Are Dues Tax Deductible?

Your Baltimore County League of Women Voters would like your dues (and our dues)
to be tax deductible. We are working toward that goal. 

Conversion from IRC SEC. 501 (c) (4) to IRC SEC, 501 (c) (3)

On February 2, 2017, The Baltimore County League of Women Voters Board voted to proceed regarding merging the two corporations that make up the County League. Action to achieve this goal will be necessary at the annual meeting on 3 June 2017. In order to alert you, the team working on the transition has prepared the following summary.  In addition, we are hiring an attorney to aid us with this process and assure that it is done correctly. Comments and questions to the team will be welcome. The members are: Betsy Sexton, Treasurer and Chair; Neilson Andrews; Theresa Lawler; Sheila Maleson; and Camille Wheeler.

The National Board of the League of Women Voters is suggesting state and local leagues convert their §501 (c) (4) Corporation to §501 (c) (3) Corporation. The Finance Committee chaired by our Treasurer, Betsy Sexton, is reviewing the advantages and disadvantages of this potential change. A number of local Leagues and State Leagues have converted, notably California, Wisconsin, Oregon, Minnesota and St Louis, and report positive results. If nothing else, book keeping, tax filings and financial status is simplified and clearer.

The Baltimore County League is qualified as a tax exempt organization under Internal Revenue Code §501 (c) (4) which provides rules for organizations promoting social welfare or civic leagues. In addition we have the Jessa Goldberg Education Fund which is qualified as tax exempt under §501 (c) (3) status. Following are a few of the significant differences between these two kinds of organizations. First, although we never support or oppose political candidates a §501 (c) (4) can support or oppose candidates for elected office and political parties, while a §501 (c) (3) organization cannot.  Two, there is no limit on the lobbying activities of a §501 (c) (4) organization, whereas a §501 (c) (3) organization’s lobbying activities cannot constitute a “substantial part” of its overall activities. And three, contributions and members’ dues are deductible for donors and members of a §501 (c) (3) organization, unless (a) the funds are specifically designated by the donor or member to fund a lobbying expenditure, (b) to the extent the member or donor receive something of value in exchange for the dues or contribution. Contributions and dues for a §501 (c) (4) are not deductible.[1]

In the past there have been important questions raised regarding the matter of lobbying and whether changing our status to a purely §501 (c) 3 organization will affect our work. The answer is no. As a nonpartisan organization we do not support candidates and cannot as a §501 (c) (3). On general issues where we have a consensus we can continue to lobby and promote our point of view. If we choose to advocate on behalf of specific legislation and ballot measures we will be required to make an election under §501 (h) and measure dollars spent promoting our position. A §501 (c) (3) may not spend on lobbying in excess of 20% of the organization’s total annual expenditures. Because we work mostly as volunteers with few or no out of pocket expenditures, our expenses will fall short of this “substantial part” test.

Conversion to an entirely §501 (c) (3) will offer substantial benefits to members and donors. All membership dues and contribute ons will be tax deductible (except for contributions designated by the donor to fund a lobbying expenditure, or when the member or donor in turn receives something of value in exchange).This can include in-kind contributions such as expenses incurred when attending the National Convention for example.

Conversion allows deductibility for all funds needed to support a league’s total budget. This may result in more contributions, larger contributions and receipt of grants from agencies and foundations. Furthermore, conversion will reduce the workload since there will be no need to maintain separate accounts and records. The only required thank you notes are for contributions of $250.00 or above. Our current practice is to acknowledge all contributions so this is not an additional burden.

Finally, are the considerations regarding dues (per member payments) to the State League and the League of Women Voters of the United States. These payments represent a significant portion of our annual expenditures. The question is can we qualify as a §501 (c) (3) when the amounts (PMPs) paid/transferred to a §501 (c) (4) are such a large portion of our annual expenditures. To date the IRS has agreed that “the PMPs should be classified as qualifying §501 (c) (3) exempt purpose expenditures for the local League, and approved the Leagues’ §501 (c) (3) status.”[2]

In order to convert to §501 (c) (3) status the following steps are required:

  1. Our Articles of Incorporation must be amended and our Bylaws revised to include specific language required by the IRS.
  2. Approved amendments will have to be filed with the Maryland Secretary of State’s office in order to be effective.
  3. Depending on the amount of revenue received in the prior three years and current assets we must file either IRS Form 1023-EZ or 1023 application to qualify and pay a $250.00 fee or $850.00 depending on our revenues for the past three years and assets. Baltimore County falls into the first less expensive category.
  4. Notify the State of our new status.
  5. Transfer our fund assets to the new corporation. Review our contractual obligations and transfer them as well.
  6. File a Form 5768 with the IRS making the election under §501 (h) to measure lobbying activities by dollars spent rather than time spent.
  7. Update our web site
  8. Notify National and the State that the conversion is complete and successful.

[1] Thomas P. Carson, League of Women Voters Conversion from IRC SEC. §501 (c) (4 to IRC SEC. §501 (c) (3), June 2016, p. 1.

[2] Thomas P. Carson, League of Women Voters Conversion from IRC SEC. §501 (c) (4 to IRC SEC. §501 (c) (3), June 2016, p. 31.