SECTION 1. BACKGROUND

.01 Section 527 of the Internal Revenue Code provides for the tax treatment of all political organizations. Section 527(e) provides that a political organization is an organization (whether or not incorporated) organized and operated primarily for the purpose of accepting contributions or making expenditures to influence, or attempt to influence, the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office, office in a political party or the election of Presidential or Vice-Presidential electors.

.02 Under § 527(i), certain political organizations must file Form 8871, Political Organization Notice of Section 527 Sta- tus, within 24 hours of being established and within 30 days of any material change to information reported on Form 8871 to be treated as tax-exempt § 527 organizations. Until these political organizations file the form, their income (including income that would otherwise be treated as exempt function income) is subject to taxation pursuant to § 527(i)(4). See Section I of Rev. Rul. 2003–49, 2003–1 C.B. 903.

.03 Under § 527(j), certain tax-exempt political organizations must report periodically on Form 8872, Political Or- ganization Report of Contributions and Expenditures, information about contributions received and expenditures made by the organizations. These reports are due either monthly or semi-annually in odd-numbered years and either monthly or quarterly in even-numbered years. In addition, certain pre- and post-election reports are required. Information required to be reported includes the names and addresses of contributors, and, for individual contributors, their occupations and employers. A tax-exempt political organization that fails to include the required information is liable under § 527(j)(1) for the payment of an amount equal to the amount of the contribution or expenditure multiplied by the highest corporate tax rate (currently 35%). See Section II of Rev. Rul. 2003–49, 2003–1 C.B. 903.

.04 Section 527(l) provides that the Internal Revenue Service may waive all or any portion of the tax assessed due to a failure to comply with § 527(i) or the amount imposed under § 527(j) if the failure was due to reasonable cause and not due to willful neglect. In establishing reasonable cause, the key factor to consider is the extent of the organization’s effort to obtain and report the required information. If the organization establishes to the Service’s satisfaction that there are significant mitigating factors with respect to the failure, the failure arose from events beyond the organization’s control, or the organization has exercised the appropriate level of due diligence to obtain and report the required information, waiver is appropriate.

.05 Political organizations have requested guidance on what steps a political organization needs to take to establish that its failure to disclose required information was due to reasonable cause and not due to willful neglect.