Federal taxation of the political process.

EXECUTIVE SUMMARY

* Campaign finance laws are numerous, extensive and vastly different depending on whether Federal, state or local elections are involved, as each type of jurisdiction has its own rules.

* A political organization is usually created when its sponsors notify the Federal, state or local government of the formation of an organization to make expenditures for an exempt function.

* Sec. 527(e)(2) defines "exempt function" as the function of influencing or attempting to influence the selection, nomination, election or appointment of any individual to any Federal, state or local public office or office in a political organization, or the election of Presidential or Vice-presidential electors.

A candidate runs for office. What kind of organization is created? How is it taxed? What kinds of political activities can it engage in without losing exempt status? This article explains these issues and others that might arise in representing a political candidate, officeholder or organization.

Although politics play the lead role in the formation of all Federal tax law, the taxation of the various participants in the political process is not a frequent topic of conversation or analysis. Taxation of the political process and its participants is not an easy subject to grasp.

For the most part, the tax laws applicable in the political arena are a hodgepodge originating from a series of responses to various alleged "wrongs" or as a by-product of campaign finance legislation or reform. As a result, the tax law in this area is scattered throughout the Code in a rather haphazard fashion. For the practitioner suddenly confronted with a client subject to taxation of the political process--e.g., a political candidate, charity or corporation engaged in lobbying or other political activities or a political action committee (PAC)--navigating the Byzantine world of political money and its tax ramifications can be a daunting task.

Federal tax law contains two sets of rules on political expenditures. One set applies to the election of public officials at all levels of government; the second applies to expenditures intended to influence elected public officials on legislation, regulation and the appointment of persons to various positions in government or the judiciary. This article will discuss the first set of rules.

Campaign Finance Issues

Campaign finance laws are numerous, extensive and vastly different depending on whether Federal, state or local elections are involved, as each type of jurisdiction has its own rules. This article will focus solely on the Federal tax aspects of the political process and not address campaign finance issues. Nonetheless, there is some discussion of the various types of political expenditures to provide a framework for the relationship of such expenditures to the tax law.

Political Organizations

Sec. 527 provides the framework for political organizations. Such organizations--consisting principally of candidate committees, PACs and political party organizations--are the primary vehicles for the receipt and expenditure of political funds.

Organizational and Operational Framework

There is generally no specific form (e.g., trust, association, corporation) of organization for a political entity. Instead, a political organization is usually created when its sponsors notify the Federal, state or local government of the formation of an organization to make expenditures for an exempt function. Sec. 527(e)(2) defines "exempt function" as the function of influencing or attempting to influence the selection, nomination, election or appointment of any individual to any Federal, state or local public office or office in a political organization, or the election of Presidential or Vice-presidential electors.

A political organization may be a formal entity (e.g., an association, corporation or trust) or an informal one (e.g., a bank account). Prudence dictates that informal arrangements clearly reflect the facts and circumstances to ensure political organization status (e.g., 1998 John Jones State of x Senate Campaign Fund). If an individual maintains the funds for his own campaign, they must be clearly segregated from his other, personal funds, according to Regs. Sec. 1.527-2(b)(1).

Sec. 527 does not require formal operational characteristics such as adhering to by-laws, maintaining minutes, etc. Regs. Sec. 1.527-2(a)(3) explicitly provides that a political organization does not have to engage exclusively in exempt function activities. To date, the IRS has not elaborated on the level of expenditures or activities necessary to satisfy the primary purpose test. However, it has issued letter rulings granting political organization status to organizations that promote the passage or defeat of ballot initiatives and legislation, when the primary purpose of such activities was to secure the election of candidates for public office.(1) Otherwise, individuals, committees or similar groups that expend money to support or oppose ballot measures or initiatives ordinarily do not qualify for political organization status.(2) As a result, many of the potential tax implications associated with these campaigns and expenditures are unclear and have yet to be resolved. However, Sec. 501(c)(4)(A), (5) and (6) (i.e., social welfare, labor and business league organizations) are often used for such purposes,(3) because they can engage in some legislative and political activities.

