Internal Revenue Service Audits of Grass-Roots Lobbying Expenses

Testimony presented before Congress on proper accounting for corporate expenses for political advertising indicated that energy-related industries may be improperly treating costs associated with political advertising and that questionable tax deductions may be occurring. A GAO report expressed a similar concerns, but the Internal Revenue Service (IRS) has taken little action to improve guidance to taxpayers and to its auditors in this regard. IRS should: (1) clarify existing regulations in the area of political advertising and grass-roots lobbying; (2) systematically test the practices followed by industry groups in the area of advertising and lobbying expenses to determine possible noncompliance and corrective action; (3) provide more specific audit criteria for IRS agents; and (4) develop additional guidance for auditors to follow in separating grass-roots lobbying and advertising expenses from allowable deductions.