I

105TH CONGRESS

1ST SESSION H. R. 480

To amend the Internal Revenue Code of 1986 to ensure that members

of tax-exempt organizations are notified of the portion of their dues

used for political and lobbying activities, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 21, 1997

Mr. HERGER introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to ensure

that members of tax-exempt organizations are notified

of the portion of their dues used for political and lobbying activities, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. INCREASED DISCLOSURE OF DUES OF TAX-EX4 EMPT ORGANIZATIONS USED FOR POLITICAL

5 PURPOSES.

6 (a) REPLACEMENT OF EXCEPTION WHERE DUES

7 ARE GENERALLY NONDEDUCTIBLE.—Section 6033(e)(3)

8 of the Internal Revenue Code of 1986 (relating to excep-
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1 tion where dues are generally nondeductible) is amended

2 to read as follows:

3 ‘‘(3) EXCEPTION WHERE ANNUAL DUES ARE

4 SMALL OR FROM OTHER EXEMPT ORGANIZATIONS.—

5 ‘‘(A) IN GENERAL.—Paragraph (1)(A)

6 shall not apply to an organization which estab7 lishes to the satisfaction of the Secretary that

8 at least 90 percent of all annual dues or other

9 similar amounts are received from—

10 ‘‘(i) persons who each pay annual

11 dues or other similar amounts which are

12 $100 or less, or

13 ‘‘(ii) the following:

14 ‘‘(I) organizations exempt from

15 taxation under subtitle A other than

16 organizations described in paragraph

17 (1)(B)(i);

18 ‘‘(II) State and local govern19 ments; and

20 ‘‘(III) entities the income from

21 which is exempt from taxation under

22 section 115.

23 Clause (i) shall not apply to an organization de24 scribed in section 501(c)(6).
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1 ‘‘(B) COST-OF-LIVING ADJUSTMENT.—In

2 the case of taxable years beginning in a cal3 endar year after 1997, the $100 amount under

4 subparagraph (A)(i) shall be increased by an

5 amount equal to the product of $100 and the

6 cost-of-living adjustment for such calendar year

7 under section 1(f)(3), except that subparagraph

8 (B) thereof shall be applied by substituting

9 ‘1996’ for ‘1992’. If the amount of any such in10 crease is not a multiple of $1, such amount

11 shall be increased to the next highest $1.’’

12 (b) PROXY TAX MAY NOT BE USED TO AVOID DIS13 CLOSURE TO MEMBERS.—

14 (1) IN GENERAL.—Section 6033(e)(2)(A) of the

15 Internal Revenue Code of 1986 (relating to tax im16 posed where organization does not notify) is amend17 ed to read as follows:

18 ‘‘(A) IMPOSITION OF TAX.—

19 ‘‘(i) IN GENERAL.—If an organization

20 fails to include in the notices described in

21 paragraph (1)(A) for any taxable year the

22 amount allocable to expenditures to which

23 section 162(e)(1) applies (determined on

24 the basis of actual amounts rather than

25 the reasonable estimates under paragraph
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1 (1)(A)(ii)), then there is hereby imposed

2 on such organization for such taxable year

3 a tax in an amount determined under

4 clause (iii).

5 ‘‘(ii) ELECTION TO PAY SURROGATE

6 TAX.—

7 ‘‘(I) IN GENERAL.—An organiza8 tion providing the notices described in

9 paragraph (1)(A) for any taxable year

10 may elect to pay a tax for such tax11 able year in the amount determined

12 under clause (iii).

13 ‘‘(II) EFFECT OF ELECTION ON

14 DEDUCTIBILITY.—If an organization

15 pays a tax under subclause (I) for any

16 taxable year, paragraph (3) of section

17 162(e) shall not apply to the portion

18 of the dues or other similar amounts

19 paid by a taxpayer to such organiza20 tion which are allocable to the expend21 itures with respect to which such or22 ganization paid the tax under sub23 clause (I).

24 ‘‘(III) INCORRECT NOTICES.—In

25 the case of an election under sub-
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1 clause (I), an additional tax shall be

2 imposed under clause (i) if the esti3 mates in the notices are less than the

4 actual amounts.

5 ‘‘(iii) AMOUNT OF TAX.—For pur6 poses of this subparagraph, the amount of

7 tax determined under this clause is an

8 amount equal to the product of the highest

9 rate of tax imposed by section 11 for the

10 taxable year and—

11 ‘‘(I) in the case of a failure to

12 which clause (i) applies, the aggregate

13 amount not included in the notices de14 scribed in paragraph (1)(A) by reason

15 of such failure, or

16 ‘‘(II) in the case of an election

17 under clause (ii), the aggregate

18 amount included in the notices with

19 respect to which the election was

20 made.’’