PACs: The PAC is a creature of Federal election law(4); it is not defined in the tax law. States also have passed enabling legislation for PACs. For tax purposes, a PAC is ordinarily a "separate segregated fund" (SSF) defined in Sec. 527(f)(3) (discussed below under "Political Expenditures"). SSFs are usually established by Sec. 501(c) social welfare organizations, trade associations and business leagues. Sec. 501(c)(3) organizations (i.e., those formed for charitable, educational or religious purposes) cannot establish SSFs, except in very limited circumstances. They are prohibited from intervening in political campaigns.(5)

Unions, corporations and membership organizations can sponsor political organizations via "segregated funds" (not SSFs) to support candidates for public office. Under Federal and state election laws, the sponsor is generally permitted to fund the administrative costs and engage in limited fundraising for these organizations. These organizations are also commonly referred to as PACs.

Under Federal election law, multiple candidate political organizations are often formed by individuals (including public officeholders--e.g., Newt Gingrich's GOPAC) or groups of individuals. These are referred to as non-connected organizations and are also commonly known as PACs.(6)

While PACs formed under some state laws are permitted to engage in lobbying activities and ballot measure advocacy, if these activities are significant or the organization's only activities, it does not qualify as a political organization under Sec. 527.(7)

Taxing Political Organizations

A political organization pays income tax at the highest applicable corporate tax rate under Sec. 11 (b) (currently 35%) on its taxable income. If the organization has a net capital gain, Sec. 527(b) provides that it qualifies for the corporate capital gains alternative tax rate. Taxable income under Sec. 527(c) equals the excess of gross income over deductions directly connected with the production of such income. The organization is entitled to a $100 deduction under Sec. 527(c)(2)(A), but cannot claim a net operating loss deduction, according to Sec. 527(c)(2)(B), or any of the corporate deductions available in Secs. 241-249 (inclusive), according to Sec. 527(c)(2).

Exempt function income: In calculating taxable income, a political organization excludes from gross income exempt function income. Deductions related to the production or expenditure of exempt function income are likewise excluded.

Under Sec. 527(c)(3), exempt function income consists of the following:

1. Contributions of money or other property.

2. Membership dues, fees or assessments.

3. Proceeds from a political fundraising or entertainment event or from the sale of political campaign materials, not received in the ordinary course of a trade or business. Regs. Sec. 1.527-3(d) (2) states that whether an activity constitutes a trade or business depends on the facts and circumstances. Factors to be considered include the frequency of the activity, the manner in which it is conducted and the time span over which it is carried out. In practice, if one observes the feverish pace of political fundraising events and the absence of IRS enforcement or guidance in this area, it appears that the regulatory language has been rendered moot.

4. Proceeds from conducting any bingo game.

Segregation requirement: To qualify as exempt function income, amounts must be segregated and used for an exempt function. "Segregation" means more than mere bookkeeping entries; the asset itself must be segregated, according to Regs. Sec. 1.527-2(b). The Service ruled in Letter Ruling (TAM) 9409003(8) that an insubstantial amount of expenditures for nonexempt functions made from a segregated fund will not disqualify the fund as segregated. Permissible exempt function expenditures are discussed below. Once the vast majority of political organizations segregate exempt function income from gross income, there is generally very little (if any) income subject to tax.

Most campaigns spend money as soon as it arrives (if not before). The lack of a base to tax is not inconsistent with the Sec. 527's purpose, which is primarily to ensure compliance with the Federal election laws; it is not a revenue-raising provision. Nonetheless, some politicians of stature' or with "safe" elected positions do accumulate substantial war chests that may produce significant income. For example, according to Federal Election Commission Filings, House minority leader Richard Gephardt had approximately $2.8 million in funds on July 15,1998.(9)

Loss of segregated fund or exempt status: If an organization loses segregated fund status for one or more of its exempt function funds, then otherwise exempt function income and expenditures must run the gamut of the general income tax rules. Clearly, gross receipts from fundraising events and the sale of materials will be gross income. On the other hand, it may be arguable that ordinary contributions actually used for exempt purposes may be excludible gifts. However, Carson(10) and Stern(11) stand for the view that contributions to politicians are not subject to girl tax. Those courts concluded that a gift to a politician cannot occur, because the donor never acts out of disinterested generosity. If this interpretation is correct, are such contributions income if the political organization fails to qualify for Sec. 527 status?

It is possible to lose exempt function status for segregated funds, while preserving the organization's Sec. 527 status. This may result when a segregated fund violates the Code, but the organization's overall activities remain devoted primarily to an exempt function. The Sec. 527 regulations do not provide for attribution of nonqualifying expenditures to related organizations.

