Rev. Proc. 68-19

SECTION 1. PURPOSE.

.01 The purpose of this Revenue Procedure is to set forth the factors considered by the Internal Revenue Service in determining the taxability of political funds such as campaign contributions, political gifts, and proceeds derived from fund-raising dinners (sometimes referred to as `testimonial dinners') received and disposed of by or on behalf of political candidates.

.02 For purposes of this Revenue Procedure, the term `political candidates' includes any political figure who receives or has received political funds, whether or not he has announced his candidacy for nomination or election or reelection to any elective public office.

SEC. 2. BACKGROUND.

Political funds are not taxable to the political candidate by or for whom they are collected if they are used for expenses of a political campaign or some similar purpose. However, any amount diverted from the channel of campaign activity and used by the political candidate for any personal purpose is income taxable to such candidate for the year in which the funds are so diverted. See I.T. 3276, C.B. 1939-1 (Part 1), 108, and Rev. Rul. 54-80, C.B. 1954-1, 11, cited with approval in William O'Dwyer, et ux. v. Commissioner , 266 F.2d 575 (4th Cir. 1959), certiorari denied, 361 U.S. 862 (1959), and United States v. Leslie E. Jett , 352 F.2d 179 (6th Cir. 1965), certiorari denied, 383 U.S.C. 935 (1966).

SEC. 3. EXPENDITURES OF POLITICAL FUNDS.

.01 Political funds expended by a political candidate, or by a political organization or committee which accepts contributions on behalf of such candidate will be considered to be used for campaign or similar purposes if they are: (1) utilized for generally recognized campaign expenses (see, for example, Cal. Elections Code, sec. 11504; N.Y. Penal Law, sec. 767), regardless of when such expenses were incurred; (2) contributed to the national, state or local committee of the candidate's party; or (3) used to reimburse the political candidate for out-of-pocket campaign expenses paid by him during a current campaign, or, if he is not currently campaigning, during his last previous campaign.

.02 The expenditure of political funds by a political candidate for other than campaign or similar purposes will be considered a diversion of such funds requiring the funds so expended to be included in his income. However, deductions will be allowed for those expenditures which qualify as deductible under the applicable provisions of the Internal Revenue Code of 1954. For example, depending on the facts and circumstances present, an expenditure could qualify as an ordinary and necessary business expense deductible under section 162 of the Code or as a charitable contribution deductible under section 170 of the Code.

.03 Unexpended balances of political funds which are repaid to known contributors are not considered to be either expended or diverted for purposes of this section.

SEC. 4. ACCOUNTING FOR POLITICAL FUNDS.

.01 Detailed substantiating records should be kept by the political candidate or other custodian so as to enable the candidate to account accurately for the receipt and disbursement of political funds if he wishes to have political funds treated as such by the Service or to take advantage of allowable deductions. Disbursements will be included in the income of the political candidate in the absence of a showing that the funds were used for campaign or similar purposes or repaid to known contributors. If political funds are commingled with the personal funds of the political candidate so as to render tracing or identification impracticable, the political funds will be presumed to have been diverted to personal use at the time so commingled.

.02 If an unexpended balance of political funds is set aside in a separate bank account, the political candidate, committee, or organization holding such funds may report any income credited to the account on a U.S. Fiduciary Income Tax Return, Form 1041, for the taxable year in which such income is so credited, and pay any tax shown by such return to be payable.

SEC. 5. PRESUMPTION AGAINST UNRESTRICTED GIFTS.

The Service will presume in the absence of evidence to the contrary that contributions to a political candidate are political funds which are not intended for the unrestricted personal use of such recipient. If it can be shown that the funds were intended for the unrestricted personal use of the political candidate, then the Service will apply the principles set forth in Commissioner v. Mose Duberstein, et al. , 363 U.S. 278 (1960), Ct. D. 1850, C.B. 1960-2, 428, and Max Kralstein, et ux. , 38 T.C. 810 (1962), acquiescence, C.B. 1963-2, 4, to determine whether or not the funds may be excluded from his gross income under section 102 of the Code.