IRS Provides Reporting Safe Harbor For Political Groups.

Rev. Proc. 2007-27

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 527 Status, 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 Organization 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.

.04 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.

SECTION 2. FORM 8872 SCHEDULE A SAFE HARBOR

.01 This revenue procedure provides a "safe harbor" for establishing that failure to report certain contributor information on Form 8872 was due to reasonable cause and not due to willful neglect, and therefore qualifies for relief under § 527(l)(2) of the Code. The safe harbor will apply only to those contributions for which a political organization establishes that it meets the requirements of the safe harbor. For example, if a political organization fails to report required information with respect to contribution X and contribution Y on a Form 8872, and the political organization meets the safe harbor criteria for contribution X, but not contribution Y, the organization qualifies for relief pursuant to the safe harbor with respect to contribution X, but not contribution Y. In addition, the safe harbor will not apply in situations where the organization fails to report the name of the contributor on Form 8872 by the time prescribed. For each contribution for which the requirements of the safe harbor are satisfied, the Service will waive the full amount imposed under section 527(j) with respect to the contribution.

.02 A failure to report the address of a contributor and, if the contributor is an individual, the occupation and employer of the contributor will be considered to be due to reasonable cause and not due to willful neglect provided that all of the following requirements are met:

SECTION 3. REQUEST FOR COMMENTS

.01 The Service is considering whether to publish additional guidance concerning the application of § 527(l) to a political organization that fails to file a completed Form 8871 or Form 8872 in the time and manner prescribed. The Service requests public comment concerning (1) the need for additional guidance and (2) circumstances in which such a failure should be deemed to be due to reasonable cause and not due to willful neglect. For example, under § 6724 and the regulations thereunder, a failure to comply with certain information reporting requirements is deemed to be due to reasonable cause and not due to willful neglect if the filer acted in a responsible manner and either there are significant mitigating factors with respect to the failure or the failure arose from events beyond the filer's control. The regulations under § 6724 provide examples of acting in a responsible manner, significant mitigating factors and events beyond the organization's control. However, the Service recognizes that the reporting requirements under § 527 have significant public disclosure and timeliness concerns (particularly in relation to public disclosure prior to elections) that may differentiate them from other information reporting requirements. Thus, comments should address the following questions:

Comments should be sent to the following address:

All comments will be available for public inspection.

SECTION 4. DRAFTING INFORMATION

The principal author of this notice is Judith E. Kindell of Exempt Organizations, Tax Exempt and Government Entities Division. For further information regarding this notice contact Judith E. Kindell at (202) 283-8964 (not a toll-free call).