In addition, to the extent amounts spent are not for an exempt function, under some circumstances (generally, when they are diverted for the candidate's personal use), they may be included in the candidate's income under Regs. Sec. 1.527-5.

Permissible expenditures: Tax advisers to political organizations should be thoroughly familiar with Regs. Sec. 1.527-2 and the Service's guidance on issues arising thereunder. Under Regs. Sec. 1.527-2(c), both direct and indirect expenses qualify as exempt function expenses. Direct expenses include payments made on behalf of a candidate in furtherance of his quest for public office, including "testing the waters" expenses to determine whether to pursue a particular public office. Obviously, media consulting and purchases, campaign commercial production, campaign staff and transportation are qualified expenses. Examples of indirect expenses include fundraising, record-keeping (including legal and accounting services related to the campaign and organization) and overhead items (e.g., rent, telephone and utilities).

Expenses with an apparent political connection have been held not to be exempt function expenditures. For example, in Letter Ruling (TAM) 9320002,(12) costs of a "Derby Day" party given by a former Member of Congress who was considering running for Senate did not meet the exempt function test. Also, Regs. Sec. 1.527-2(c) (5) (v), Example 5, states that subscriptions to publications in general circulation do not qualify.

Consequently, it is incumbent on practitioners to familiarize themselves with the law in this area. The Service may not be enforcing some rules (such as the subscription provisions), as customary practice in the political world has evolved and the need for current knowledge of local, state, national and even world events has expanded. Also, as noted below, some of the expenses not permitted under the older interpretations are likely superseded by later legislative changes.(13)

Officeholder's Segregated Funds

As was discussed, Sec. 527(e)(2) defines "exempt function." The Technical and Miscellaneous Revenue Act of 1988, Section 1001(b)(3)(B), amended that provision to add the following sentence: "Such term includes the making of expenditures relating to an office ... which, if incurred by the individual, would be allowable as a deduction under section 162 (a)." Commentators agree that this provision is quite broad; for example, a political organization in the form of a segregated bank account could be established solely to pay an officeholder's office expenses.(14)

This provision also serves another purpose. By relieving the officeholder of the burden of paying the expense, he also avoids the Sec. 67 2% limit on employee business expenses claimed as an itemized deduction (because the expenditure never reaches his return). In addition, employee business expenses claimed as miscellaneous itemized deductions are not deductible in calculating the alternative minimum tax.

Assuming that officeholder expenses are sufficiently expansive to include legal fees and investigative reimbursements, the benefits of an officeholder account characterized as a political organization can be substantial. The argument in support of this is that legal attacks on politicians are now part of the culture and, thus, ordinary and necessary to the holding of public office.

Newsletter Funds

Sec. 527(g) (1) allows officeholders or publicly announced candidates for nomination or election to Federal, state or local public office to set up and maintain a fund exclusively for the preparation and circulation of a newsletter.

This provision appears to have become unnecessary for officeholders, because such expenses can be paid from segregated funds. Clearly, in the case of a candidate for public office, a newsletter falls within the purview of the organization's exempt function.

Principal Campaign Committees

Sec. 527(h) permits a congressional candidate to designate one political organization (i.e., segregated fund) as his "principal campaign committee." Political organizations that support multiple candidates qualify for this designation. The principal campaign committee designated must comply with certain requirements under the Federal election laws. The benefit of such designation is that the organization is taxed at the normal graduated corporate tax rates, instead of at the highest rate.

The IRS has taken a broad approach to the permissible activities of designated organizations. Candidates can make donations from their designated committee to other candidates while that committee enjoys the benefit of graduated rates on its nonexempt function income (e.g., investment earnings). For certain influential candidates with fundraising prowess and inexpensive races of their own, the designated committee actually functions similar to a multicandidate PAC, but with lower tax rates. For example, Congresswomen Nancy Pelosi and Jennifer Dunn contributed $173,308 and $153,569, respectively, to other candidates during the 1996 election cycle.(15)

Political Expenditures

To secure and retain tax-preferred status, exempt organizations are subject to various restrictions on engaging in political activities. These restrictions range from the basic prohibition on political activity and campaign expenditures by Sec. 501(c)(3) charitable organizations (contributions to which are generally deductible by donors), to the looser standard that political activities cannot be an exempt organization's primary function.

