15, 1974. Mpaid on or before Abeding the Federal

(1) that the organization is not exempt from Federal income tax;

(2) a return, Form 1120, U.S. Cor. poration Income Tax Return, is required to be filed by the organization as an association taxable as a corporation;

(3) the due date for the filing of the return is March 15, (subject to the granting of appropriate extensions of time) following the close of the taxable year (calendar year);

(4) income of the organization includible in gross income to be reported in its return is interest, dividends, and the net gains from the sale of securities (computed in accordance with the applicable provisions of the Code such as those relating to basis, holding period and amount realized);

(5) campaign contributions are not includible in the gross income of the organizations;

(6) expenditures for campaign purposes are not deductible;

(7) expenses directly attributable to activities undertaken for the production of the interest and dividend income are deductible. Expenses attributable to the sale of the securities are to be taken into account in determining the gain or loss realized on the sale of the securities. Expenses incurred for fund-raising activities are part of the costs of obtaining political contributions and are not deductible in determining taxable income.

However, under the provisions of section 7805(b) of the Code, this Revenue Kuling shall not be applied so as to:

(1) require the filing by the organization of a Federal income tax return for 1971 or prior years,

(2) require the inclusion in gross income of the gain realized on any sale or exchange of the securities made by the organization before October 3, 1972, and,

(3) assert the delinquency penalty or the failure to pay penalty under section 6651 of the Code for 1972 pro

vided the return for such year is filed ing the Federal income tax conse-
and the tax paid on or before April quences of a disposition of political
15, 1974. Moreover, in view of the campaign contributions under the cir-
circumstances, extensions of time for cumstances described below.
not more than six months will be During 1972 a committee was or-
granted for the filing of returns and

ganized and operated for the purpose payment of tax for 1973 under sec

of influencing the election of B to a tio tions 6081 and 6161 of the Code.

Federal public office. The committee Having in mind the possibility of received cash political campaign conhardship which might result from a tributions from numerous contributors requirement of immediate payment in in varying amounts totaling 800x dolfull, the Internal Revenue Service will, lars. Following the conclusion of the in hardship cases, enter into appropri- political campaign and the payment ate arrangements for deferred payment by the committee of the expenditures of tax.

incurred to further B's candidacy, The conclusions of this Revenue

there remained an unexpended balRuling are equally applicable to in ance of political campaign contribucorporated organizations. Further, in tions in the amount of 100x dollars. order to promote administrative effi- Because there were numerous contribciency in the processing of returns, an

utors and varying amounts contributed entity which files a return in accord

by each, it was impractical to make ance with this Revenue Ruling, should

refunds to each of the contributors. attach a statement to the face of such

In 1973, in lieu of making refunds return stating that the return is filed

to the contributors, B directed the in accordance with Rev. Rul. 74-21.

committee to transfer the unexpended

balance of the political campaign con26 CFR 1.61-1: Gross income.

tributions to the United States GovT Also Section 170; 1.170A-1.)

ernment. The committee did so and Political campaign funds; unex- the cash gift of 100x dollars was acpended portion transferred to U.S. cepted by the Department of the Government. The transfer to the Treasury. U.S. Government of unexpended Rev. Rul. 71-449, 1971-2 C.B. 77, political funds impractical to be re- states the general rule that political turned to the contributors, by a funds are not taxable to the political campaign committee organized and candidate by or for whom they are operated to influence the election received if they are used for the exof an individual to a Federal public penses of a political campaign or some office, is an expenditure to carry similar purpose. However, political out the purpose of the committee funds diverted from the channel of and not a diversion for the personal campaign activity and used by the benefit of the candidate or other candidate for any personal purpose are person. Such transfer does not give includible in the candidate's gross inrise to gross income to the candi- come for the year of the diversion. Undate date, committee, or any of its committee or any of its expended balances of

expended balances of political cammembers; is not subject to the gift paign contributions that are repaid to tax; and does not entitle the candi- contributors are neither expended nor date, committee or any of its mem- diverted and are not includible in the bers, or any contributor to a chari- candidate's gross income. table contribution deduction. Rev. Since it was impractical to return Rul. 71-449 clarified.

the unexpended amounts to the conRev. Rul. 74-22

tributors, the transfer of such amounts

to the United States Government for Advice has been requested concern- general purposes is considered to be an

expenditure to carry out the purpose Rev. Rul. 74-23
of the committee. Such a transfer is
not a diversion for the personal bene-

