Is a not-for-profit political action committee that qualifies under IRC section 527 subject to New York's Article 13 tax on unrelated business income?

Plain-English summary

The Public Works PAC, Inc., a New York not-for-profit political action committee assumed to qualify as a political organization under IRC section 527, had received New York exempt status (via Form CT-247). It asked whether it owes New York's Article 13 tax on unrelated business income.

The Department traced the chain of statutes. Tax Law section 290(a) imposes the Article 13 tax only on organizations described in IRC section 511(a)(2). Section 511(a)(2) reaches organizations exempt by reason of IRC section 501(a) -- that is, organizations described in IRC section 501(c) or (d).

A section 527 political organization is not an organization described in IRC section 501(c) or (d). Therefore, assuming the PAC is a section 527 organization, it is not subject to the Article 13 tax on unrelated business income.

What this means for you

Section 527 political organizations sit outside Article 13

New York's unrelated-business-income tax (Article 13) piggybacks on the federal UBIT structure: it applies only to organizations exempt under IRC section 501(a) (the 501(c)/(d) organizations). A section 527 political organization -- a PAC, party committee, or campaign committee -- is a different federal category and is not swept into Article 13.

Confirm your federal classification

The result assumes the organization genuinely qualifies under IRC section 527. The federal classification drives the New York answer, so be sure the organization is a 527 political organization and not, say, a 501(c)(4) social welfare organization (which could face UBIT).

Exempt status still involves filings

New York exempt status here came through Form CT-247. Being outside Article 13 does not necessarily eliminate other federal or state reporting obligations a political organization may have.

Common questions

Q: Does New York's Article 13 unrelated-business-income tax apply to a section 527 PAC? A: No. Article 13 applies only to organizations described in IRC section 501(c) or (d); a section 527 political organization is not one of those.

Q: Why does federal classification matter?
A: Tax Law section 290(a) ties the Article 13 tax to IRC section 511(a)(2), which reaches only organizations exempt under IRC section 501(a) -- the 501(c)/(d) organizations.

Q: What if the organization is actually a 501(c) entity? A: Then the analysis changes -- a 501(c) organization can be subject to the unrelated-business-income tax. The exemption here depends on genuine section 527 status.

Citations and references

Statutes, regulations, and authorities:

• Tax Law section 290(a) (Article 13 tax on unrelated business taxable income)
• Internal Revenue Code section 511(a)(2) (organizations subject to UBIT; exempt under section 501(a))
• Internal Revenue Code sections 501(a), (c) and (d) (exempt organizations)
• Internal Revenue Code section 527 (political organizations)
• The Public Works PAC, Inc., TSB-A-05(15)C (Oct. 24, 2005)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2005.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a05_15c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-05(15)C
Corporation Tax
October 24, 2005

Office of Tax Policy Analysis
Technical Services Division
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C050322A

On March 22, 2005, a Petition for Advisory Opinion was received from The Public Works PAC, Inc., 138 Guernsey Street, #3L, Brooklyn, NY 11222. Petitioner, The Public Works PAC, Inc., provided additional information with respect to the Petition on August 19, 2005. The issue raised by Petitioner is whether it is subject to the Article 13 tax on unrelated business income. Petitioner submits the following facts as the basis for this Advisory Opinion. Petitioner is a not-for-profit political action committee, which for purposes of this Opinion is assumed to be a qualifying political organization for purposes of Internal Revenue Code section 527. Petitioner was incorporated in the state of New York on April 16, 2004. Petitioner filed an Application for Exemption from Corporation Franchise Taxes by a Not-forProfit Organization (Form CT-247) with the Tax Department and was granted exempt status. Applicable law and regulations Section 290(a) of Article 13 of the Tax Law imposes a tax on unrelated business taxable income and provides, in part: General. For every taxable year or part thereof, every organization described in paragraph two of subsection (a) of section five hundred eleven of the internal revenue code … carrying on an unrelated trade or business in New York shall pay a tax … on its unrelated business taxable income for such year, … Section 511(a)(1) of the Internal Revenue Code (IRC) imposes a tax on the unrelated business taxable income of charitable, etc., organizations and provides, in part: There is hereby imposed for each taxable year on the unrelated business taxable income (as defined in section 512) of every organization described in paragraph (2) a tax computed as provided in section 11…. Section 511(a)(2)(A) of the IRC provides, in part: The tax imposed by paragraph (1) shall apply in the case of any organization ... which is exempt … from taxation under this subtitle by reason of section 501(a).

-2­
TSB-A-05(15)C
Corporation Tax
October 24, 2005

Section 501(a) of the IRC provides, in part:
An organization described in subsection (c) or (d) … shall be exempt from taxation under this subtitle …. Section 501(c) of the IRC lists organizations exempt from tax under IRC section 501(a). Section 501(d) of the IRC provides, in part: Religious and apostolic organizations. The following organizations are referred to in subsection (a): Religious or apostolic associations or corporations …. Opinion Pursuant to section 290(a) of Article 13 of the Tax Law, the tax on unrelated business taxable income is imposed on every organization described in section 511(a)(2) of the Internal Revenue Code (IRC) carrying on an unrelated trade or business in New York State. Section 511(a)(2) provides, in part, that the federal tax on unrelated business taxable income is imposed on the unrelated business taxable income of any organization that is exempt from taxation for federal income tax purposes by reason of IRC section 501(a). Section 501(a) provides, in part, that an organization described in IRC section 501(c) or (d) is exempt from taxation for federal income tax purposes. IRC section 527 political organizations are not organizations described in IRC section 501(c) or (d). (See Technical Services Bureau Memorandum, entitled Taxation of Political Campaign Committees, February 5, 1980, TSB-M-79(11)I for a description of IRC section 527 political organizations.) Therefore, assuming Petitioner is an organization described in IRC section 527, Petitioner is not subject to the tax on unrelated business income imposed under Article 13 of the Tax Law.

DATED: October 24, 2005

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.