Proxy Tax

Proxy Tax

In the United States, a tax levied on the political or lobbying activity of certain tax-exempt organizations. Subject to certain restrictions, the proxy tax applies to organizations under section 501(c)4, 501(c)5, and 501(c)6. Generally speaking, this includes labor unions, civic groups, chambers of commerce, and similar groups. Unless the organization meets exemption requirements (usually meaning the organization is a veterans' group or volunteer fire department), it must pay the proxy tax on its lobbying efforts. The proxy tax rate is 35%. An organization may avoid the proxy tax if it establishes to the IRS that members do not deduct membership dues, contributions, or other similar amounts on their personal or business taxes.
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A membership organization that was tax exempt under Internal Revenue Code sections 501(c) (4), 501(c)(5), or 501(c)(6) was liable for the proxy tax if the organization did not notify its members of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures, or if the notice did not include the entire amount of dues that was allocated.
Simplifying the Code will also reduce the heavy proxy tax of recordkeeping that can impede routine, day-to-day business transactions.
An organization with more than $1,000 in gross income from UBI must file Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)), and is subject to corporate tax rates on unrelated business taxable income.
A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax if the organization did not notify its members of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures, or if the notice did not include the entire amount of dues that was allocated.
457(b) plan is required to file Form 990, Return of Organization Exempt from Income Tax, or Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)).
A new separate lobbying subsidiary could elect to pay a 35 percent proxy tax, or it could elect to inform its members that dues and contributions are not deductible.
The effect of such a reversible imputation rule would be that all members of the association assume their fair share of the proxy tax or non-deductibility fraction of dues," Evans said.
Simplifying the Code will also eliminate the need for Band-Aid-like compliance measures that can impede routine, day-to-day business transactions and force law-abiding businesses to absorb the heavy proxy tax of additional record-keeping.
The law requires that all Section 501 (c) (6) associations either notify their members of the portion of their dues that is nondeductible because of lobbying expenditures or pay a 35 percent proxy tax to the government.
The income from these parties is reported as unrelated business income on Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)).
1) A membership organization that was tax-exempt under Internal Revenue Code sections 501(c)(4), 501(c)(5), or 501(c)(6) was liable for the proxy tax in cases where it did not notify its members of the entire amount of the shares of their dues that were allocated to the nondeductible lobbying and political expenditures.
By making low rates the cornerstone of the new, simpler system, Congress can make it easier for companies to comply and obviate onerous compliance measures that impede routine transactions and force businesses to absorb the heavy proxy tax of record-keeping.