Here are ten important things to know when you have a political organization (PAC):
(1) The IRS requires that a PAC have its own taxpayer ID # which can easily be obtained at the IRS website by completing form SS-4.
(2) When a political organization is first formed, it must give notice electronically to the IRS that it is a political organization under Section 527 by filing Form 8871. This allows the PAC to be tax exempt.
(3) Certain political organizations are not required to file Form 8871 including: an organization that is required to report to the Federal Election Commission, committees of state or local candidates or political parties, and any organization that believes it will have less than $25,000 in annual gross revenue on a regular basis.
(4) After filing the initial Form 8871, the PAC will need to file another 8871 later if there are any significant changes to the information that was originally reported.
(5) Once a newly formed PAC files Form 8871 and has its tax exemption, it should know that its tax exempt function includes influencing the selection, nomination, election, or appointment of any individual to any office. Any activities outside of these types of activities would be considered non-exempt activities.
(6) Certain political organizations are also required to file Form 8872 on a periodic basis to report contributions and expenditures. The organization is exempted from this requirement if it was not required to file Form 8871 (#3 above) or it is a qualified state or local political organization (QSLPO). This basically means that you are already required under state law to report information that is similar to what is required on Form 8872.
(7) A PAC is also required to file its own separate annual Form 990 or 990-EZ if it typically has gross annual revenues of $25,000 or more.
(8) A variance to #7 is if the PAC is a QSLPO (defined in #6 above). If the PAC fits this definition, it is only required to file Form 990 if gross annual revenues are $100,000 or greater.
(9) A PAC may also be subject to tax if it has net investment income of greater than $100 OR if it has non-exempt net income of greater than $100 (see definition of exempt activities in #5 above). If it is subject to tax due to one of these circumstances, it is required to also file Form 1120-POL on an annual basis. The tax is calculated on this form and paid when this form is filed.
(10) If the PAC is required to file an annual Form 990 (see #7 and #8 above), then Part 1-A of Schedule C will need to be completed along with the Form 990 which is to report total political expenditures.
By Colette Kamps, CPA