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IRS hears comments on lobbying legislation.

The Internal Revenue Service heard testimony on proposed regulations (section 1.162-29) regarding the definition of "influencing legislation" for purposes of complying with Internal Revenue Code section 162(e), which denies deductions for certain lobbying and political expenditures.

Several testifiers said proposed regulations did not provide adequate guidance for the allocation of costs for lobbying activities involving both lobbying and nonlobbying purposes. They recommended the time period in which nonlobbying monitoring or research activities could be reclassified as nondeductible lobbying activities be reduced. Some testifiers asked that allocations of potential lobbying activities be based on a primary purpose test, not the multiple purpose test in the proposed regulations, to make it easier to comply.

Harvey L. Coustan, senior tax partner of Ernst & Young in Chicago and then chairman of the American Institute of CPAs tax executive committee, urged the IRS to delay the effective date of the proposed regulations until they are in final form "because of the complexity of the new law and because there are important differences of opinion presented on these regulations."

Frederick H. Rothman, senior partner of Loeb & Troper in New York City and chairman of the AICPA tax-exempt organizations committee, said regulations should reduce uncertainty and limit the recordkeeping burden for nonlobbying activities that the IRS may, in the future, reclassify as lobbying activities. "As proposed," said Rothman, "these rules would permit the government broad leeway to extend an inquiry back in time, placing too much of a burden on the organizations that must keep these records." Similarly, Timothy Jenkins of the Coalition for Tax Equity in Washington, D.C., said, "Taxpayers would prefer a clear cutoff rather than have to deal with the unknown indefinitely."

Rothman also said the IRS did not provide adequate guidance regarding criteria used in allocating joint costs. The proposed regulations reject the incremental cost and number-of-purposes methods. The result, said Rothman, is the absence of guidance or examples of acceptable criteria, which creates unresolvable differences of opinion among tax practitioners, organizations and revenue agents. "We urge the IRS," said Rothman, "to identify the criteria for allocating costs between lobbying and nonlobbying activities when both purposes exist."

Rothman also recommended the IRS allow the option of reporting recharacterized expenses from past years as lobbying expenses on current-year returns because "organizations can't determine in advance which monitoring activities eventually will develop into actual lobbying communications." He proposed that attending a speech by a legislator when specific legislation is discussed not be considered lobbying unless it was proven that the purpose of attendance was to influence legislation. He also suggested there be reasonable limitations on the special imputation rule, which says the lobbying purpose and activities of one party will be imputed to a second party if the second party has provided services or facilities to a first party without receiving compensation. "A lobbying purpose should not be imputed," said Rothman, "unless there is a deliberate effort to circumvent the basic rule on nondeductibility of lobbying expenses."

Copies of the AICPA's written comments and prepared oral testimony are available on the AICPA 24-hour fax hotline by dialing (201) 938-3787 on a fax handset and following the prompts for a list of available documents.
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Publication:Journal of Accountancy
Date:Nov 1, 1994
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