Advice has been requested concernfit of the candidate or other person

ing the Federal income tax treatment within the meaning of Rev. Rul. 71

of funds received and disbursed by a 449.

political candidate under the circum

stances described below. Accordingly, under the circum

During 1972, an individual who stances presented in the instant case, the transfer of the unexpended politi

was a candidate for an elective public

office received political contributions cal campaign contributions to the

for use in his campaign. The candi

he candic United States Government does not

date maintained a complete and sepagive rise to gross income to B, B's rate set of books and records, includ. campaign committee, or any member

ing detailed substantiating records of of B's campaign committee.

all receipts and disbursements of politiFurther, since the transfer in the in

cal campaign funds, to insure that his stant case is considered to be an ex

political campaign funds were sepa. penditure to carry out the purpose of

rate and distinct from his private the committee, the transfer is not sub- funds. The political campaign funds at ject to the gift tax, and neither B, the all times were under the personal and committee, any member of the com- exclusive control of the candidate. mittee, nor any contributor is entitled

The candidate received political to a charitable contribution deduction

contributions consisting of cash and under section 170 of the Internal Rev.

ev securities from individuals solely for enue Code of 1954.

use in his campaign. In addition to Rev. Rul. 71-449 is hereby clarified.

such contributions, the candidate re

ceived income from interest earned on 26 CFR 1.61-1: Gross income.

cash contributions deposited in a sav(Also Sections 162, 7805; 1.162-20, ings account in a commercial bank 301.7805-1.)

and cash dividends paid on the con Political campaign funds; candi. tributed securities. Gain on the sale date controlled. Political campaign of the contributed securities was reals contributions received in 1972 by a ized before and after October 3, 1972. candidate, who maintained per. The interest, cash dividends, and sonal control of such funds and gains on sales of the securities were who expended them solely for cam received and accounted for by the paign purposes, are not includible candidate as political campaign funds in gross income. However, interest, in accordance with the above-described dividends on contributed secu- procedure. rities, and net gains on the sales of The candidate expended his politicontributed securities are includi- cal campaign funds for radio and teleble in gross income and must be vision spot announcements and billreported on Form 1041. Under the board advertising in connection with provisions of section 7805(b) of the his campaign. The candidate also exCode, the gain from contributed pended funds for the production of securities sold before October 3, interest and dividend income and for 1972 is not required to be included commissions paid to brokerage firms on in gross income. No penalty will be sales of contributed securities. assessed for 1972 provided the re. No part of the candidate's political turn for that year is filed and the campaign contributions or the earntax paid on or before April 15, 1974 ings thereon, including gains realized and extensions of time may be on sales of contributed securities, were granted for filing the return and used by the candidate for other than payment of tax for 1973.

campaign purposes.

The questions raised are:

(1) What part of the candidate's political campaign funds are taxable for Federal income tax purposes?

(2) What type of return should the candidate file to report income from political campaign funds and when is such a return due?

(3) What expenditures are deductible in computing taxable income?

Section 61 of the Internal Revenue Code of 1954 provides that gross income means all income from whatever source derived, except as otherwise provided by law.

Rev. Rul. 71-449, 1971-2 C.B. 77, states that political funds are not taxable to a political candidate by or for whom they are collected if they are used for expenses of a political campaign or some similar purpose. However, any amount diverted from the channel of campaign activity and used by a political candidate for any personal purpose is income taxable to such candidate for the year in which the funds are so diverted.

Section 6012(a)(1)(A) of the Code provides, with certain limitations not here pertinent, for the filing of returns with respect to income taxes under subtitle A of the Code. Extensions of time for filing returns are provided by Section 6081 of the Code and extensions of time for paying tax by Section 6161 of the Code.

Section 162(e) (2) of the Code and section 1.162-20 of the Income Tax Regulations provide, in relevant part, that all expenditures for political campaign purposes (including the support of or opposition to any candidate for public office), or for carrying on propaganda (including advertising) relating to any of the foregoing purposes, are not deductible from gross income. See also McDonald v. Commissioner, 323 U.S. 57 (1944), 1944 C.B. 94.