Because certain exempt organizations can engage in some political activity, Sec. 527(f) addresses the political activities of organizations exempt under Sec. 501(a). A review of the statutory history indicates that Congress anticipated that the provision would apply primarily to social welfare organizations (Sec. 501(c)(4)), labor unions (Sec. 501(c)(5)) and business leagues (Sec. 501 (c) (6)).(16)

If a tax practitioner is advising a Sec. 501 (a) organization on political activities and expenditures, a careful review of permissible political activities that may be undertaken by the organization is a necessary. Sec. 527(f) takes a two-pronged approach to the taxation of political activities of exempt Sec. 501(c) organizations.

Tax on political expenditures or net investment income: In an effort to place the political expenditures of an exempt organization on equal footing with similar expenditures of political organizations, the former is required by Sec. 527(f)(1) to pay tax at the rates applicable to political organizations (i.e., the highest corporate tax rate). The rate is applied to the lesser of the organization's (1) net investment income or (2) amount spent for the exempt function. The objective is to expose to tax the same amount (net investment income) for an exempt organization that is subject to tax for a political organization.

According to Sec. 527(f)(2), net investment income includes income from interest, dividends, rents and royalties and net gains from the sale or exchange of assets, reduced by the deductions directly connected with that income. Items taken into account for determination of the Sec. 511 tax on unrelated business income are not again taken into account for purpose of this tax.

SSF Option for PACs

Sec. 501(c) organizations allowed to engage in partisan political activities may avoid the expenditure/net investment income tax under Sec. 527(f)(1) by establishing an SSF. The SSF is different from the segregated fund required to be maintained for exempt function income of political organizations discussed earlier.

The SSF is separate from the exempt organization; its earnings and expenditures are not attributed to it. Also, the exempt organization ("sponsor") may solicit, collect and transfer contributions (including some of its dues in non-Federal elections) to the SSF without those amounts being considered political expenditures of the sponsor. Regs. Sec. 1.527-6(e) requires detailed records of the transactions and prompt transfer; prompt transfer ordinarily occurs if Federal or state campaign laws are complied with.

The SSF is a separate political organization subject to Sec. 527(f)(3). These types of SSFs are common and generally constitute PACs associated with labor organizations, business leagues (e.g., National Federation of Independent Business) or social welfare organizations (e.g., Children's Defense Fund). The sponsor establishing the SSF/PAC may pay its administrative expenses. Also, investment income of the exempt organization is not attributed to the SSF/PAC, so the exempt organization does not have any income subject to the expenditure/net investment income tax. For-profit businesses may also maintain SSF/PACs subject to these rules (most major U.S. companies do).

In addition, Sec. 501(c)(3) organizations facing restrictions prohibiting almost all intervention in political campaigns often establish "companion" Sec. 501(c)(4) social welfare entities that can engage in broader political activity. These companions, in turn, often establish their own SSF/PACs (e.g., The Sierra Fund).

Diversion of Funds; Termination

Longstanding case law and IRS interpretations(17) provide that amounts diverted from a political organization to or for a candidate's personal use are taxable income to him or to the political organization in the year the funds are diverted. Regs. Sec. 1.527-5(a) provides examples, such as payment of the candidate's personal income taxes. This includes direct and indirect benefits--e.g., payment of expenses "in behalf of the candidate or officeholder" that do not otherwise qualify as exempt function or officeholder expenses allowable under Sec. 162. In the case of PACs, Regs. Sec. 1.527-5(a)(1) provides that if the sponsor of a political organization diverts exempt function income for its benefit, the amount diverted is gross income to the sponsor.

Even when there is no formal diversion to an officeholder (or a former officeholder), Regs. Sec. 1.527-5(c)(1) treats as income amounts held in a fund when they are no longer held in reasonable anticipation of a political campaign. How long is it before reasonable anticipation ceases to exist? TAM 9320002 held that an individual holding funds three years after leaving one office still had a reasonable anticipation of seeking another.

Sec. 527(d) provides that contributions by a political organization will not be treated as improperly diverted if they are given to (1) another political organization and treated as exempt income of the recipient, (2) a public charity described in Sec. 509(a)(1) or (2), or (3) a government.

The "another political organization" requirement would apparently be met when funds are paid to an officeholder's account that qualifies as a political organization. Generally, this is the normal method used to terminate a political organization.

