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Local Political Spending - Section 527 Reporting

Download PDFThe following covers the establishment, use and reporting of separate segregated political accounts by Local unions. 

Establishing, Funding and Using a Separate Account for Political Spending

A Local union that makes political contributions and other election-related expenditures directed to non-members of the union ordinarily should set up a separate segregated non-federal political account in order to avoid potentially significant tax liability to the Local under Section 527 of the Internal Revenue Code. This separate account is often called a "Section 527" account.

The only exception might be a Local union that earns little or no net investment income from interest, rents, dividends, royalties and capital gains during the year. For that Local, there would be little or no potential tax.  But, it is probably still advisable to establish a separate political account because most jurisdictions require registration and reporting of accounts that make political contributions and expenditures. It is almost always better to register and report the transactions of a separate political account than to register and report those of the Local union itself.

In order to establish its Section 527 account, the Local union must obtain an Employer Identification Number (EIN) from the Internal Revenue Service, so that the IRS treats the account as a distinct organization from the union itself for tax purposes.  It is easy to obtain an EIN, including online within a few minutes.  See,,id=102767,00.html.

A Local should fund its Section 527 account by direct deposits of incoming dues receipts, without first depositing them in an interest-bearing account of the Local. Or, the Local should make transfers to the account on the same day the Local received at least an equal amount of dues income.  The Local should not supplement the funding of its Section 527 account with other transfers from its general fund accounts.

A Local’s Section 527 account should be devoted exclusively to the following: (1) Contributions to candidates for state and local office, political party non-federal accounts and other non-federal political committees; (2) Partisan communications to the general public about non-federal candidates and political parties; and (3) Partisan voter registration and get-out-the-vote activities among the general public.

All contributions and general public spending must comply with state law concerning sources, amounts, registration and reporting. Many states either prohibit or limit particular uses of union dues funded Section 527 accounts.  State law can prohibit, limit or otherwise restrict contributions.  However, no state can restrict the message content of a political account’s public communications about candidates and elections. 

The Section 527 account must not be used to contribute to federal candidates, political party federal accounts, or other federal political committees.

The Section 527 account can be used to finance general public communications that explicitly advocate the election or defeat of particular federal candidates.  However, doing so could trigger special reports with the Federal Election Commission (FEC), and doing too much of this, in relation to the account’s other spending, could trigger a requirement that the account register with the FEC as a type of federal PAC that makes expenditures but no federal contributions what is commonly called a “Super PAC”.

This account should not be used for spending on ballot measures (contributions to ballot measure committees or public advocacy about ballot measures), due to potentially adverse federal tax consequences. Instead, the Local’s general fund should be used for ballot measure activity. State registration and reporting requirements may apply to this type of spending.

Also, the Section 527 account may be used for direct communications with the Local’s own members and their household family members concerning federal, state and local candidates, political parties and other partisan matters. However, it is unnecessary to use the account for these communications, and it could trigger, to the IRS or a state, reporting of spending that it wouldn’t have to report if it used its regular general fund account.

The Local can and should use its regular general fund account for these internal membership communications.  Also, the FEC requires periodic reports of regular general fund spending on some explicit electoral advocacy communications to members about federal candidates during election years.  This requirement applies only to communications that primarily contain that kind of message and only after a Local’s direct (not overhead) costs for these communications exceed $2,000 in connection with either the primary or general election overall.

In contrast, few states require reporting about membership communications even when paid by a regular general fund account.

Reporting by Section 527 Accounts to the Internal Revenue Service

There are four different IRS reporting and disclosure requirements for Section 527 accounts:

  • Form 8871
  • Form 8872 
  • Form 990 or Form 990EZ 
  • Form 1120-POL

Initial Notice of Section 527 Status (Form 8871)

A Section 527 account, whose gross receipts are expected to reach $25,000 during its tax year, must notify the IRS that it is to be treated as a Section 527 organization.  This notice must be filed electronically within 24 hours of either the establishment of the account or the date when it becomes known that the $25,000 threshold will be reached that year.  To do so, the account must file Form 8871 - Political Organization Notice of Section 527 Status.  Form 8871 must be filed via the IRS "Political Organizations" website at

Filing this notice is important because it is a prerequisite to tax-exempt status for the Section 527 account. If no required notice is filed, all of the account’s receipts will be taxable at a 35% rate. If the notice is not required because the $25,000 threshold won’t be reached, then that tax won’t apply

Periodic Reports of Receipts and Disbursements (Form 8872)

A Section 527 political organization that registers with the IRS on Form 8871 must also file periodic financial reports with the IRS on Form 8872 - Political Organization Report of Contributions and Expenditures. These reports are generally due quarterly during even numbered years, and semi-annually during odd-numbered years, with some additional reports due around federal general-election dates. The Section 527 account must report the names, addresses, occupation and employer of individuals contributing at least $200/yr and all persons the account pays at least $500/yr.

An important exception to the Form 8872 requirement is a Qualified State or Local Political Organization (QSLPO), meaning a Section 527 organization that is registered in a state or municipality as a PAC and files publicly available reports with that authority that contain information similar to what Form 8872 requires. If a Section 527 account qualifies for this exception, then it may claim the exception by checking Line 10a of its Form 8871.

Form 8872 may be filed either by mail or electronically at If the Section 527 account anticipates that its receipts or disbursements will exceed $50,000/yr, then it must file electronically.

Annual Information Return (Form 990 or Form 990EZ)

Some political organizations must file an annual information return, either Form 990 - Return of Organization Exempt from Income Tax, or Form 990EZ - Short Form Return of Organization Exempt From Income Tax. These forms reflect general financial and operational information about the account.

If a Section 527 account has at least $100,000/yr in gross receipts or its year-end total assets are at least $250,000, then it must file Form 990. This is true whether or not the account is a QSLPO (see above).

A Section 527 account that is not a QSLPO and has gross receipts of at least $25,000/yr but less than $100,000/yr and has less than $250,000 in year-end total assets, must file Form 990EZ.

Form 990 or Form 990EZ is due four months and 15 days after the end of the Section 527 account’s tax year. These forms may be filed either by mail or electronically.

Annual Income Tax Return (Form 1120-POL)

A Local union’s Section 527 account may and should earn interest, because that income may be used for its political purposes. The account will owe federal tax on all interest over $100.00, subject to deductions for any expenses incurred in earning that interest. If tax is owed, Form 1120-POL - Taxable Political Receipts and Expenditures must be filed.

Form 1120-POL is due two months and 15 days after the end of the Section 527 account’s tax year – two months before Form 990 or 990EZ is due. This form may be filed by mail or electronically.

Locals May be Taxed on General Fund Political Spending

A Local union that does not set up a separate Section 527 account, and instead makes political contributions and expenditures (again, beyond its own members) from its general fund account may owe a federal tax on that spending. If so, the Local itself must file Form 1120-POL. This tax on the Local would be assessed at a 35% rate, on the lesser of:

  • The Local’s political spending from its general fund accounts; or
  • The Local’s net "investment income" in excess of $100. For this calculation, investment income  includes the Local’s net income from interest, rents, dividends, royalties and capital gains.

In order to avoid this tax, a Local should only undertake general-public political spending from a separate Section 527 account.

Note: If a Local’s general fund (or its separate Section 527 account) is used to collect and transfer member contributions to CWA COPE-PCC, CWA’s federal PAC, then those transactions are not taxable.

Public Disclosure

All of these IRS notices, reports and returns, except for Form 1120-POL, are made publicly available by the IRS on its website, and the Section 527 account must provide them to persons who request it. There are IRS penalties for failure to comply with these disclosure requirements.