Local Lobbying Expenses are No Longer Deductible under Tax Reform by Thomas L. Smitha, JD, CPA
Posted on May 15, 2018 by Thomas Smitha
The recent tax act that reforms the U.S. Tax Code beginning in 2018 changes the rules for how the IRS treats expenses taxpayers incur for lobbying local government bodies, local government officials and Indian Tribal Governments. Under the new law, taxpayers may no longer deduct these costs for influencing local legislation, regardless of whether taxpayers incur them directly or through an outside consulting firm.
Historically, the tax laws disallowed taxpayers from deducting expenses paid or incurred in connection with influencing legislation at the federal and state levels. An exception to this rule existed for taxpayers who incurred these “ordinary and necessary” business or trade expenses in connection with influencing legislation at the local level. More specifically, the law allowed a deduction for expenses that were:
- in direct connection with appearances before, submission of statements to, or sending communications to the committees or individual members of such council or body with respect to legislation or proposed legislation of direct interest to the taxpayer, or
- in direct connection with communication of information between the taxpayer and an organization of which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and such organization, and
- that portion of the dues paid or incurred with respect to any organization of which the taxpayer is a member which is attributable to the expenses of the activities described in (1) or (2) carried on by such organization.
The new law repeals this deduction for local lobbying expenses.
While lobbying at the federal and state levels has been relatively easy to discern, this is not always true at the local level, where there are a large number of local government bodies and officials as well as an array of different types of activities, transactions and interactions that may or may not qualify as lobbying. As a result, it is imperative that business taxpayers begin to analyze and assess the expenditures they pay in 2018 to influence local governments, including, but not limited to, promoting or opposing zoning and other local law and regulation changes where the taxpayer has a direct interest, and communications with local government officials with respect to such activities. Careful attention should be paid to review the activities, arrangements and related agreements to determine whether lobbying expenditures are deductible under the new law.
The advisors and accountants with Berkowitz Pollack Brant work closely with businesses in the real estate, healthcare and hospitality industry to comply with complex tax laws while minimizing tax liabilities.
About the Author: Thomas L. Smitha, JD, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he provides accounting and consulting services, as well as tax planning and tax structuring counsel to private and publicly held companies. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at firstname.lastname@example.org.