Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-82

1968-1 C.B. 68

Sec. 162

IRS Headnote

Where an employee-taxpayer who is not a member of a labor union is required, as a condition of his employment, to pay to the labor union a monthly service charge equal in amount to the dues paid by union members, this payment is an ordinary and necessary business expense deductible by the taxpayer under section 162(a) of the Internal Revenue Code of 1954, provided he itemizes his deductions.

Full Text

Rev. Rul. 68-82

Advice has been requested whether a monthly service charge paid to a labor union by an employee-taxpayer who is not a member of the labor union under the circumstances described below is deductible for Federal income tax purposes.

An employer entered into an agreement with a labor union which provided that any employee hired on or after the effective date of the agreement would, as a condition of his employment, either become a member of such union within 30 days after completion of his probationary period, or, at that time, begin to pay to the union a monthly service charge equal in amount to the monthly dues required of union members. No portion of the service charge serves as a health or accident insurance premium, or other payment that would serve to defray an expense of a personal nature.

The employee-taxpayer was hired after the effective date of the employer's agreement with the labor union and, after completion of his probationary period, chose not to join the union. He paid to the union the monthly service charge, equal in amount to the monthly dues required of union members, solely in order to retain his job.

The labor union in question makes no substantial expenditures for lobbying purposes, for the promotion or defeat of legislation, for political campaign purposes, or for carrying on propaganda.

Section 162 of the Internal Revenue Code of 1954 provides for the deduction of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. An individual while performing his services as an employee is carrying on a trade or business and the ordinary and necessary expenses incurred in connection therewith are deductible.

Section 1.162-15(c) of the Income Tax Regulations provides that dues and other payments to an organization, such as a labor union or a trade association, which otherwise meet the requirements of the regulations under section 162 of the Code are deductible in full. Section 1.162-20(c)(3) of the regulations provides in part that if a substantial part of the activities of a labor union consists of lobbying, attempting to promote or defeat legislation, participating in political campaigns, or carrying on propaganda, exclusive of any activity constituting an appearance or communication with respect to legislation or proposed legislation of direct interest to the organization, a deduction will be allowed only for such portion of the dues or other payments to the organization as the taxpayer can clearly establish is attributable to activities other than those set forth above.

Accordingly, in the present case, where the employee-taxpayer is not a member of the labor union but is required, as a condition of his employment, to pay to the labor union a monthly service charge equal in amount to the dues paid by union members, this payment is an ordinary and necessary business expense deductible by the taxpayer under section 162(a) of the Code, provided he itemizes his deductions.