Accordingly, it is held that because none of the political campaign contributions were used for other than campaign purposes, the political campaign contributions of cash and securities donated to the candidate solely for filed and the tax paid on or before surviving dependents are includible in use in his campaign for elective public April 15, 1974. Moreover, in view of the gross incomes of the recipients office are not includible in gross in the circumstances, extensions of time for Federal income tax purposes. come. It is further held that the inter- for not more than six months will be

The New York State Crime Vicest earned on bank deposits, the cash granted for the filing of returns and

ing of returns and tims Compensation Board was created dividends received on contributed se- payment of tax for 1973 under sec

pursuant to Article 22 of the Execucurities, and the gains realized on sales tions 6081 and 6161 of the Code.

tive Law of the State of New York of contributed securities, net of any Having in mind the possibility of

to provide financial assistance to viclosses on such sales, are includible in hardship which might result from a

tims of crime or their surviving degross income. The candidate must re- requirement of immediate payment in

pendents. McKinney's Consolidated port such income on a U.S. Fiduciary full, the Internal Revenue Service will,

Laws of New York Annotated, Book Income Tax Return, Form 1041, and in hardship cases, enter into appro

18, Executive Law, Sections 620-635. pay any tax (plus interest, if any) priate arrangements for deferred payshown by such return to be payable. ment of tax.

Persons eligible for such assistance The net gain realized by the candi- If a return for 1972 has previously

are: (1) a victim of a crime; (2) a date on sales of contributed securities been filed, an amended return should

surviving spouse, parent, or child of is to be computed in accordance with be filed under this Revenue Ruling to

a victim of a crime who died as a the applicable provisions of the Code include gains realized on the sale on

direct result of such crime; and (3) relating to basis, holding period, and or after October 3, 1972, of appreci

any other person dependent for his amount realized. Expenses incurred ated securities. Further, in order to principal support upon a victim of a upon the sales of contributed securi. promote administrative efficiency in crime who dies as a direct result of ties are to be taken into account in the processing of returns, a return or

such crime. Awards are made to such determining gain realized on such amended return filed in accordance

persons by the Board for their "outsales. with this Revenue Ruling should be

of-pocket” expenses and loss of earnAllowable deductions in computing accompanied by a statement that such ings or support resulting from the taxable income are limited to the $100 return is filed in accordance with Rev.

injury. exemption and expenses directly at- Rul. 74-23.

The statute provides that the term tributable to the income reported on

“crime” means an act committed in Form 1041. Thus, the candidate may

New York State which would, if comclaim a deduction for expenses directly

26 CFR 1.61-1: Gross income.
Talso Section 213; 1.213-1.)

mitted by a mentally competent crimiattributable to the production of in

nally responsible adult, who has no terest and dividend income. However,

Payments by Crime Victims Com

legal exemption or defense, constitute expenditures for political campaign

pensation Board. Awards made by
pe

a crime as defined in and proscribed purposes are not deductible and the the Crime Victims Compensation

by the penal law, provided, however, candidate may not claim a deduction Board of the State of New York to

that no act involving the operation of for expenditures for radio, television. victims of crime or to their surviv

a motor vehicle which results in injury and billboard advertising in connec: ing spouses or dependents are not

shall constitute a crime for the purtion with his campaign. includible in the gross income of

poses of this article unless the injuries The due date for the filing of the the recipients. Medical expenses

were intentionally inflicted through Form 1041 is the fifteenth day of the incurred by a recipient that are

the use of a vehicle. fourth month following the close of compensated for by such award

The term “victim” is defined as a each taxable year (calendar year) dur are not deductible; further, an ing which the candidate holds politi. award for medical expenses pre. person who suffers personal physical cal campaign funds.

viously deducted must be included injury as a direct result of a crime. Pursuant to the authority contained in income in the taxable year of No award is made unless the claimin section 7805(b) of the Code, gain receipt to the extent that the ex- ant has incurred a minimum “out-ofrealized from contributed securities penses resulted in a tax benefit in pocket" loss of one hundred dollars or sold before October 3, 1972, is not re- the prior taxable year.

has lost at least two continuous weeks' quired to be included in gross in Rey. Rul. 74-74

earnings or support. Out-of-pocket come reported on Form 1041. Further,

loss is defined as unreimbursed and the delinquency penalty or the failure Advice has been requested whether unreimbursable expenses or indebtedto pay penalty under section 6651 of awards made by the Crime Victims ness reasonably incurred for medical the Code will not be asserted for 1972 Compensation Board of the State of care or other services necessary as a provided the return for such year is New York to victims of crime or their result of the injury.

An award for loss of earnings or compensated for by insurance or employee's gross income; I.T. 3154 support is to be in an amount equal otherwise, which are paid during the superseded. to the actual loss sustained. However, taxable year for medical care of the

Rev. Rul. 74-75 such award is not to exceed one taxpayer, his spouse, and dependents hundred dollars for each week of lost subject to certain limitations.

