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Taxable Expenditures (IRC §4945)
A taxable expenditure is an amount paid or incurred to:
- Carry on propaganda or otherwise attempt to influence legislation,
- Influence the outcome of any specific public election or carry on any voter registration drive, unless certain requirements are satisfied),
- Make a grant to an individual for travel, study, or other similar purposes, unless certain requirements are satisfied,
- Make a grant to an organization (other than an organization described in §509(a)(1), (2), or (3) or an exempt operating foundation unless the foundation exercises expenditure responsibility with respect to the grant, or
- Carry out any purpose other than a religious, charitable, scientific, literary, or educational purpose, the fostering of national or international amateur sports competition (with exceptions) or the prevention of cruelty to children or animals.
Exceptions. Examples of expenditures ordinarily not treated as taxable expenditures include:
- Expenditures to acquire investments that generate income to be used to further the purposes of the organization,
- Reasonable expenses related to acquiring these investments,
- Payment of taxes,
- Expenses that qualify as allowable deductions in figuring the tax on unrelated business income,
- Any payment that is a qualifying distribution,
- Any deduction allowed in arriving at taxable net investment income,
- Reasonable expenditures to evaluate, acquire, modify, and dispose of program-related investments, and
- Business expenses of the recipient of a program-related investment.
However, payment of unreasonable administrative expenses, including wages, consultant fees, and other fees for services performed, ordinarily will be taxable expenditures unless made by the foundation in the good faith belief that the amounts were reasonable and were consistent with ordinary
business care and prudence.
[Source: Internal Revenue Service, U.S. Dept. Of Treasury (IRS), http://www.irs.gov/]