Contributions or expenditures made by a taxpayer engaged in a trade or business designed to encourage the public to register and vote in Federal, state and local elections and to contribute to the campaign funds of the candidate or party of their choice are deductible by the taxpayer (under section 162(a) of the Internal Revenue Code of 1954) provided such expenditure (classified as advertising) was intended to be politically impartial in character, reasonably related to future public patronage expected by the taxpayer and that such expenditures otherwise meet the requirements of that section of the Code.
Amounts expended by such a taxpayer in sponsoring a politically impartial presentation of a debate among the candidates for a particular political office are also deductible under section 162(a) of the Code, provided they are reasonably related to the taxpayer’s expected future public patronage and otherwise meet the requirements of that section of the Code.
Where such a taxpayer makes expenditures and incurs costs to encourage its employees to register and vote in Federal, state and local elections by granting them time off with pay for such purposes and to contribute to the campaign funds of the party or candidate of their choice by maintaining a completely voluntary payroll deduction plan for those wishing to make such contributions, the costs of handling these items are deductible by the taxpayer under section 162(a) of the Code, provided such encouragement of employee political activity is politically impartial in character and such expenditures are reasonably related to the maintenance or improvement of employee morale and otherwise meet the requirements of section 162(a) of the Code.
A business taxpayer may deduct contributions to organizations other than charities as a business expense provided that the contributions have a direct relationship to the company’s business.
Business expense deductions for contributions to noncharitable organizations have been allowed in all of the following circumstances:
- Contributions to an industry fund administered by an employers’ association and used for the common good of all employers in the industry for matters of safety, education and relations with labor, industry and the general public.
- Contributions made to a committee to attract a national political convention in the taxpayer’s area when there was a reasonable expectation that the convention would provide the taxpayer with more business and thus with financial gain.
- Contributions to corporations that were formed to attract new business to the taxpayer’s community.
- Contributions to civic organizations, such as the YMCA, that are organized to build up local trade.
- Contributions to organizations formed to resist unionization.
- Contributions to organizations formed to fight demands by labor unions.
- Contributions to farm bureaus.
- Contributions by a farmer to a fund for eliminating pests, such as the boll weevil, that damaged the farmer’s crops.
- Contributions to a fundraising drive to rebuild a house for a family whose house had been destroyed in a fire when the contributors were prominently listed in the local newspaper.
- Contributions by a corporation in the retail grocery business to community organizations as part of a marketing and publicity campaign in which the contributions would be highly publicized (to the extent they were reasonable in amount).
Business expense deductions for contributions to noncharitable organizations have not been allowed in the following circumstances because there was no specific financial gain to the taxpayer that could be reasonably foreseen from the contribution:
- Contributions to a government research agency when the benefit of the research was expected to benefit the entire community and not the taxpayer’s business specifically.
- Contributions to support a town baseball team when the taxpayer made contributions out of civic pride and was unable to identify any specific benefit from the contribution.
A deduction is disallowed for contributions if a charitable organization carries on lobbying activities. This limitation applies to activities that relate to matters of direct financial interest to the donor’s trade or business, if a principal purpose of the contribution is to avoid tax by securing a deduction for activities that are nondeductible as ordinary and necessary business expenses if conducted directly by the donor.
Lobbying expenses are amounts paid or incurred in connection with:
- Influencing legislation;
- Participation or intervention in any political campaign on behalf of or in opposition to any candidate for public office;
- Any attempt to influence the general public, or segments of the public, with respect to elections, legislative matters, or referendums, or
- Any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of the official.
Lobbying expenses also include amounts paid or incurred for research for, preparation, planning or coordination of any activity related to lobbying activities.
The determination of the principal purpose of the contribution is made based on all the facts and circumstances surrounding the contribution, including the existence of formal or informal instructions regarding the charity’s use of the contribution, the closeness in time between the contribution and the lobbying activities, and any historical pattern of contributions by the donor to the charity. The nondeductibility of contributions to charitable organizations under this rule does not otherwise affect the tax-exempt status of those organizations. For more information call Henssler Financial at 770-429-9166 or [email protected].