Advice has been requested as to the earnings or support or an aggregate Accordingly, when an individual re- Federal income and employment tax of fifteen thousand dollars.

ceives an award from the Crime Vic- consequences when, under the circumAny award is to be reduced by tims Compensation Board, any medi- stances described below, an employer payments received from other sources cal expenses incurred by him that are incurs liability for payment of the with respect to the injury. An award compensated for by such award are employee tax imposed by section 3101 is to be denied to any claimant who not deductible under section 213 of of the Federal Insurance Contribuwould not suffer serious financial the Code.

tions Act (chapter 21, subtitle C, Inhardship as a result of the "out-of

ut-Of

If a taxpaver deducted a medical

If a taxpayer deducted a medical ternal Revenue Code of 1954) withpocket” expenses incurred or loss of

expense, and in a subsequent taxable out deducting the amount of the tax earnings or support. In such determi

year receives an award from the from the compensation of the emnation all the financial resources of Crime Victims Compensation Board ployee. the claimant are to be considered.

to compensate him for such medical At the beginning of the calendar A claimant may apply to the Board

expense, he does not recompute the

expense. he does not recompute the year 1972, X Company hired A to for review by the full Board of one tax for the taxable year in which the perform certain services for it as an Board member's determination of a deduction was taken, but includes an employee at a stated remuneration of claim. The State Attorney General or amount of the award equal to the $100 per week. In addition, X agreed Comptroller may commence a pro- amount of the deduction in his gross to pay A's employee tax imposed by ceeding in the Appellate Division of income for the taxable year in which section 3101 of the Federal Insurance the Supreme Court of New York, received, subject to the provisions of Contributions Act without deducting Third Department, to review the section 1.213-1(g) of the Income Tax it from A's pay. For the year 1972, X Board's final decision if in his judg- Regulations relating to reimburse paid A $5,000 and, in addition, inment the award is improper or exces- ments for expenses paid in prior years.

curred liability for the taxes imposed sive. There is no other judicial review

on A by section 3101 of the Act totalwith respect to a claim.

ling $260 without deducting those Section 61(a) (1) of the Internal 26 CFR 1.61-1: Gross income.

taxes from A's remuneration. (During (Also Sections 162, 3101, 3102, 3121, Revenue Code of 1954 provides that, 3401 60516413: 1162.

7 31 31013 1972 the total employee tax imposed except as otherwise provided, gross 31.3102-1, 31.3121 (a)(1)-1, 31.3401 (a). by section 3101 was 5.2 percent of income means all income from what- 1, 31.6051-1, 31.6413(C)-1.)

"wages.") ever source derived. However, dis- Payment of employee FICA tax For purposes of section 61 of the bursements from a general welfare by employer without deduction Code, relating to the definition of fund in the interest of the general from wages. Payment by an em- gross income, A's gross income for public which are not made for serv- ployer of employee FICA tax with 1972 from the employment described, ices rendered are not includible in out deduction from the employee's under the specific agreement and the gross income. See Rev. Rul. 63-136, wages under an agreement be stated facts, included both his re1963-2 C.B. 19, and rulings cited tween them constitutes additional muneration of $5,000 and the amount therein.

compensation to the employee of employee tax due with respect to The awards made under Article 22 under section 61 of the Code and this remuneration, or a total of $5,of the Executive Law of the State of is deductible by the employer as 260. Old Colony Trust Co. v. ComNew York by the Crime Victims Com- a business expense under section missioner, 279 U.S. 716 (1929), VIIIpensation Board to victims of crime 162. However, if an employer pays 2 C.B. 222 (1929). or their surviving dependents are in the employee's FICA tax but inad The employee tax liability incurred the nature of welfare payments. Ac- vertently fails to deduct it from by the employer was also "wages" for cordingly, such awards are not in the employee's remuneration, and purposes of income tax withholding. cludible in the gross incomes of the upon discovery of the error the Section 31.3401(a)-1(b) (6) of the recipients for Federal income tax pur- employer is reimbursed by the em- Employment Tax Regulations. Howposes.

