The Tax Cuts and Jobs Act eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government.
Prior Law
Through December 31, 2017
A taxpayer generally is allowed a deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business. However, section 162(e) denies a deduction for amounts paid or incurred in connection with:
- Influencing legislation
- Participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office
- Any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums
- Any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official
Expenses paid or incurred in connection with lobbying and political activities (such as research for, or preparation, planning, or coordination of, any previously described activity) also are not deductible.
Notwithstanding the above, a deduction is allowed for ordinary and necessary expenses incurred in connection with any legislation of any local council or similar governing body (“local legislation”). With respect to local legislation, the exception permits a deduction for amounts paid or incurred in carrying on any trade or business (1) in direct connection with appearances before, submission of statements to, or sending communications to the committees or individual members of such council or body with respect to legislation or proposed legislation of direct interest to the taxpayer, or (2) in direct connection with communication of information between the taxpayer and an organization of which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and such organization, and (3) that portion of the dues paid or incurred with respect to any organization of which the taxpayer is a member which is attributable to the expenses of the activities described in (1) or (2) carried on by such organization.
For taxpayers with $2,000 or less of in-house expenditures related to lobbying and political activities, a de minimis exception is provided that permits a deduction.
New Law
Effective for tax years beginning after December 31, 2017 and before January 1, 2026
The provision repeals the exception for amounts paid or incurred related to lobbying local councils or similar governing bodies, including Indian tribal governments. Thus, the general disallowance rules applicable to lobbying and political expenditures will apply to costs incurred related to such local legislation.
Commentary
The Committee believes that Federal tax law should not draw a distinction between the deductibility of local and non-local lobbying expenses, and that ending deductibility of local lobbying expenses eliminates a Federal tax subsidy for efforts to influence local legislation. Eliminating this distinction furthers its general goal of simplification of Federal tax law.
