is then reported on IRS Form 990-T, a separate form.
Part IV – Supplemental Information
The supplemental information portion of the schedule is primarily used to provide descriptions of political activities that organizations undertake as under Part I-A. It is also used to describe any corrections made to Form 4720s as noted in Part I-B or if additional space is required to report more activity under Part I-C line 5. The supplemental schedule is also used to list any affiliated groups your organization belongs to under Part II-A. You also use Part IV to provide a detailed description of any lobbying activity noted in Part II-B.
The purpose of this article is to summarize the major components and reporting requirements of Schedule C and is not intended to be all encompassing or serve as replacement for the Form’s instructions.
Helpful Links:
IRS Form 990, Schedule C Instructions
IRS Measuring Lobbying Activity: Expenditures Test
This article is meant to be a resource and provide tools to assist your organization. Please consult your tax advisor regarding your specific tax situation.
