Businesses may not claim lobbying expenses as a deduction.

Under Section 162 of U.S.C. 26(A)(1)(B)(VI), a for-profit corporation may not deduct from its federal taxes money spent on lobbying or campaigning, defined as:

(A) influencing legislation,

(B) participation in, or intervention in, any political campaign on behalf of (or in opposition to) any candidate for public office,

(C) any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums, or

(D) any direct communication with a covered executive branch official in an attempt to influence the official actions or positions of such official.

Previously: Nonprofits cannot deduct "excess lobbying expenses."

The IRS heavily taxes "excess lobbying expenses" by nonprofits.

According to Section 4911 of U.S.C. 26(D)(41), nonprofit organizations and public charities' lobbying expenditures are taxed at 25 percent above a certain threshold.

As with all federal tax questions, the rules are a little tricky, but the nontaxable amount can be as high as $1 million.

The IRS considers lobbying separate from grassroots activity aimed at influencing legislation. It also does not include nonpartisan research, providing technical advice to lawmakers, appearing before committees or communicating with members.

As noted previously, this sets up a "tension" between nonprofits who wish to keep their taxes low and state reporting requirements on lobbying, which follow different rules.

Lobbying expenses are not deductible from the federal income tax.

As noted previously, former lobbyist Don Beason is being investigated by the N.C. Secretary of State over the amount of income he reported as lobbying related. (Instead, he may have considered some of his pay for consulting.)

Raleigh attorney Michael Weisel, who is working for some of Beason's former clients, tells Dome that there is a "natural tension" on the issue.

"Any costs/expenses characterized as lobbying are not deductible as a business expense," he writes in an e-mail. "Therefore, a business seeks to minimize the amount attributable to lobbying as defined by the IRS."

On the other hand, state law clearly outlines lobbying expenses. 

Weisel took issue with Dome's use of the word "underreporting" for lobbyists who do not report income for consulting expenses.

"There is no 'underreporting' of compensation despite the investigators characterization," he wrote.

A state legislator thinks everyone should get Timothy Geithner's deal.

Rep. Jerry Dockham, a Davidson County Republican, has filed the Geithner Tax Fairness for N.C. Citizens Act, named for the current Treasury secretary.

During his confirmation hearings, Geithner revealed that he had failed to pay $34,000 in back taxes. He paid the Internal Revenue Service the taxes plus interest, but was not fined.

Dockham's bill would allow North Carolinians who owe $50,000 or less in back taxes on their state income tax to also avoid a penalty fine.

"If he got that benefit, I think the average citizen should get the same courtesy," Dockham said.

Ultimately, Dockham argued that Congress should enact a similar bill, but he said he's just a state legislator so he'll stick with North Carolina for now. 

A bill would withhold taxes for workers who may be illegal immigrants.

Sen. David Hoyle, a Gaston County Democrat, said he filed the bill after hearing from the N.C. Department of Revenue that some contractors don't pay income tax.

Under the current system, contractors who have Individual Taxpayer Identification Numbers, or ITINs, instead of Social Security numbers can avoid having state income tax taken out of their paychecks.

But Hoyle said the state has no way to find those workers later on if they don't end up paying, since federal law prohibits the Internal Revenue Service from sharing information on ITINs to other government agencies.

"You can't get an address. You can't track them down. You can't audit them." he said. "Osama bin Laden could get an ITIN number and nobody would ever check him."

He said the Department of Revenue is losing "hundreds of millions of dollars" from unpaid taxes.

"Everybody should have to pay their taxes," he said. 

State employees checking their W-2 forms last week found some of the numbers out of whack.

It was another attack of the BEACON payroll system.

A box that was supposed to have numbers in it, one showing the amount of pre-tax money set aside for dependent care was blank, while a box for distributions from a retirement plan should have been blank had numbers in it, Lynn Bonner reports.

Sherri Johnson, spokeswoman for the state controller's office, said the mistakes found their way into 17 percent of employee tax forms, or about, 17,000.

