The Tax Cuts and Jobs Act of 2017 included a surprise for some federal Lobbying Disclosure Act (LDA) Registrants: organizations that elect to calculate their lobbying expenses using Method C--the Internal Revenue Code (IRC) definition of lobbying--must now capture and include local legislative lobbying. This change is effective starting with the first quarter reports of 2018, due on Friday, April 20. With these first quarter reports looming, Registrants may want to consider how changing their reporting method could impact their disclosures.
Since 1993, the tax code has prohibited businesses from deducting expenses incurred in connection with influencing legislation at the federal and state levels, but there was an exception allowing the deduction to continue for local lobbying (e.g. lobbying city or county councils). The Tax Cuts and Jobs Act eliminated this deduction. The LDA allows Registrants to select whether to use the IRC definition or the LDA definition of “lobbying” for calculating lobbying expenses, and the reporting method Registrants elect on their first filing of the year is the method they must use throughout the year.
The differences in the definitions often impact the amounts reported and even dictate which individuals must register as a lobbyist. For example, organizations that engage in significant lobbying on the county or municipal level may benefit from electing Method A (the LDA definition of lobbying), which excludes all non-federal and grassroots lobbying. On the other hand, Method C (the IRC definition) is narrower with respect to the universe of Executive Branch officials who qualify as covered officials with respect to non-legislative matters. So, organizations that engage heavily on regulatory issues may have fewer employees that are required to be listed as lobbyists if they choose the IRC definition.
Of course this elimination of the deduction for local lobbying may also impact your tax filings. As of December 22, 2017, organizations will need to allocate costs for local lobbying activities, along with their other lobbying expenditures that are non-deductible as defined in section 162 (e) of the IRC. Trade associations engaging in local lobbying will also need to include the value of those efforts in their reports to their members regarding the percentage of dues paid that are not deductible as ordinary and necessary business expenses.* Any worksheets used for capturing non-deductible lobbying expenses, either for IRS or LDA purposes, or both, should be updated to capture this change in the law.