21 (2) NOTICE REQUIREMENT.—Section

22 6033(e)(1)(A)(ii) of such Code (relating to reporting

23 requirements) is amended to read as follows:

24 ‘‘(ii) except as provided in paragraph

25 (3), shall, at the time of assessment or
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1 payment of such dues or other similar

2 amounts, provide notice to each person

3 making such payment which contains—

4 ‘‘(I) a reasonable estimate of the

5 portion of such dues or other similar

6 amounts to which such expenditures

7 are so allocable, and

8 ‘‘(II) whether or not a deduction

9 is allowable to such person with re10 spect to such portion.’’

11 (3) PENALTIES FOR FAILURE TO PROVIDE NO12 TICE.—

13 (A) NOTICE ACCOMPANYING DUES.—Sec14 tion 6710 of such Code (relating to failure to

15 disclose that contributions are nondeductible) is

16 amended—

17 (i) in subsection (a), by inserting ‘‘or

18 a failure to meet the requirement of sec19 tion 6033(e)(1)(A)(ii) by an organization

20 to which section 6033(e) applies’’ after

21 ‘‘section 6113 applies’’; and

22 (ii) in subsection (c), by inserting ‘‘or

23 section 6033(e)(1)(A)(ii)’’ after ‘‘section

24 6013’’.
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1 (B) ANNUAL NOTICE.—Section 6724(d)(2)

2 of such Code (relating to payee statements), as

3 amended by the Small Business Job Protection

4 Act of 1996 and the Health Insurance Port5 ability and Accountability Act of 1996, is

6 amended by striking ‘‘or’’ at the end of the next

7 to last subparagraph, by striking the period at

8 the end of the last subparagraph and inserting

9 ‘‘, or’’, and by adding at the end the following

10 new subparagraph:

11 ‘‘(Z) the last sentence of section

12 6033(e)(1)(A).’’

13 (4) CONFORMING AMENDMENTS.—

14 (A) Section 6033(e)(2)(B) of such Code is

15 amended by striking ‘‘subparagraph (A)(ii)’’

16 and inserting ‘‘subparagraph (A)(i)(I)’’.

17 (B)(i) The heading for section 6710 of

18 such Code is amended by inserting ‘‘OR THAT

19 DUES ARE FOR LOBBYING ACTIVITIES’’

20 after ‘‘NONDEDUCTIBLE’’.

21 (ii) The item relating to section 6710 in

22 the table of sections for part I of subchapter B

23 of chapter 68 of such Code is amended by in24 serting ‘‘or that dues are for lobbying activi25 ties’’ after ‘‘nondeductible’’.
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1 (c) ORGANIZATIONS TO WHICH DISCLOSURE RULES

2 APPLY.—Section 6033(e)(1)(B)(i) of the Internal Reve3 nue Code of 1986 (relating to organizations to which sub4 section applies) is amended to read as follows:

5 ‘‘(i) IN GENERAL.—This subsection

6 shall apply to any organization which is de7 scribed in paragraph (4), (5), or (6) of sec8 tion 501(c) (other than a veterans’ organi9 zation) and which is exempt from taxation

10 under section 501(a).’’

11 (d) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to amounts paid or incurred after

13 December 31, 1996.

14 SEC. 2. 2-PERCENT FLOOR ON ITEMIZED DEDUCTIONS NOT

15 TO APPLY TO DEDUCTION FOR DUES.

16 (a) IN GENERAL.—Section 67(b) of the Internal Rev17 enue Code of 1986 (defining miscellaneous itemized de18 ductions) is amended by striking ‘‘and’’ at the end of para19 graph (11), by striking the period at the end of paragraph

20 (12) and inserting ‘‘, and’’, and by adding at the end the

21 following new paragraph:

22 ‘‘(13) the deduction allowed under section 162

23 for dues or other similar amounts paid by an indi24 vidual to an organization described in paragraph (4),

25 (5), or (6) of section 501(c) (other than a veterans’
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1 organization) and exempt from taxation under sec2 tion 501(a).’’

3 (b) EFFECTIVE DATE.—The amendments made by

4 this section shall apply to taxable years beginning after

5 December 31, 1996.

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