Filing Requirements

Political organizations are required to file Form 1120-POL, U.S. Income Tax Return for Certain Political Organizations; the return is due by the fifteenth day of the third month after the end of the organization's tax year. They are not required to file Form 990, Exempt Organization Information Returns, or make estimated tax payments. Assessment, collection and other administrative procedures are generally the same as for other taxpayers.

Political organizations are not required to apply for recognition of their exempt status. If the organization desires a determination of its status (e.g., it will engage in "initiative" activities in connection with candidate support), it should seek a ruling.

General Comment

Practitioners who advise political organizations should thoroughly review the tax law applicable to the client to ensure compliance.(18) In addition, when Sec. 501 (c) exempt organizations are involved, careful attention must be paid to the permissible political involvement of the specific type of exempt organization before proceeding to the tax aspects, so as not to jeopardize exempt status.

Tax Treatment of Candidates and Officeholders

There are a number of tax issues particular to candidates and officeholders; other tax rules apply just to officeholders.

Income Issues

For candidates, expenses paid by political organizations that qualify as exempt function are not included in the candidate's income. The use of surplus funds for officeholders to attend national conventions as delegates or for voter research and opinion polls on future campaigns are examples of other exempt function items not included in an officeholder's income. Moreover, as mentioned earlier, "exempt function" is defined in Sec. 527(e)(2) and includes a political organization's (including a segregated fund's) expenditures for the candidate that would otherwise be deductible as Sec. 162(a) business expenses.

As discussed earlier, a candidate may recognize income personally if he diverts campaign contributions to personal use or does not maintain them in a segregated account (identified as a campaign account) in a manner such that the account is treated as a political organization.

If officeholders divert contributions or funds to their own use (including officeholder account funds, as discussed earlier), such amounts are included in the officeholder's gross income. Generally, Federal and state legislators are not required to include in income government allowances for staff, supplies and other expenses of goods and services provided to operate their offices.(19) If officeholders are reimbursed for travel and entertainment expenses, the reimbursement is excluded if an adequate accounting is required and actually made under the general rules applicable to all employees under Temp. Regs. Secs. 1.62-1T(e)(1) and 1.274-5T(f)(2).

Honorariums received for speeches and similar activities generally are gross income to the official. Except for Federal officeholders, this is true even if paid to a charity designated by the official (the official is allowed a contribution deduction for the amount paid, subject to the annual adjusted gross income percentage limits of Sec. 170(b)). Sec. 7701(k) provides that for Federal officials, both the income and deduction are excluded if the honorarium is paid directly to the designated charity.

Expense Issues

A candidate cannot deduct expenses related to his campaign; they are personal expenses under Sec. 162(e)(1)(C). In McDonald,(20) the Supreme Court held that while occupying a public office is a trade or business, retaining or seeking that office is not an expense associated with carrying on a trade or business. Nondeductible expenses include fees or contributions to the candidate's party, filing fees, legal fees (e.g., in a contested election) and similar expenses. Of course, if the candidate places contributions into a segregated fund (bank account) and pays these expenses from it, the fund becomes an exempt political organization.

Under Rev. Rul. 80-331,(21) a public officeholder is entitled to a deduction for his own funds used to pay ordinary and necessary expenses of performing the duties of the office. Sec. 7701(a)(26) provides that "trade or business" includes the performance of the functions of public office. Nonetheless, such expenses are deductible as miscellaneous itemized deductions subject to the Sec. 67 2% floor. In addition, at certain income levels, itemized deductions are subject to an additional 3% phaseout under Sec. 68. Officeholders thus receive far more beneficial treatment if a segregated fund is established and such expenses are paid from that account.

For Members of Congress, Sec. 162(a) provides that the Member's residence is deemed located in the political jurisdiction he represents in determining "away from home" deductions; such deductions are subject to an annual $3,000 limit.

State legislators receive somewhat similar treatment under Sec. 162(h) for expenses incurred while attending legislative sessions outside their districts. This provision and the regulations thereunder provide several specific rules and formulas to arrive at the allowable deduction.

Contributions to/for Political Activities

Sec. 162(e)(1)(B) denies a deduction for any amount paid in connection with, participation in or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office. In addition, most campaign finance laws prohibit political contributions by corporations or labor unions (both, though, can establish PACs) and charitable organizations; many impose limits on the amount individuals can give.

Sec. 2501(a)(5) provides that the transfer of money or other property to a political organization is exempt from gift tax.

