The costs to run for political office are nearly astronomical. In 2016. President Donald Trump spent about $450 million on his campaign while his opponent Hillary Clinton spend about $770 million. A candidate running for the U.S. Senate can expect to spend $10 to $20 million to try and win. Even candidates for the U.S. House of Representatives will likely spend $1 to $2 million to obtain a seat. These politicians depend on contributions to their campaign from ordinary citizens to keep up the fight, whether these donations are $20.00 or $2,000.00. Can a deduction to a political campaign be deducted on the donor’s federal income tax return?
The answer is no. Generally, a taxpayer is allowed a deduction for any charitable contribution that is made during the tax year. 26 U.S.C. §170(a)(1). A “charitable contribution” under the Internal Revenue Code means a contribution or gift to or for the use of:
- “A State, a possession of the United States, or any political subdivision of any of the foregoing, or the United States or the District of Columbia, but only if the contribution or gift is made for exclusively public purposes.” 26 U.S.C. §170(c)(1).
- “A corporation, trust, or community chest, fund, or foundation”—
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- “Created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States” (26 U.S.C. §170(c)(2)(A));
- “Organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals” (26 U.S.C. §170(c)(2)(B));
- “No part of the net earnings of which inures to the benefit of any private shareholder or individual” (26 U.S.C. §170(c)(2)(C)); and
- “Which is not disqualified for tax exemption under Section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” (26 U.S.C. §170(c)(2)(D)).
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- “A post or organization of war veterans, or an auxiliary unit or society of, or trust or foundation for, any such post or organization, organized in the United States or any of its possessions, and no part of the net earnings of which inures to the benefit of any private shareholder or individual.” 26 U.S.C. §170(c)(3).
- “In the case of a contribution or gift by an individual, a domestic fraternal society, order, or association, operating under the lodge system, but only if such contribution or gift is to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals.” 26 U.S.C. §170(c)(4).
- “A cemetery company owned and operated exclusively for the benefit of its members, or any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, if such company or corporation is not operated for profit and no part of the net earnings of such company or corporation inures to the benefit of any private shareholder or individual.” 26 U.S.C. §170(c)(5).
A 501(c)(3) organization includes “[c]orporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (in excess of the ceiling), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
These 501(c)(3) organizations are entitled to engage in limited lobbying to legislators and make limited grass roots expenditures according to the Internal Revenue Code. They can engage in efforts to educate voters, promote nonpartisan voting registration and promoting public policy, but they CANNOT conduct political campaigns or front political candidates. Any organizations that do so will lose their 501(c)(3) status and will have to pay taxes on their earnings.
If a non-profit group does wish to exceed the lobbying and grass roots expenditure limits, they can organize as a 501(c)(4) organization. These organizations are:
- “Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, or local associations of employees, the membership of which is limited to the employees of a designated person or persons in a particular municipality, and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes”, BUT “no part of the net earnings of such entity inures to the benefit of any private shareholder or individual.”
- Able to engage in some political activities, provided it is not the primary activity, but these expenditures for political activities are subject to tax under 26 U.S.C. §527(f).
- Able to receive donations and contributions, but these charitable contributions are no longer deductible to the taxpayer since 501(c)(3) status is lost.
Regarding indirect contributions to political parties as opposed to candidate campaign committees, no tax deduction is allowed for any amount paid for incurred for:
- “Advertising in a convention program of a political party, or in any other publication if any part of the proceeds of such publication directly or indirectly inures (or is intended to inure) to or for the use of a political party or a political candidate.” 26 U.S.C. §276(a)(1). “Proceeds shall be treated as inuring to or for the use of a political candidate only if such proceeds may be used directly or indirectly for the purpose of furthering his candidacy for selection, nomination, or election to any elective public office, and such proceeds are not received by such candidate in the ordinary course of a trade or business (other than the trade or business of holding elective public office).” 26 U.S.C. §276(b)(2).
- “Admission to any dinner or program, if any part of the proceeds of such dinner or program directly or indirectly inures (or is intended to inure) to or for the use of a political party or a political candidate.” 26 U.S.C. §276(a)(2).
- “Admission to an inaugural ball, inaugural gala, inaugural parade, or inaugural concert, or to any similar event which is identified with a political party or a political candidate.” 26 U.S.C. §276(a)(3).
Not only are political cash contributions not deductible, but “in-kind contributions” are also not permitted to be deducted. In-kind contributions are considered the fair market value of tangible goods given, service provided or the value of your time for volunteering. Regardless of the form that a donation is given, it is simply not deductible on your annual income tax returns. It doesn’t matter if it is an individual, business or other organization making the donation… the campaign contribution is not deductible. Wrongfully claiming political contributions can and will attract the attention of the Internal Revenue Service and can lead to an assessment of additional taxes due, penalties and interest.
If you have any questions about federal taxation or need further assistance, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC today.
