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Publication 557

Political Organization Income Tax Return(p13)

Generally, a political organization is treated as an organization exempt from tax. Certain political organizations, however, must file an annual income tax return, Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations, for any year they have political organization taxable income in excess of the $100 specific deduction allowed under section 527.
A political organization that has $25,000 ($100,000 for a qualified state or local political organization) or more in gross receipts for the tax year must file Form 990 or Form 990-EZ (and Schedule B of the form), unless excepted. See Forms 990 and 990-EZ earlier.

Political organization.(p13)

A political organization is a party, committee, association, fund, or other organization (whether or not incorporated) organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures, or both, for an exempt function.
Exempt function.(p13)
An exempt function means influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state, local public office or office in a political organization, or the election of the Presidential or Vice Presidential electors, whether or not such individual or electors are selected, nominated, elected, or appointed. It also includes certain office expenses of a holder of public office or an office in a political organization.
Certain political organizations are required to notify the IRS that they are section 527 organizations. These organizations must use Form 8871. Some of these section 527 organizations must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. For a discussion on these forms, see Reporting Requirements for a Political Organization, later.
Political organization taxable income.(p13)
Political organization taxable income is the excess of:
  1. Gross income for the tax year (excluding exempt function income) minus
  2. Deductions directly connected with the earning of gross income.
To figure taxable income, allow for a $100 specific deduction, but don't allow for the net operating loss deduction, the dividends-received deduction, and other special deductions for corporations.

Exempt organization not a political organization.(p13)

An organization exempt under section 501(c) that spends any amount for an exempt function must file Form 1120-POL for any year which it has political taxable income. These organizations must include in gross income the lesser of:
  1. The total amount of its exempt function expenditures, or
  2. The organization's net investment income.
Separate fund.(p13)
A section 501(c) organization can set up a separate segregated fund that will be treated as an independent political organization. The earnings and expenditures made by the separate fund won't be attributed to the section 501(c) organization.
Section 501(c)(3) organizations are precluded from, and may suffer loss of exemption for, engaging in any political campaign on behalf of, or in opposition to, any candidate for public office.

Due date.(p13)

Form 1120-POL is due by the 15th day of the 4th month after the end of the tax year. Thus, for a calendar year taxpayer, Form 1120-POL is due on April 15 of the following year. If any due date falls on a Saturday, Sunday, or legal holiday, the organization can file the return on the next business day.
Form 1120-POL is not required of an exempt organization that makes expenditures for political purposes if its gross income doesn't exceed its directly connected deductions by more than $100 for the tax year.

Extension of time to file.(p13)

Use Form 7004 to request an automatic extension of time to file Form 1120-POL. The extension will be granted if you complete Form 7004 properly, make a proper estimate of the tax (if applicable), file Form 1120-POL by the due date, and pay any tax due.
Failure to file.(p13)
A political organization that fails to file Form 1120-POL is subject to a penalty equal to 5% of the tax due for each month (or partial month) the return is late up to a maximum of 25% of the tax due, unless the organization shows the failure was due to reasonable cause.
For more information about filing Form 1120-POL, refer to the instructions accompanying the form.
Failure to pay on time.(p13)
An organization that doesn't pay the tax when due generally may have to pay a penalty of 1/2 of 1% of the unpaid tax for each month or part of a month the tax isn't paid, up to a maximum of 25% of the unpaid tax. The penalty won't be imposed if the organization can show that the failure to pay on time was due to reasonable cause.