Premium Essay

Personal Use of Campaign Contributions

In: Business and Management

Submitted By melanice09
Words 521
Pages 3
TO: Partner FROM: Student
RE: Candidate Feldman (tax year 2010)

Facts
Our client, Candidate Feldman, ran for Congress in 2010 and raised $4.7 million for the campaign. Five months after his opponent was sworn into office, auditors discovered that Feldman used $500,000 of campaign donations for a personal vacation taken immediately after the unsuccessful campaign.

Issue
Has Feldman understated his income by using campaign contributions for a personal vacation after the election?

Conclusion
Yes, since Feldman’s personal vacation expenses cannot be excluded as campaign contributions, the $500,000 should be included as taxable income on his individual return.

Analysis
The $500,000 used for Feldman’s vacation is treated as income and subject to taxation because the contributed amount was not used for the political campaign. Instead, the money was diverted towards the personal use of the candidate under §527(d)(1) of the Internal Revenue Code. According to U.S. v. Jett, since personal expenses were incurred after the unsuccessful campaign season, the contributions used to cover the vacation cannot be excluded from income. If the travel expenses were obtained to generate proceeds during the campaign from membership dues, a political fundraiser, an entertainment event, or sell of political paraphernalia, then the amount would be excluded from the candidate’s individual return as income based on §527(c)(3). Considering Jett, if Feldman received the $500,000 as a gift as opposed to a political contribution, the amount would be excluded from gross income under §102(a) even though it .
However, Feldman’s increase in net worth by $500,000 is directly related to campaign funds, and the amount cannot be excluded from his gross income according to U.S. v. Scott. Scott is an appeal of the United States District Court for the Northern District of

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