ployee or the tax is deducted from ever, section 3121(a) (6) of the FedSection 213 of the Code allows as subsequent remuneration paid to eral Insurance Contributions Act proa deduction those amounts not him, the tax is not includible in the vides that the term "wages" for pur

menice derivedcome from what is

pro

poses of that Act, does not include amount of the employee tax if, upon contribute funds for necessary support “the payment by an employer (with discovery of the mistake, the employ- and maintenance of the adoptive out deduction from the remuneration ee reimbursed the employer or the child. The program is administered of the employee)—(A) of the tax employer deducted such employee tax by the State Department of Social imposed upon an employee under sec- from subsequent remuneration paid Services pursuant to its Rule 500. tion 3101 * * *.” Therefore, for pur- to the employee. In addition, for pur- Rule 500 provides, in effect, that payposes of the Federal Insurance Con- poses of the special refund of any ments may be made for any child in tributions Act, no additional tax was excess tax under section 6413(c)(1) the local department's foster care proapplicable to the employee tax lia of the Code, the situation would be gram upon the placement of that bility incurred by the employer for the treated as though the employer had child in an adoptive home that meets employee.

properly deducted the employee tax all other eligibility tests as an adopIn reporting the facts with respect from the employee's remuneration tive home except for the ability to to employee A and in presenting him I.T. 3154, 1938-1 C.B. 113, is su provide financially for an adoptive with evidence to present the facts to perseded.

child. The amount and duration of the Internal Revenue Service, the em

the payments are based upon a writployer properly indicated on the Form

ten agreement between the adoptive W-2, Wage and Tax Statement, pre- 26 CFR 1.61-1: Gross income.

parents and the local Department of pared with respect to A, that the (Also Section 152, 1.152-1.)

Social Services. The payments are dis"wages" paid subject to income tax State payments to adoptive par

bursed from foster care funds at a withholding in 1972 were $5,260, and ents. Maryland State Department maximum rate of three-fourths of the that the employee tax withheld for of Social Services payments to foster care rate for board and clothing. purposes of the Federal Insurance adoptive parents who use the pay. The adoption payments made by Contributions Act was $260. Assum- ments for support and maintenance the Maryland State Department of ing that it was otherwise appropriate, of their adoptive child are not in- Social Services under these circumemployer X properly deducted $5,260 cludible in income but must be stances are disbursements from a genas ordinary and necessary business ex- considered in determining who fur. eral welfare fund in furtherance of penses under section 162 of the Code. nished the child's principal support the social welfare objectives of the

If the employee tax liability in- for purposes of claiming the de State and are furnished to assist the curred for A were part of a total pendency exemption.

adoptive parents in the care of the section 3101 tax liability incurred on Rev. Rul. 74-153

adopted child his behalf for the calendar year, by

Accordingly, the adoption payments

Advice has been requested whether received by the adoptive parents in amount in excess of the annual limita- adoptive parents are required to in the instant case are not includible in tion on employee's wages subject to clude in gross income for Federal their gross income for Federal income

surance Contributions income tax purposes the adoption tax purposes. However, such amounts Act taxes under section 3121(a)(1) payments received by them from the

are to be taken into account in the of the Act ($9,000 in 1972), A would State of Maryland under the circum- determination of who furnished the be entitled to a special refund of the stances described below.

principal support of the adopted child excess tax paid, under section 6413 The taxpayers receive monthly pay

for purposes of claiming the child's (c)(1) of the Code. That section in- ments for necessary support and main

dependency exemption. See Rev. Rul. dicates that the refund is conditioned

57-344, 1957-2 C.B. 112, which holds tenance of their adopted child under upon the tax being deducted from a program administered by the Mary

similarly with respect to payments the employee's wages. Since the tax land State Department of Social Sery

made under the Social Security Act liability incurred on behalf of A in ices and use the payments for the

to the child of a deceased individual this situation was included in his care of the adopted child.

in the care of the surviving parent, or gross income, it was, in effect, de

other person having custody of the

Section 67 of Article 16 of the whila ducted from his remuneration. Annotated Code of Maryland, as re

In the case of an employer who enacted with amendments effective paid the Federal Insurance Contribu- July 1, 1969, provides that a court, in 26 CFR 1.61-1: Gross income. tions Act employee tax, but inadver. passing on a petition for adoption,

(Also Section 1012, 1.1012-1.) tently failed to deduct it from the em- shall give due consideration to any Replacement housing payments. ployee's remuneration, the employee's assurance by the State Department of Replacement housing payments gross income would not include the Social Services that it will provide or received by individuals under the

Advice

ount in excess of themployers, on an

)(1) *, paid, vecial refu