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The IRS has ruled that conversion of campaign funds to personal use may transform the funds into taxable personal income.
Federal, state and local candidate campaign committees; federal, state and local political party committees; and most other political committees are generally organized under section 527. A political organization is subject to tax on its political organization taxable income. Generally, this tax is calculated by multiplying the political organization taxable income by the highest rate of tax specified in §11(b). If the organization is the principal campaign committee of a candidate for U.S. Congress, the tax is calculated using the graduated rates specified in §11(b).The exempt function income of a political organization is income that the organization sets aside for use for its exempt function that was received as one of the following four types of income: (1) a contribution of money or other property; (2) membership dues, fees, or assessments from a member of the political organization; (3) proceeds from a political fundraising or entertainment event or from the sale of political campaign materials, which are not received in the ordinary course of any trade or business; or (4) proceeds from conducting bingo games that are defined in § 513(f)(2). Investment income, or income from a trade or business (such as renting excess office space to an unrelated organization), of a political organization is not exempt function income and is subject to tax. Taxable income includes exempt function income (such as contributions) for any period of time that a political organization does not file a Form 8871 as required.
Rev. Proc. 68-19, 1968-1 C.B. 810, Section 2. See also Rev. Rul. 74-23, 1974-1 C.B. 17