Our Association is classified as a tax-exempt organization (trade association) under IRS Code (IRC) Section 501(c)(6). In addition to providing group health and dental insurance and other goods and services to our dues-paying members, CDTOA actively monitors the executive, legislative, and judicial agendas at all levels (city, state, and national) as they relate to our industry and our interests. When we identify an issue of such importance that we feel a more direct role is required on our part in the best interest of our membership, and the industry as a whole, CDTOA will act accordingly. This means that CDTOA will, at times, take an active role in Sacramento or at the local level through the channels available to us in order to support the industry's agenda. And we've developed a decent track record along the way.
    By now you're asking, "How does all that affect my business and/or personal income tax return?" I will soon explain.

    Certain political activities and expenses incurred are allowable for 501(c)(6) tax-exempt organizations. However, Under the Clinton administration, in the Omnibus Budget Reconciliation Act of 1993 (OBRA '93), Congress declared that taxpayers no longer would be allowed to deduct for federal income tax purposes the expenses that taxpayers incur when they engage in lobbying. Tax deductibility also is disallowed by this law for a portion of membership dues paid to trade 501(c)(6), professional and similar membership associations if the associations engage in more than minimal ($2,000 or Less) amount of lobbying.
    The member dues that you pay to the Association are ordinarily fully deductible on your tax return as a business deduction. However, since CDTOA periodically engages in political and lobbying activities, it is the IRS' position that part of the dues you pay are utilized by the Association for these activities. Therefore, through the dues you pay, you are indirectly paying for a lobbying activity.

    IRC Section 6033 (e) and IRS Revenue Procedure 98-19, requires 501(c)(6) organizations that "pays or incurs nondeductible lobbying expenditures to notify its members of a reasonable estimate of the portion of dues that are allocable to those expenditures."

    So that's what that paragraph is all about; disclosing to members the percentage of dues paid that is to be excluded as a deduction from your tax returns. We have reasonably estimated the percentage to be 4.7% of all dues paid. For example, if you paid $300 in 2003 in members dues, subtract 4.7% from that total to arrive at your deductible amount: $300 x 4.7% (.047) = $14.10. $300 less $14.10 equals your deductible members dues for tax year 2004; $288.90. So for most all members, we're not talking big amounts.

    There is a flip side to this whole thing. CDTOA could opt not to provide a disclosure and incur directly what is called a Section 6033(e) Proxy Tax on all lobbying and political expenditures. It's a flat 35% tax on the expenses incurred. However, the Association's liability could be substantial. Members would get to deduct their dues in full, but as you can see from the example in the preceding paragraph, we are talking about an almost immaterial benefit to the member. We hope most would agree making the disclosure to all members, thus relieving the Association from a large tax bite, is the better option.

Rev: 9/07