SECTION 1. PURPOSE

This Revenue Procedure provides guidance to organizations exempt from taxation under § 501(a) of the Internal Revenue Code of 1986 on certain exceptions from the reporting and notice requirements of § 6033(e)(1) and the tax imposed by § 6033(e)(2). The revenue procedure updates and supersedes Rev. Proc. 95-35, 1995–2 C.B. 391, as modified by Rev. Proc. 95–35A, 1995–2 C.B. 392.

Rev. Proc. 95–35 and Rev. Proc. 95– 35A were issued pursuant to the Secretary’s authority to relieve tax-exempt organizations from the burden of meeting the reporting and notice requirements of § 6033(e)(1) or the tax imposed by § 6033(e)(2) where the organization establishes to the satisfaction of the Secretary that substantially all of the dues or other similar amounts paid by persons to such organization are not deductible without regard to § 162(e). Rev. Proc. 95–35 and Rev. Proc. 95–35A identify certain tax-exempt organizations that are treated as satisfying the requirements of § 6033(e)(3) and are thus not subject to the reporting and notice requirements of § 6033(e)(1) or the tax imposed by § 6033(e)(2). Procedures for other exempt organizations to establish that they satisfy the requirements of § 6033(e)(3) are also provided.

nizations (other than § 501(c)(3) organizations) that incur lobbying and political expenditures to which § 162(e) applies (“nondeductible lobbying expenditures”). Section 162(e) denies a deduction, otherwise allowable under § 162(a) as an ordinary and necessary trade or business expense, for certain lobbying and political expenditures. Section 162(e)(3) denies a deduction for the dues (or other similar amounts) paid to certain tax-exempt organizations to the extent that the organization, at the time the dues are assessed or paid, notifies the dues payer that the dues are allocable to nondeductible lobbying expenditures.

Section 6033(e)(1) requires a tax-exempt organization that pays or incurs nondeductible lobbying expenditures to notify its members, at the time the dues (or other similar amounts) are assessed or paid, of its reasonable estimate of the portion of the dues that is allocable to those expenditures. Section 6033(e)(1) does not, however, apply to tax-exempt organizations described in § 501(c)(3), or to organizations that establish to the satisfaction of the Secretary that substantially all the dues they receive are not deductible without regard to § 162(e). In addition, organizations whose lobbying and political expenditures consist solely of certain in-house expenditures for nondeductible lobbying and whose total such expenditures do not exceed $2,000 in a taxable year are not subject to the reporting and notice requirements of § 6033(e)(1).

Section 6033(e)(2)(A) provides that if a tax-exempt organization fails to provide the notices required by § 6033(e)(1), or if the notices underestimate the actual amount of dues allocable to nondeductible lobbying expenditures, the organization is subject to tax (at the highest rate imposed by § 11) on the aggregate amount of dues allocable to nondeductible lobbying expenditures paid during the taxable year that was not reported on the notices. However, § 6033(e)(2)(B) provides that if a tax would be imposed on the organization because its estimate of the nondeductible portion of the dues was less than the actual amount allocable to nondeductible lobbying expenditures, the Secretary may waive the tax if the organization agrees to increase the amount

In light of comments submitted in response to Rev. Proc. 95–35, the Service has determined that the requirements should be modified to further relieve the burden of § 6033(e)(1). This revenue procedure retains the requirements set out in Rev. Proc. 95–35, and Rev. Proc. 95–35A, with the modification that the amount of annual dues (or similar amounts) that may be received by organizations described in § 4.02 without becoming subject to the requirements of § 6033(e) is increased to $75 or less.