Okay, okay . . . I know you're all SMARTER THAN A 5TH GRADER or you wouldn't be on Tax Guru! But, nonetheless, I cannot find a single CPA or Tax Expert after 4 months of searching online and in my area who can answer this question! I don't believe this question requires rocket science level knowledge, however.

Can You answer this for me? I'd be eternally grateful! Here goes:

I cannot find any CPA who knows the answer to this in my area. Hoping a Tax Guru here can help!

I am forming a 527 tax-exempt political committee in Arizona. This is a state committee, not a federal committee. I would like liability protection so the suggestion was made that I form an LLC or unincorporated association that in turn forms the 527. AZ does not recognize Unincorporated Associations so that option is out. As to the LLC, if it elects to file as a C Corp or S Corp, am I correct that I would have to take my fees for managing the 527. (may be full time job) as a salary subject to quarterly estimates and withholdings, and that I would need to set a reasonable salary in accordance with industry standards (in otherwords, if a Sub S, it would not fly to take a very low salary and the rest as distributions as this might open me up to IRS challenges).

If I am correct about the above, this structure does nor work for me because, having run a 527 previously ( with no liability shield), fundraising results vary from month to month and can be highly unpredictable. It is not a situation that can necessarily support a set salary. It is a situation where you may
have zero to pay yourself one month, enough to pay yourself a little another month and maybe enough to pay a decent amount another month. I defintely do not want to get into a situation of payroll tax reporting and withholding. I would also prefer to avoid the time involved with keeping corporate formalities.

This said. an LLC filing as a disregarded entity in Sched C is perfect regarding the above objectives and I have such an LLC now for my existing small business. However, since income and expenses flow through to the personal Sched C, how would this work for the fundraising revenues and the expenses
of the 527 which I would not think should be co-mingled with my personal income/expenses nor do I assume this would be advantageous to me.

As an FYI, this would be a single member, Manager managed LLC and would have no employees for the forseeable future, if ever (depending on fundraising results).

Can any tax guru here comment or clarify my assumptions and recommend the best organizational structure for "holding" the 527? Again. the objectives in priority order are:

1. Liability protection
2. Avoiding having to take a salary and get into payroll tax system
3. A outing corporate formalities if possible.

Thank you so much Tax Gurus!! I have hit a brick wall on this so hope you can help me!!

Mimi

I guess you need to get some professional help form an expert specializing in a political organization subject to 527. As you can see, QUOTE,” a political organization subject to 527 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. A political organization does not need to be formally chartered or established as a corporation, trust, or association;for example, a separate bank account in which political campaign funds are deposited and disbursed only for political campaign expenses can qualify as a political organization. Thus, an organization may maintain a separate bank account used solely for exempt political activities and the account itself could qualify as a Section 527 political organization.”
You can visit the IRS Website here: FEC Filing Required for Some 527 Organizations

Woe is me. :-( I know you were only trying to help but I knew all that. I already have a 527 formed and operating, but I have no liability protection as i am the filer. So I would like to refile it with a corporation or LLC as the filer with the state (AZ) so there is liability protection, but I would like to avoid all the work of corporate formalities (meeting, minutes, yada-yada) and especially to retain the flexibility of paying myself as the organization has funds rather than committing to a set salary, getting into the payroll tax system with withholdings & quarterly filings, etc. I have a separate LLC for my regular business which files as a disregarded entity on Sched. C. I could perhaps take my pay as a fee under a mgt. contract with my LLC?

I have contacted *many* political attorneys in AZ and even in other states. Not one can answer my original question. I have also phoned several CPA firms but none of them have working knowledge of political committees. I have tried to find this answer for FOUR MONTHS!

Yikes! Is there no hope for an answer to this question?

I would just go with a new LLC also filing as a disregarded entity as the filer of the new 527, but as the income and expenses of the LLC flow through to my Schedule C, I don't see how the revenues of a tax exempt political commuittee could flow through to me???

“I would just go with a new LLC also filing as a disregarded entity as the filer of the new 527, but as the income and expenses of the LLC flow through to my Schedule C, I don't see how the revenues of a tax exempt political commuittee could flow through to me???”------> Under Code Section- 527, political organizations, such as Political Action Committees, are only taxable if they have income from sources other than political donations (presumably, you will owe income tax on any excess of revenues over expenses you realize during that period.) If these organizations do have other income, such as interest on investments, in excess of $100, they pay a federal tax of 35 percent. They file returns under Section 527 on Form 1120-POL and paid the tax on their investment income( if they have). Your organization will have to file annual returns on both Forms 990 and 1120-POL, if it has more than $25,000 of gross receipts from all sources during the year. It won't matter whether you have any taxable income on the 1120-POL or not. These returns are also subject to the same requirements for public disclosure as the 8871 and 8872. There are substantial penalties for failing to file or disclose these returns. Code Section 527, as amended by the new law, now includes both notification and disclosure provisions. The notification requirement applies to all organizations that come within Section 527 other than organizations that reasonably anticipate that they will never have gross receipts of $25,000 or more in any one year; and organizations that report under the Federal Election Campaign Act of 1971. Hope this helps a little bit.

Thank you so much for this information! To ensure I understand, are you saying:

1. I can go ahead and file a new LLC as a disregarded entity filing on Schedule C.

2. The LLC can file the required docs to establish the 527 with AZ SOS (since I filed a 527 with the AZ SOS, I am familiar with that process).

