Staying Tax Compliant — Everything the Political Organizations Should Know About
Understand the key guidelines and requirements for political organizations to obtain and maintain tax exemption.
As core pillars of democratic processes, political organizations bear the responsibility of not only advocating for their causes but also adhering to rigorous tax laws. It is not just a matter of legality but also a testament to their commitment to transparency and accountability.
In this blog, let’s discuss the vital aspects of tax compliance for political organizations, starting from how they can obtain tax-exempt status to what their annual tax filing requirements are.
Political Organizations — An Overview
As per the IRC section 527, a political organization can be a party, committee, association, fund, or other organization that is organized and operated primarily to accept contributions or make expenditures, or both, for carrying out exempt function activities.
Typically, an exempt function can be any of the following:
- Influencing or making an attempt to influence the selection, nomination, election, or appointment of an individual to a federal, state, or local public office or office in a political organization
- The election of presidential or vice-presidential electors
Any activities that are carried out in order to further these exempt functions are termed as exempt function activities.
Tax Exempt Status — How Can Political Organizations Obtain It?
Political organizations can attain tax exemption from the IRS under section 527. Once they receive the tax-exempt status, they are exempt from federal income taxes.
To attain tax-exempt status, political organizations must file Form 8871, Political Organization Notice of Section 527 Status, along with the signature Form 8453-X. This form must be filed electronically within 24 hours from the time when the political organization was established to obtain tax exemption.
Furthermore, there are certain political organizations that can acquire tax exemptions without the need to file Form 8871. This includes
- Organizations whose annual gross receipts are expected to always be less than $25,000
- Political committees that are required to report under the Federal Election Campaign Act of 1971 (2 U.S.C. 431 et seq.)
- Political committees of a state or local candidate
- State or local committees of a political party
- Tax-exempt organizations under section 501(c) and treated as having political organization taxable income under section 527(f)(1)
Notably, if the political organizations fail to file the initial 8871 return, believing that their
Annual Filing Requirements for Political Organizations
Similar to the other types of tax-exempt organizations, political organizations do have an annual tax filing requirement, which they must fulfill in order to remain compliant with the IRS and maintain their exempt status.
Following are the filing requirements for political organizations that obtained tax-exempt status under IRC section 527.
990 Series Forms
In order to ensure that political organizations don’t misuse their tax-exempt status, the IRS requires them to report all their income, expenses, liabilities, activities they carry out, and many other details annually. To do so, the political organizations must file 990 return.
While there are many different 990 forms available, political organizations can only file either Form 990 or 990-EZ. Notably, this filing requirement applies only to political organizations whose gross receipts exceed $25,000 for the corresponding tax year.
Form 1120-POL
1120-POL, also known as U.S. Income Tax Return for Certain Political Organizations, must be filed by political organizations that have any political taxable income. Any income that is generated towards purposes other than the exempt function is considered to be political taxable income.
It’s important to note that the political organizations will need to file this form, irrespective of whether they are tax-exempt or not.
Deadlines, Penalties, and Extension
It’s important for any organization to be aware of the deadlines for tax filing, and political organizations are no different. Political organizations have two crucial deadlines in a year.
Firstly, the deadline to file 1120-POL — This would be the 15th day of the 4th month. This means that if the organization follows the calendar tax year, the deadline would be April 15th of each year. On the other hand, the 990 deadline. This would be the 15th day of the 5th month, meaning May 15th would be the deadline if the organization follows the calendar tax year.
For both these forms, there can be penalties if they are not filed on time. Especially in the case of 990, the political organization may even lose its tax-exempt status if it has failed to file a 990 return for 3 consecutive years.
However, if the political organizations prefer extra time, they always have the option to get an extension. To extend the deadline for filing 1120-POL, they will need to use the extension Form 7004, whereas to extend the 990 deadline, they can file an 8868 extension.
Tax990 — One-Stop Solution for Political Organizations to Ensure Tax Compliance
Having emerged as a leading IRS-authorized e-file provider for thousands of nonprofits across the U.S., Tax990 can prove to be an ideal solution for political organizations to manage their tax filings with ease.
Tax990 supports the e-filing of 990 series forms as well as 1120-POL along with all the required Schedules (at no additional cost). The filing process is made easy and secure with numerous helpful features. Political organizations can simply create an account and effortlessly complete their annual filings.
