SECTION 6033 (E) PROXY TAX INFORMATION
Section 6033 (e) Proxy Tax on Lobbying and Political Activities:
The Arkansas Land Title Association (ARLTA) is a 501(c)(6) organization serving as the voice of the Arkansas abstract land title industry.
For income tax purposes, member dues paid to ARLTA are deductible as a business expense. However, ARLTA estimates that 20% of all dues paid to ARLTA are utilized for non-deductible lobbying expenditures.
All members are advised that this percentage of 2014 dues paid to ARLTA is non-deductible for income tax purposes. Consult your tax adviser.
Our Association is classified as a tax-exempt organization (trade association) under IRS Code (IRC) Section 501(c)(6). ARLTA actively monitors the executive, legislative, and judicial agendas at as they relate to our industry and interests. When we identify an issue of such importance that we feel a more direct role is required on our part in the best interest of our membership and the industry as a whole, ARLTA will act accordingly.
This means that ARLTA will, at times, take an active role at the state capitol or at the local level through the channels available to us in order to support the industry's positions.
"How does all that affect my business and/or personal income tax return?"
Certain political activities and expenses incurred are allowable for 501(c)(6) tax-exempt organizations. However, under the Clinton administration, in the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), Congress declared that taxpayers no longer would be allowed to deduct for federal income tax purposes the expenses that taxpayers incur when they engage in lobbying. Tax deductability also is disallowed by this law for a portion of membership dues paid to trade 501(c)(6), professional and similar membership associations if the associations engage in more than minimal ($2,000 or less) amount of lobbying.
The member dues that you pay to the Association are ordinarily fully deductible on your tax return as a business deduction. However, since ARLTA periodically engages in political and lobbying activities, it is the IRS' position that part of the dues you pay are utilized by the Association for these activities. Therefore, through the dues you pay, you are indirectly paying for a lobbying activity.
IRC Section 6033 (e) and IRS Revenue Procedure 98-19, requires 501(c)(6) organizations that "pays or incurs nondeductible lobbying expenditures to notify its members of a reasonable estimate of the portion of dues that are allocable to those expenditures."
It is the responsibility of the Association to disclose to members the percentage of dues paid that must be excluded as a deduction from your tax returns. We have estimated the percentage to be 20% of all dues paid. For example, if you paid $275 for member dues, subtract 20% from that total to arrive at your deductible amount: $275 x 20% (.20) = $55.00.
$275 less $55.00 equals your deductible member dues for the tax year, or $220.00.
Even at the maximum dues of $425 it is only a lost deduction of about $85.00, so for all members, we're not talking about very much.
There is, of course, an alternative to this option: ARLTA could opt not to provide this disclosure and incur the tax liability directly instead. It is called a Section 6033(e) Proxy Tax on all lobbying and political expenditures, and it's a flat 35% tax on the expenses incurred. The problem with this is that the Association's tax liability could be quite large. As you can see from the examples above, we are talking about an almost immaterial taxable difference to the member. Therefore, we have determined that disclosing the lobbying expenditures as a portion of your dues is the most responsible option, thus relieving the Association of a potentially large tax liability each year.