Rev. Rul. 75-103

Advice has been requested whether, under the situations described below, payments made to political campaigns are includible in the gross income of the political candidate or officeholder. It is emphasized that these situations are not intended to be exhaustive but rather serve to demonstrate that it is necessary under section 61 of the Internal Revenue Code of 1954 to ascertain the circumstances under which contributions are made if the facts indicate that the payments were not made as a result of or in exchange for promises of a traditional and legitimate political nature.

Situation 1. A political candidate promised a contributor, that in exchange for a payment to a political campaign specified by the candidate, he would vote according to the contributor's direction on certain legislation relating to a particular subject concerning the contributor.

Situation 2. A political officeholder promised a contributor, that in exchange for a payment to a political campaign specified by the officeholder, he would direct the appropriate governmental office to renew the business license of the contributor.

Section 61(a) of the Code provides, in part, that gross income means all income from whatever source derived, except as otherwise provided by law. Gross income specifically includes compensation for services.

In Helvering v. Clifford, 309 U.S. 331 (1940), 1940-1 C.B. 105, the Supreme Court of the United States said, with regard to the predecessor of section 61(a) of the Code, that "/t/he broad sweep of this language indicates the purpose of Congress to use the full measure of its taxing power * * *."

Payments received as a result of kickbacks (Lydon v. Commissioner, 351 F. 2d 539 (7th Cir. 1965)), extortion (Rutkin v. United States, 343 U.S. 130 (1952), 1952-1 C.B. 9), embezzlement (James v. United States, 366 U.S. 213 (1961), 1961-2 C.B. 9), and bribery (United States v. Commerford, 64 F. 2d 28 (2d Cir. 1933), result in income to the recipient. A taxable event has occurred regardless of whether funds are used for personal needs, so long as the recipient has exercised command and dominion over the funds. Ernestine K. Alcorn, 28 CCH Tax Ct. Mem. 751 (1969).

Taxable income results whether the satisfaction derived from a payment is a material one "or such nonmaterial satisfactions as may result from the payment of a campaign * * * contribution * * *." Helvering v. Horst, 311 U.S. 112 (1940), 1940-2 C.B. 206. A gain, whether lawful or unlawful, is taxable "when its recipient has such control over it that, as a practical matter, he derives readily realizable economic value from it." Rutkin.

In both situations (1) and (2) above, the political candidate's and officeholder's command and dominion over the payment stemmed from the fact that his promise to act for the benefit of the payor was knowingly given in exchange for and in fact produced the payment. The political candidate and officeholder controlled the source of the income and directed its payment for political campaign purposes.

In determining whether the payments in the instant case are includible in gross income by the political candidate and officeholder, the fact that the payments were made to a political campaign is not relevant. The actual form of the payment was the second step of an already completed taxable transaction. That is, the substance of both situations (1) and (2) is that the political candidate and officeholder received a payment for services to be rendered and then earmarked the amount of such payment for political campaign purposes. Thus, the payments made by the payors do not qualify as excludable political campaign expense contributions.

Accordingly, under section 61(a) of the Code the payment in situation (1) and the payment in situation (2) are includible in the gross income of the political candidate and officeholder, respectively.