WASHINGTON -- The Internal Revenue Service has finished wrestling with a Congressional mandate to end deductions for lobbying expenses, and banks and other businesses will find their tax bills increasing as a result.

And for anyone who thinks lobbying consists only of padding down the marble halls of Congress in tasseled leather loafers, or wining and dining members at expensive restaurants, the IRS has some news:

"Section 162(e)(4)(A) defines influencing legislation as 'any attempt to influence any legislation through communication with any member or employee of a legislative body, or with any government official or employee who may participate in the formulation of legislation,'" the IRS said in a notice of proposed rulemaking issued earlier this month.

Washington banking trade groups are still considering the IRS' proposed definition of lobbying. But the bottom line is clear: Banks and thrifis that belong to trade groups that lobby Congress or state legislatures will have to pay taxes on a portion of their dues unless the trade group itself sends the IRS a check.

Room for Interpretation

"Congress said lobbying could no longer be deductible on your tax return, but they didn't provide a lot of guidance" on what lobbying is, said Jim O'Connor, Savings and Community Bankers of America's tax counsel. "That's what the proposed IRS rules attempt, but there is still some room for interpretation."

If Mr. O'Connor. for instance. has a conversation with a Congressional staffer, "there has to be some specific legislation and I have to be working on it" for it to count as lobbying, and therefore be subject to taxes. "If it is purely social, that is not lobbying," under the proposed IRS rule, he said.

Through the end of last year, banks and other businesses could deduct the full cost of their lobbying efforts.

Until this year, bank's membership dues for the SCBA, the American Bankers Association, and the Independent Bankers Association of America were tax deductible because the IRS considered them a business expense.

But under the new rules, banking trade groups must add up their lobbying expenses and pay taxes on it or compute the amount of time they spend lobbying and notify their members that that percentage of their trade group dues is no longer tax deductible.

Because the IRS' definition of lobbying is not yet final, the trade groups have not computed final figures for how much of the dues banks pay to them may no longer be deducted.

But the IBAA said it has told members they must pay taxes on roughly 34.3% of the dues they pay. SCBA is estimating that its members will owe taxes on 15% of the dues they pay.

The ABA is taking a different approach, at least for this year. Angelynn C. Hall, ABA's tax counsel, said that instead of passing the costs on to its members, the trade group will add up all its lobbying expenses and "send in a check."

In part, the ABA's tax liability will depend on what bills Congress considers in a given year, so that makes the trade group's new costs "really hard to predict," she said. The ABA has estimated how much more it will owe in taxes this year, but refused to disclose that figure.

The IRS is taking comments on its proposed rule defining lobbying until July 12. And yes, the cost of preparing your comment letter is still tax deductible- Congress still allows companies to deduct the cost of trying to influence the regulations implementing its laws.

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