Date: 2001-03-23
Speaker: MELISSA MEULLER (republican)
Chamber: S

Ways and Means Counsel. Office of Representative Lloyd Doggett. Cannon House Office Building. Washington. DC. DEAR MELISSA: I wanted to respond to our phone conversation of several weeks ago wherein you asked me to provide you with more information as to how the new Section 527 law (P.L. 106230) adversely impacts state legislators. paying specific attention to the new tax code requirements. P.L. 106230 requires political organizations to provide notice of status to the IRS by July 31. 2000. unless an exception applies. The only exception available to a state legislative campaign is Sec. 527(i)(5)(B) ("reasonably anticipates that it* will not have gross receipts of $25.000 or .more for any taxable year"). Given the size of Texas House districts. the cost of running a campaign will almost always be more than $25.000. Failure to file the notice of status results in a penalty in the form of a tax liability. If the political organization fails to file the notice of status by the due date. the organization must include contributions received after June 30. 2000. in taxable income. The following represents an example of how the new law plays out in Texas: A Texas House member heard about P.L. 106230 in July 2000. but did not file the notice of status because he didnt think it applied to his campaign. In his opinion. he doesnt have an "organization." just family and friends who help out. Political contributions to his campaign are deposited in a noninterestbearing checking account. He was not able to reach anyone at the IRS who could tell him with certainty whether he was required to obtain an EIN and file the notice of status. He held a fundraiser in November 2000 and raised $42.000 in political contributions. In January 2001. he learned that P.L. 106230 did apply to his situation. He filed the 1120POL tax return on March 15. 2001. Following the forms instructions. he included $42.000 in total income and deducted a total of $2.000. The "penalty" for his failure to file the notice of status is $14.000! If he had filed the notice of status before the due date. his tax liability would be $0. Beginning March 2002. he must filed Form 1120POL if his campaign receives $25.000 in contributions. even though his campaign has no taxable income. In other words. he is required to file Form 1120POL with all zeros. He must also file Form 990EZ. the annual information return. According to the IRS. the estimated average time needed to complete Form 990EZ is more than 51 hours! That includes recordkeeping. learning about the law and the form. and preparing the form. Under Ch. 254. Tex. Elec. Code. candidates and officeholders are required to file reports at least semiannually with the Texas Ethics Commission. itemizing contributions. pledges. loans. expenditures. and providing certain other information. The threshold for itemization is $50. See 254.031. Tex. Elec. Code. Most candidates and officeholders are also required to file these reports electronically. The purpose of P.L. 106230 is to ensure full disclosure of political contributions and expenditures. Form 1120POL does not provide the public with any additional information on contributions and expenditures. Moreover. Form 990EZ provides only aggregated information. If the public wants detailed information on a Texas House members contributions and expenditures. the public must still go to the Texas Ethics Commission reports. I hope you find this information helpful. As I had stated to you in our conversation. the draft legislation proposed by Representative Doggett does not address the concerns of state legislators with P.L. 106230. I urge you to suggest reworking Representative Doggetts proposed legislation to exempt state legislators from the burdensome and duplicative requirements of P.L. 106230. Please do not hesitate to contact me if you have any further questions. I may be reached at 2026243566. or by email at Susan.Frederick@ncsl.org. Sincerely.