Sec. 84 provides that the transfer of appreciated property to a political organization is a deemed sale of the property at its fair market value; the transferor recognizes gain measured by his adjusted basis. The political organization's basis for the property is the transferor's basis, increased by gain recognized by the transferor; the organization's holding period begins the day following acquisition. The transferor's gain is subject to recapture and the alternative minimum tax rules that normally apply to sales or exchanges of property.

Conclusion

The Federal tax law applying to the political process is complex. This article provided a basic outline of the applicable rules for practitioners encountering the tax problems of candidates, officeholders and political organizations, including those who may be associated with an exempt client. However, when confronted with a tax issue when serving these clients, there is no substitute for careful research of the appropriate authorities.

(1) See, e.g., IRS Letter Ruling (TAM) 9249002 (6/30/92).

(2) See Kindell and Henchey, "Election Year Issues," IRS Exempt Organizations CPE Technical Instruction Program Textbook (1995).

(3) See, e.g., IRS Letter Ruling (TAM) 9244003 (4/15/92) and IRS Letter Ruling 8001061 (1/12/79) (organizations formed to support initiatives or obtain signatures to place an initiative on a ballot). Sec. 501(c)(4), (5) or (6) organizations are generally permitted to engage in some legislative activities and can segregate funds to be used for political purposes; see the discussion below under "political Expenditures."

(4) 2 USC Section 431.

(5) An exception is made for an SSF created to influence the process of selecting candidates for the Federal judiciary; see Notice 88-76, 1988-2 CB 392 and Ann. 88-114, IRB 1988-37, 26.

(6) See Federal Election Guides available from the Federal Election Commission.

(7) See Kindell and Reilly, "Election Year Issues," IRS Exempt Organizations Continuing Professional Education Technical Instruction Program Handbook (1992).

(8) IRS Letter Ruling (TAM) 9409003 (2/26/93). In Rev. Rul. 80-103, 1980-1 CB 120, a political organization that sold reproduced artworks through an art gallery (that received a fee) over a period of several months was engaged in a trade or business. The TAM should not be relied on by like-minded candidates for public office. Clearly, absent the TAM's narrow facts, opportunities for abuse abound. Fringe or marginal candidates (or candidates already holding another public office) might form political organizations that serve as little more than a vehicle for their personal support from constituents whose favor they curried.

(9) See Washington Post Website, Money Talks, Moms, "It's an Incumbent's World" (8/10/98), at http://www.washingtonpost.com/wp-srv/politics/campaigns/ money/archive.htm; see also http://www.tray.com/FECInfo.

(10) David W. Carson, 641 F2d 864 (10th Cir., 1981)(47 AFTR2d 81-1619, 81-1 USTC [paragraph] 13,396), aff'g 71 TC 252 (1978).

(11) Edith R. Stern, 436 F2d 1327 (5th Cir., 1971)(27 AFTR2d 71-1647, 71-1 USTC [paragraph] 12,737).

(12) IRS Letter Ruling (TAM) 9320002 (1/14/93).

(13) A recent article provided an interesting list of the political expenditures recently made from political organization funds, including costs for Mardi Gras parties for every member of the Louisiana delegation, expensive automobile leases and the down payment on an office building for a "headquarters" for other Members of Congress; see Chen, "Congress' Big Fund-Raisers Get Down to Business--Literally," L.A. Times (8/10/98), Part A.

(14) See Cerny and Hill, "The Tax Treatment of Political Organizations," 71 Tax Notes 651 (4/29/96), p. 659; Cummings, Jr., "Lobbying and Political Expenditures," 613-2nd TM, p. A-37.

(15) See Chen, note 13.

(16) See S. Rep't No. 93-1357, 93d Cong., 2d Sess. (1974), p. 29.

(17) See, e.g., IRS Letter Ruling (TAM) 9516006 (1/10/95).

(18)Two excellent resources (both of which provide extensive coverage) on political organization taxation are Cummings, Jr., note 14, and Cerny and Hill, note 14.

(19) See Rev. Rul. 77-323, 1977-2 CB 18.

(20)Michael F. McDonald, 323 US 57 (1944)(34 AFTR 1404, 44-2 USTC [paragraph] 9516).

(21) Rev. Rul. 80-331, 1980-2 CB 29.

Kip Dellinger, CPA Dellinger & Dellinger, CPAs Los Angeles, CA