3. As a Qualified state political organization (QSLPO), I will again file Form 8871;
Form 1120-POL; and Form 990 with IRS.

4. So long as the political committee does not take in any income (i.e. it does not sell T-shirts and merchandise to raise funds, etc.), and all revenues are tax-exempt donations, there is no flow-through to my Schedule C. Is this correct?

5. What about the operating expenses of the 527? Do these flow through to my Schedule C (since my LLC is filing as a disregarded entity)? Or, so long as no taxable income is generated, are the expenses for the 527 only reportable on IRS Forms 990 and 1120-POL, but not my Schedule C in so far as the LLC goes. Is this correct?

6. As a QSLPO, the $25,000 reporting threshhold does not apply, correct?
7. So, if the 527 files a 990 and 1120-POL, does the new LLC file a "$0" Schedule C (a seconf Schedule C since my business LLC already files one)? Or, if the 527 pays me a salary or pays the new (parent) LLC a management fee (as it can afford to), would the new (parent) LLC report this on the new (parent) Schedule C along with any other income or expenses (none anticipated) that it incurs under the new LLC separate from the political committee?

Whew! Thanks for the help!

Mimi

“1. I can go ahead and file a new LLC as a disregarded entity filing on Schedule C.”---> I guess so; you need topay your Se tax as long as the amoun ton Sch SE line 4 is $400 or exceeds $400 and need to pay quarterly estimated taxes on your SMLLC;as long as you are filing as a sole proprietor, disregarded entity,SMLLC, I mean, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.However, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year;you were a U.S. citizen or resident for the whole year;your prior tax year covered a 12 month period.
“2. The LLC can file the required docs to establish the 527 with AZ SOS (since I filed a 527 with the AZ SOS, I am familiar with that process. As a Qualified state political organization (QSLPO), I will again file Form 8871;Form 1120-POL; and Form 990 with IRS.”----> I am NOT sure; you may need to contact Dept of Revenue of AZ. Contributions to the PAC are not tax-exempt; however, the PAC itself may be treated as a taxexempt organization by filing IRS Form 8871, Political Organization Notice of Section 527 Status. This form must be electronically filed within 24 hours of the date on which the organization wasestablished. Additionally, Form 8871 must be filed within 30 days after the occurrence of a materialChange. As long as your PAC reasonably expects its annual gross receipts to always be less than $25,000 or A political committee of a state or local candidate, then, it is not required to file Form 8871. PACs must use Form 8872 to file periodic reports with the IRS disclosing their contributions and expenditures. Every 527 political organization that accepts a contribution or makes an expenditure for an exempt function during the calendar year must file Form 8872, except a political organization that is not required to file Form 8871. PAC with gross receipts of $25,000 or more for taxable years after June 30, 2000, must file Form 990, outlining their major contributions and expenditures. A tax-exempt PAC will typically be required to file Form 990, or Form 990-EZ, unless it meets an exception for filing the form. Form 1120-POL. PACs must file Form 1120-POL, for any year in which they have political organization taxable income in excess of the $100 specific deduction allowed under Code Sec. 527.
“4. So long as the political committee does not take in any income (i.e. it does not sell T-shirts and merchandise to raise funds, etc.), and all revenues are tax-exempt donations, there is no flow-through to my Schedule C. Is this correct?”---->Correct. Tax exmept donations are NOT taxable income.; as said previously, political action committees with taxable income of more than $100 for the year must file Form 1120-POL. Taxable income is a political organization's gross income minus certain deductions. This includes investment income as well as trade and business activities. Taxable income does not include exempt function income, which comes from contributions of money or other property, membership dues, and proceeds from political fund-raising or entertainment events.
“5. Or, so long as no taxable income is generated, are the expenses for the 527 only reportable on IRS Forms 990 and 1120-POL, but not my Schedule C in so far as the LLC goes. Is this correct?”---->I guess so. As said above, political organization taxable income is the excess of gross income(the gross income of the organization, other than exempt function income, less deductions modified under I.R.C. Section 527(c)(2) directly connected with the production of the taxable income including a $100 specific deduction.)for the tax year less deductions directly connected with earning the gross income.
“6. As a QSLPO, the $25,000 reporting threshhold does not apply, correct?”---> Correct;certain qualified state and local political organizations does NOT need to fill out Form 990 UNLESS their receipts exceed $100,000. So lolong as the PAC receive contributions of $5,000 or more from a single contributor, then it must include Form 990 Schedule B, which identifies those contributions, with their returns
“7, if the 527 pays me a salary or pays the new (parent) LLC a management fee (as it can afford to), would the new (parent) LLC report this on the new (parent) Schedule C along with any other income or expenses (none anticipated) that it incurs under the new LLC separate from the political committee?”---->I guess so. Your PAC is not incorporated, it doesn’t need to pay a minimum tax even if the corporation has no taxable income. An unincorporated political organization is treated as a corporation under both federal law and some state law. If your organization is unincorporated, you are not required to file an state tax return unless your organization has taxable income. As I said, please contact Dept of revenue of your state.
Please visit the IRS Website here for more information: FAQs about the Annual Form Filing Requirements for Section 527 Organizations