SEC. 2. BACKGROUND

Section 6033(e) imposes reporting and notice requirements on tax-exempt organizations (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 taxexempt 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 taxexempt organizations described in § 501(c)(3), or to organizations that establish to the satisfaction of the

1As corrected by Rev. Proc. 95–35A, page 392, this Bulletin.

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 a n d n o t i c e r e q u i r e m e n t s - f § 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 reasonably estimated to be nondeductible for the following taxable year by the amount of the underestimate.

Section 6033(e)(3) provides that § 6033(e)(1)(A) shall not apply to an exempt organization that establishes to the satisfaction of the Secretary that substantially all the dues or similar amounts paid by persons to the organization are not deductible without regard to § 162(e). The tax imposed by § 6033(e)(2)(A) only applies to organizations subject to the notice requirements of § 6033(e)(1)(A).