Using Research Problem 1 found in Ch 23 in the textbook, prepare a letter to the client evaluating the position of the IRS.

Exhibit 23.2
Exempt Purpose Expenditures				Lobbying Nontaxable Amount is
Not over $500,000				20% of exempt purpose expenditures*
Over $500,000 but not over $1 million				$100,000 + 15% of the excess of exempt purpose expenditures over $500,000
Over $1 million but not over $1.5 million				$175,000 + 10% of the excess of exempt purpose expenditures over$1 million
over $1.5 million				$225,000 + 5% of the excess of exempt purpose expenditures over $1.5 million

Tan, Inc. a qualifying 501(c) (3) organization, makes a 501(h)election. Its exempt purpose expenditures for the taxable year are $5,000,000. and during the year, it incurs lobbying expenditures of $525,000 and grass roots expenditures of $0.

Applying the table in exhibit 23.2 the lobbying nontaxable amount is $400,000 [$225,000 + 5% ($5,000,000 - $1,500,000)]. The ceiling on lobbying expenditures is $600,000(15%x $400,000.

Tan $525,000 of lobbying expenditures are under the ceiling of $600,000. However, the election results in a tax on the excess lobbying expenditures of $125,000 ($525,000 lobbying expenditures - $400,000 lobbying nontaxable amount. The resulting tax liability is $31,250 ($125,000 x 25%)