Magazine article American Banker

IRS Writes Definition of Lobbying That Spells Higher Taxes for Banks

Magazine article American Banker

IRS Writes Definition of Lobbying That Spells Higher Taxes for Banks

Article excerpt

WASHINGTON -- The Internal Revenue Service has finished wrestling with a Congressional mandate to end deductions for lobbying expenses, and banks and other businesses will find their tax bills increasing as a result.

And for anyone who thinks lobbying consists only of padding down the marble halls of Congress in tasseled leather loafers, or wining and dining members at expensive restaurants, the IRS has some news:

"Section 162(e)(4)(A) defines influencing legislation as 'any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation,'" the IRS said in a notice of proposed rulemaking issued earlier this month.

Washington banking trade groups are still considering the IRS' proposed definition of lobbying. But the bottom line is clear: Banks and thrifis that belong to trade groups that lobby Congress or state legislatures will have to pay taxes on a portion of their dues unless the trade group itself sends the IRS a check.

Room for Interpretation

"Congress said lobbying could no longer be deductible on your tax return, but they didn't provide a lot of guidance" on what lobbying is, said Jim O'Connor, Savings and Community Bankers of America's tax counsel. "That's what the proposed IRS rules attempt, but there is still some room for interpretation."

If Mr. O'Connor. for instance. has a conversation with a Congressional staffer, "there has to be some specific legislation and I have to be working on it" for it to count as lobbying, and therefore be subject to taxes. "If it is purely social, that is not lobbying," under the proposed IRS rule, he said.

Through the end of last year, banks and other businesses could deduct the full cost of their lobbying efforts. …

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