26 CFR 56.4911-9 - Application of section 501(h) to affiliated groups of organizations.

§ 56.4911-9 Application of section 501(h) to affiliated groups of organizations.
(a) Scope. This section provides rules concerning the application of the limitations of section 501(h) to members of an affiliated group of organizations (as defined in § 56.4911-7(e)(1)).
(b) Determination required. For each taxable year of an affiliated group of organizations, the calculations described in § 1.501(h)-3(b)(1) (i) and (ii) must be made, based on the expenditures of the group. If, for a taxable year of an affiliated group, it is determined that the sum of the affiliated group's lobbying or grass roots expenditures for the group's base years exceeds 150 percent of the sum of the group's corresponding nontaxable amounts for the base years, then under section 501(h), each member organization that is an electing member organization (as defined in § 56.4911-7(e)(4)) at any time in the taxable year of the affiliated group shall be denied tax exemption beginning with its first taxable year beginning after the end of such taxable year of the affiliated group. Thereafter, exemption shall be denied unless (pursuant to § 1.501(h)-3(d)) the organization reapplies and is recognized as exempt as an organization described in section 501(c)(3). For purposes of this section, the term base years generally means the taxable year of the affiliated group for which a determination is made and the group's three preceding taxable years. Base years, however, do not include any year preceding the first year in which at least one member of the group was treated as described in section 501(c)(3).
(c) Member organizations that are not electing organizations. An organization that is a member of an affiliated group of organizations but that is not an electing member organization remains subject to the “substantial part test” described in section 501(c)(3) with respect to its activities involving attempts to influence legislation.
(d) Filing of information relating to affiliated group of organizations—
(1) Scope. The filing requirements described in this paragraph (d) apply to each member of an affiliated group or organizations for the taxable year of the member with which, or within which, ends the taxable year of the affiliated group.
(2) In general. Each member of an affiliated group of organizations shall provide to every other member of the group, before the first day of the second month following the close of the affiliated group's taxable year, its name, identification number, and the information required under § 1.6033-2(a)(2)(ii)(k) for its expenditures during the group's taxable year and for prior taxable years of the group that are base years under paragraph (b). For groups electing under § 56.4911-7(e)(5) to have each member file information with respect to the group based on its taxable year, each member shall provide the information required by the preceding sentence by treating each taxable year of any member of the group as a taxable year for the group.
(3) Additional information required. In addition to the information required by § 1.6033-2(a)(2)(ii)(k), each member of an affiliated group of organizations must provide on its annual return the group's taxable year and, if the election under § 56.4911-7(e)(5) is made, the name, identification number, and taxable year identifying the return with which its consent to the election was filed.
(4) Information required of electing member organization. In addition to the information required by § 1.6033-2(a)(2)(ii)(k) and paragraph (d)(3) of this section, each electing member organization (as defined in § 56.4911-7(e)(4)) must provide on its annual return—
(i) The name and identification number of each member of the group, and
(ii) The appropriate calculation described in § 56.4911-8(d), if the organization is an electing member organization liable for all or any portion of the excise tax imposed by section 4911(a).
(e) Example. The provisions of this section may be illustrated by the following example:
Example.
(1) M, N, and O are affiliated organizations under § 56.4911-7(a). M's taxable year ends November 30, N's, January 31, and O's, June 30. On June 20, 1979, O files Form 5768 to elect to be governed by the expenditure test. M files Form 5768 in December of 1979. Neither M nor O revokes the election, and no organization makes the election provided for in § 56.4911-7(e)(5). M, N, and O constitute an affiliated group of organizations, the first taxable year of which is the calendar year 1979.
(2) Because the organizations did not elect under § 56.4911-7(e)(5) to use their own taxable years as the group's taxable years, the expenditures of the affiliated group for its first taxable year are the expenditures made by M, N, and O during calendar year 1979, and are reported by M, N, and O on their returns for their taxable years within which falls December 31, 1979. M reports the expenditures of the affiliated group for 1979 on its return for its taxable year ending November 30, 1980; and O, on its return for its taxable year ending June 30, 1980. N is not an electing member (as defined in § 56.4911-7(e)(4)). Accordingly, under paragraph (d)(3)(i) of this section, it reports the name and identification number of each member of the group.
(3) The following tables summarize the expenditures by the affiliated group for the calendar years indicated. None of the group's lobbying expenditures for its taxable years 1979 through 1982 were grass roots expenditures.
Table I—Group's Expenditures
Year Exempt purpose expenditures (EPE) Calculation Lobbying nontaxable amount (LNTA) Lobbying expenditures (LE)
1979 $400,000 (20%×$400,000=) $80,000 $100,000
1980 300,000 (20%×$300,000=) 60,000 100,000
1981 600,000 (20%×$500,000 15%×$100,000=) 115,000 120,000
1982 500,000 (20%×$500,000=) 100,000 220,000
Total 1,800,000 355,000 540,000
Table II—Expenditures of M and O
Exempt purpose expenditures Lobbying nontaxable amount Lobbying expenditures M plus O
M O M O M O
1979 125,000 100,000 25,000 20,000 60,000 20,000 80,000
1980 100,000 50,000 20,000 10,000 40,000 40,000 80,000
1981 250,000 100,000 50,000 20,000 60,000 40,000 100,000
1982 200,000 100,000 40,000 20,000 160,000 40,000 200,000
(4) For the affiliated group's taxable years 1979, 1980, 1981, and 1982, the group has excess lobbying expenditures. Under section 4911(f)(1)(B) and § 56.4911-8(d), M and O, as electing member organizations, are liable for a portion of the 25 percent excise tax imposed on the group's excess lobbying expenditures, based on their respective shares of the lobbying expenditures of all electing member organizations. For 1979, the excess lobbying expenditures are $20,000 ($100,000−$80,000). The tax is 25% of $20,000 or $5,000; M must pay $3,750 (($60,000/$80,000) × $5,000 = $3,750), and O must pay $1,250 (($20,000/$80,000) × $5,000 = $1,250). For 1980, the tax is $10,000 and each must pay $5,000. For 1981, the tax is $1,250, of which M must pay $750 and O must pay $500. For 1982, the tax is $30,000. M must pay $24,000 and O must pay $6,000. M and O are not liable for any separate 4911 excise tax that otherwise would have been imposed on their separate excess lobbying expenditures.
(5) Under § 56.4911-9(b), the group must make the calculation described in § 1.501(h)-3(b)(1) for each of the group's taxable years 1979 through 1982. The following illustrates only the required calculation for the group's taxable year 1982. For its taxable year 1982, the group must determine whether it normally has made lobbying expenditures in excess of its lobbying ceiling amount. The determination takes into account the group's expenditures in base years 1979 through 1982. The sum of the group's lobbying expenditures for the base years ($540,000) exceeds 150% of the sum of the group's lobbying nontaxable amounts for the base years (150% × $355,000 = $532,500). Therefore, for its taxable year 1982, the group normally has made lobbying expenditures in excess of its lobbying ceiling amount. Under section 501(h) and § 56.4911-9(b), M is not exempt from tax under section 501(a) as an organization described in section 501(c)(3) for its taxable year beginning December 1, 1983, and O is not exempt for its year beginning July 1, 1983. Whether N's lobbying expenditures disqualify it for tax exemption at any time after January 1, 1979, is determined under the substantial part test of section 501(c)(3).
(f) Cross reference. For other provisions relating to members of an affiliated group or organizations, see §§ 56.4911-2(c)(4)(ii), 56.4911-4(c)(2), 56.4911-4(e), and 56.4911-5(f)(3).

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