[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.527-3]

[Page 228-229]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.527-3  Exempt function income.

    (a) General rule--(1) For purposes of section 527, exempt function 
income consists solely of amounts received as:
    (i) Contributions of money or other property,
    (ii) Membership dues, fees, or assessments from a member of a 
political organization, or
    (iii) Proceeds from a political fund raising or entertainment event, 
or proceeds from the sale of political campaign materials, which are not 
received in the ordinary course of any trade or business,

but only to the extent such income is segregated for use only for exempt 
functions of the political organization.
    (2) Income will be considered segregated for use only for an exempt 
function only if it is received into and disbursed from a segregated 
fund as defined in Sec. 1.527-2(b).
    (b) Contributions. The rules of section 271(b)(2) apply in 
determining whether the transfer of money or other property constitutes 
a contribution. Generally, money or other property, whether solicited 
personally, by mail, or through advertising, qualifies as a 
contribution. In addition, to the extent a political organization 
receives Federal, State, or local funds under the $1 checkoff provision 
(sections 9001-9013), or any other provision for financing of campaigns, 
such amounts are to be treated as contributions.
    (c) Dues, fees, and assessments. Amounts received as membership fees 
and assessments from members of a political organization may constitute 
exempt function income to the political organization. Membership fees 
and assessments received in consideration for services, goods, or other 
items of value do not constitute exempt function income. However, filing 
fees paid by an individual directly or indirectly to a political party 
in order that the individual may run as a candidate in a primary 
election of the party (or run in a general election as a candidate of 
that party) are to be treated as exempt function income. For example, 
some States provide that a certain percentage of the first year's salary 
of the office sought must be paid to the State as a filing (or 
qualifying) fee and party assessment. The State then transfers part of 
this fee to the candidate's party. In such a case, the entire amount 
transferred to the party is to be treated as exempt function income. 
Furthermore, amounts paid by an individual directly to the party as a 
qualification fee are treated similarly.
    (d) Fund raising events--(1) In general. Amounts received from fund 
raising and entertainment events are eligible

[[Page 229]]

for treatment as exempt function income if the events are political in 
nature and are not carried on in the ordinary course of a trade or 
business. Whether an event is political in nature depends on all facts 
and circumstances. One factor that indicates an event is a political 
event is the extent to which the event is related to a political 
activity aside from the need of the organization for income or funds. 
For example, an event that is intended to rally and encourage support 
for an individual for public office would be a political fund raising 
event. Examples of political events can include dinners, breakfasts, 
receptions, picnics, dances, and athletic exhibitions.
    (2) Ordinary course of any trade or business. Whether an activity is 
in the ordinary course of a trade or business depends on the facts and 
circumstances of each case. Generally, proceeds from casual, sporadic 
fund raising or entertainment events are not in the ordinary course of a 
trade or business. Factors to be taken into account in determining 
whether an activity is a trade or business include the frequency of the 
activity, the manner in which the activity is conducted, and the span of 
time over which the activity is carried on.
    (e) Sale of campaign materials. Amounts received from the sale of 
campaign materials are eligible for treatment as exempt function income 
if the sale is not carried on in the ordinary course of a trade or 
business (as defined in paragraph (d)(2) of this section), and is 
related to a political activity of the organization aside from the need 
of such organization for income or funds. Proceeds from the sale of 
political memorabilia, bumper stickers, campaign buttons, hats, shirts, 
political posters, stationery, jewelry, or cookbooks are related to such 
a political acitivity where such items can be identified as relating to 
distributing political literature or organizing voters to vote for a 
candidate for public office.

[T.D. 7744, 45 FR 85732, Dec. 30, 1980]