The office sent notes to state agencies' human resources and payroll departments, and to employees with computer access who log their own time, saying new W-2s were being printed and delivered.

It took two employees a day to fix a "configuration switch" that was not set correctly, Sherri Johnson, spokeswoman for the state controller’s office, wrote in an email.

Johnson made a point of noting the old payroll system had its problems with W-2s. About four or five years ago, all W-2s from central payroll put “deceased” in the employee boxes, Johnson wrote, and all the forms had to be reprinted.

A mayors group led by Pat McCrory sought out corporate sponsors.

The Republican Mayors and Local Officials 527 advocacy group, which the Republican gubernatorial candidate led from 2000 to 2005, advertised for corporate sponsors on its Web site.

"Wanted: Corporate sponsors," read one page. 

"The RMLO hallmark of promoting local governance and partnering with other elected officials at all levels is also extended to those who share RMLO's ideals, including Corporate Sponsors," McCrory wrote in a welcome message on the group's Web site.

Annual sponsorships cost $5,000.

Based on tax forms filed with the Internal Revenue Service, the following groups contributed in 2003: the American Trucking Association and the International Council of Shopping Centers each gave $5,000 and the Bond Market Association contributed $10,000.

In 2005, the shopping centers council, the American Petroleum Institute and the Edison Electric Institute each gave $5,000 and the National Cable and Telecommunications Association gave $10,000.

Other corporate sponsors listed on the group's Web site in 2003 include: the American Chemistry Association, AT&T, Anheuser-Busch, DaimlerChrysler, Fannie Mae, Goldman Sachs, the National Rifle Association and Waste Management.

That and other pages are no longer available online, as the group appears to have let its Web site registration expire in September of 2003. The address was then briefly used by an outside company to advertise Internet porn (NSFW) and is now defunct.

They can be viewed on the Wayback Machine, an Internet archive. 

A group of Republican mayors led by Pat McCrory overspent in 2001 and 2002.

In December of 2000, the Republican gubernatorial candidate was named president of Republican Mayors and Local Officials, an advocacy group based in Washington, D.C. He served in that capacity through 2005.

According to tax records filed with the Internal Revenue Service in the first two years of his tenure, the group spent more than it took in both years, for a total deficit of about $96,000.

In 2001, the group raised $57,500 from contributions, $2,075 from dues and $199 from interest, but spent $119,105 on payments to independent contractors and $59 on printing costs, for a deficit of $59,390.

In 2002, the group raised $20,000 from contributions, $1,525 from dues and $9 from interest, but spent $58,302 on independent contractors, for a deficit of $36,768.

The overspending depleted the group's reserves from $101,948 at the end of 2000 to $5,790 at the end of 2002.

Tax forms for 2003 and 2004 were not immediately available, but forms filed in 2005 showed the group had gotten spending under control and built its reserves up to $23,212 — still far below the amount it had when McCrory became president.

Does the Tax Foundation overstate North Carolina's tax burden?

Critics of the nonprofits rankings of state and local tax burdens note that it leaves out the amount paid by North Carolinians in federal taxes.

That's important because the Internal Revenue Service allows you to deduct your state and local taxes from your income when filing. For states such as North Carolina that rely heavily on a state income tax that means a reduced federal tax burden.

That would affect North Carolina's overall tax burden compared to other states.

"Compared to the rest of the Southeast, North Carolina is probably one of the biggest beneficiaries of the state and local tax deduction," said Gerald Prante, an economist with the Tax Foundation. "But nationwide, it's probably not that high. Almost all of the states in the Northeast benefit more."

The Tax Foundation does not account for the deduction in its rankings because of the complexity of the calculations and a lack of good data, Prante said.

The amount the deduction benefits individual taxpayers depends on how much they earn. Taxpayers who earn less and don't itemize their expenses don't benefit, but those in the middle and upper class who itemize do, as long as they aren't affected by the alternative minimum tax.