[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: 26CFR1.527-4]

[Page 229-230]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.527-4  Special rules for computation of political organization 
taxable income.

    (a) In general. Political organization taxable income is determined 
according to the provisions of section 527(b) and the rules set forth in 
this section.
    (b) Limitation on capital losses. If for any taxable year a 
political organization has a net capital loss, the rules of sections 
1211(a) and 1212(a) apply.
    (c) Allowable deductions--(1) In general. To be deductible in 
computing political organization taxable income, expenses, depreciation, 
and similar items must not only qualify as deductions allowed by chapter 
1 of the Code, but must also be directly connected with the production 
of political organization taxable income.
    (2) Directly connected with defined. To be directly connected with 
the production of political organization taxable income, an item of 
deduction must have a proximate and primary relationship to the 
production of such income and have been incurred in the production of 
such income. Items of deduction attributable solely to items of 
political organization taxable income are proximately and primarily 
related to such income. Whether an item of deduction is incurred in the 
production of political organization taxable income is determined on the 
basis of all the facts and circumstances of each case.
    (3) Dual use of facilities or personnel. Expenses, depreciation, and 
similar items that are attributable to the production of exempt function 
income and political organization taxable income shall be allocated 
between the two on a reasonable and consistent basis. For example, where 
facilities are used both for an exempt function of the organization and 
for the production of political organization taxable income, expenses, 
depreciation, and similar items attributable to such facilities (for 
example, items of overhead) shall be allocated between the two uses of a 
reasonable and consistent basis. Similarly, where personnel are employed 
both for an exempt function and for the production of political 
organization taxable income, expenses and similar items attributable to 
such personnel (for example, items of salary) shall be allocated between 
the activities on a reasonable

[[Page 230]]

and consistent basis. The portion of any such item so allocated to the 
production of political organization taxable income is directly 
connected with such income and is allowable as a deduction in computing 
political organization taxable income to the extent that it qualifies as 
an item of deduction allowed by chapter 1 of the Code. Thus, for 
example, assume that X, a political organization, pays its manager a 
salary of $10,000 a year and that it derives political organization 
taxable income. If 10 percent of the manager's time during the year is 
devoted to deriving X's gross income (other than exempt function 
income), a deduction of $1,000 (10 percent of $10,000) would generally 
be allowable for purposes of computing X's political organization 
taxable income.

[T.D. 7744, 45 FR 85733, Dec. 30, 1980]