New "clean money" tax question: Is it income?
In our discussion this morning about whether candidates in Portland City Council races need to pay payroll taxes on their campaign workers (and many of them should), a more fundamental tax question has popped up: Is the "clean money" that candidates receive under the city's "voter-owed elections" treated as taxable income for income tax purposes?
It's hard to see how it wouldn't be taxable income to whoever receives the check -- the candidate or some entity set up by the candidate. (Does the city pay the money to the candidates individually?) Gifts aren't income, but the payments from the city, subject to all manner of restrictions and regulations, hardly seem like transfers "out of detached and disinterested generosity," which is what they'd have to be to be considered gifts. Welfare is treated as a gift, but are "clean money" grants sufficiently analogous to public welfare payments to the poor? (O.k., let's leave Emilie Boyles out of this.)
Prizes and awards are taxable income. Payments for services rendered are income, obviously. Indeed, under the prevailing court cases in the area, every economic benefit that one receives is taxable as income, unless there's an exclusion under the tax code.
Of course, business expenses are deductible against business income, which means that candidates who spend all their "clean money" should break even for tax purposes -- at least so long as they can show that their candidacies have a profit motive and are not hobbies. Thus, the candidates have to declare to the IRS: "I was in this for the money." Could the IRS use against them their campaign speeches about how selfless they are?
In any event, reporting the "clean money" as income and deducting campaign expenses is another paperwork burden to add to the extensive reporting requirements that the candidate must obey under the state and city election rules. You wonder how any of them has any time to shake hands and kiss babies on the campaign trail.
| Posted at 1:35 PM | Permalink |
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Comments (23)
Sounds like a good law school exam question!
Posted by tb | April 7, 2008 1:45 PM
What about the $5 contributions? How are political contributions in general handled by the campaigns? Is the city money not a campaign contribution?
Same questions?
Different questions?
curiouser and curiouser...
Posted by cc | April 7, 2008 1:53 PM
How about this one: If the candidate is already a city employee (hint), is the city required to treat the grants as "wages," and withhold tax and pay payroll taxes on them?
Posted by Jack Bog | April 7, 2008 1:55 PM
I looked into all this when I ran in 2006. Campaign contributions are not considered taxable income by the IRS or the state. There is a form, 1120 POL, that a campaign must file if they have taxable income, but contributions aren't included.
If say a campaign rented a building and leased out a small portion of it to a tenant, that income would be taxable. If the campaign gets any income by providing services, that income is taxable. If the campaign is only receiving contributions, it is not taxable.
So, the question becomes, is the city's money a campaign contribution?
Posted by Dave Lister | April 7, 2008 1:56 PM
I think a tax analysis of the city grants might come out differently from that of contributions by individuals and private businesses.
Posted by Jack Bog | April 7, 2008 2:00 PM
That's not to say that I agree that all campaign contributions should be treated as tax-free gifts. Many of the "donors" are definitely looking for something in return. The Clintons' private legal defense fund is a good example of money that should have been taxed, but was not.
Posted by Jack Bog | April 7, 2008 2:02 PM
Campaign contributions are not considered taxable income by the IRS or the state.
What happens when they're used for this?
Posted by cc | April 7, 2008 2:12 PM
Heck cc... if I knew you could do that I would have stayed a whole lot drunker two years ago.
Posted by Dave Lister | April 7, 2008 2:17 PM
I'm no tax lawyer (anybody know one?) but I'm pretty sure that political committees are tax-exempt organizations.
Presumably, the clean money funds (just like campaign contributions) go only to political committees - rather than to the candidates directly.
Posted by Kari Chisholm | April 7, 2008 2:28 PM
Maybe that takes care of it, if that is in fact what's being done by the city and this particular crop of candidates.
Posted by Jack Bog | April 7, 2008 2:31 PM
My recollection is that the check was payable to our committee, not to me personally. Certainly it got deposited in the committee bank account. State law requires that.
Posted by Chris Smith | April 7, 2008 3:18 PM
Does the candidate get a check/debit card with access to the "committee" bank account?
Posted by Anthony | April 7, 2008 3:26 PM
I think the more pertinent question is whether the "assignment of income doctrine" applies. If you earn income, you have to pay tax on it, even if it's paid to someone else. If I tell my employer, "This month, pay my kid instead of me," and the employer does that, then I, not the kid, have the income for tax purposes. That's true even if I'm behind on my child support and legally I have to spend it on the kid. Since the city rules talk extensively about the candidate rather than the committee, maybe that triggers the same doctrine.
Posted by Jack Bog | April 7, 2008 3:36 PM
Kari,
If the campaign generates income outside of contributions it is most certainly taxable. That's what the 1120 POL form is for, as in my earlier example. I don't think candidate committees are specifically "tax exempt organizations", but rather that contributions to those committees are tax exempt. If they raise money by providing services, that income is taxable. If, for example, one of the candidates gave a particularly rousing speech at a rally, and sold video of that speech, the proceeds from the sale of the video would be taxable income to the committee and would need to be reported on an 1120 POL.
Posted by Dave Lister | April 7, 2008 3:42 PM
As if the Branam campaign didn't have enough to worry about with Busse-gate and the need to turn in their second round of answers to the auditor's office by close of business today:
http://www.portlandtribune.com/news/story.php?story_id=120760522205375400
You really couldn't make this stuff up.
Posted by You couldn't make this stuff up | April 7, 2008 3:55 PM
Noted here.
Posted by Jack Bog | April 7, 2008 3:57 PM
In the interest of full disclosure, Kari's firm built the websites for God, the IRS, and Blue Oregon.
Posted by Bill McDonald | April 7, 2008 4:48 PM
"Presumably, the clean money funds (just like campaign contributions) go only to political committees - rather than to the candidates directly."
So when the committees buy drinks and movies and food for the friends of, this is still tax-exempt?
Posted by Steve | April 7, 2008 5:05 PM
So, the question becomes, is the city's money a campaign contribution?
Actually, the question is: is it the "city's money", or do those funds rightfully belong to the taxpayers?
Perhaps a vote is in order.
Posted by max | April 7, 2008 5:23 PM
Kari's firm built the websites for God, the IRS, and Blue Oregon.
But he speaks only for himself.
Posted by Jack Bog | April 7, 2008 5:44 PM
This has been a question I have had all along. So let's ask, if you are implementing a new program, product, channel of sales, or whatever it may be, don't you ask yourself what the tax treatment will be?
Another brilliant example of Stenography and Blackmercury poisoning.
Posted by Ted | April 7, 2008 7:21 PM
Revenue Ruling 74-23:
"Political campaign contributions received in 1972 by a candidate, who maintained personal control of such funds and who expended them solely for campaign purposes, are not includible in gross income."
Posted by jud | April 8, 2008 7:49 AM
Richard Nixon's IRS, hard at work.
Posted by Jack Bog | April 9, 2008 12:32 AM