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Problems at the polls: it's nearly election time--are you ready?

The Internal Revenue Service (IRS) is enforcing the rules that prohibit political activity by organizations exempt under Section 501(c)(3). Following the 2004 elections, the IRS began a targeted examination program of organizations that appeared to have engaged in prohibited activity.

The results of the program, released this past Feb. 24, contained some surprises. As we approach another election cycle, you need to be aware of these findings and take steps to ensure that your organization will not be a target in the next program.

In his remarks on the day the IRS issued the report, IRS Commissioner Mark Everson made clear that the Political Activity Compliance Initiative (PACI) will continue for the 2006 election season. In fact, the IRS aimed to start its fast-track review process by last month so that PACI may serve as a timely deterrent to charities planning to operate on the edge of politics in the upcoming elections.

Political intervention is a strictly banned activity for charitable organizations. Specifically, the Internal Revenue Code (Code) prohibits participation or intervention by a Section 501(c)(3) organization in any political campaign on behalf of (or in opposition to) any candidate for public office. Clearly, campaign contributions, organized distribution of vote-for or vote-against materials, and candidate endorsements are disallowed. Issue-oriented materials, voter guides, and Web site content present harder cases.

Interestingly, the ban on political intervention by Section 501(c)(3) organizations goes back to 1954. Then-Senate Majority Leader Lyndon B. Johnson first offered the amendment to section 501(c)(3) of the Code after charities opposing his re-election actively intervened in the campaign using charitable resources. Before that date, charities could conduct political activities that furthered their exempt purposes.

PACI's statistics overwhelmingly justify the program. Of the cases reviewed and closed by the IRS, nearly 75 percent of the time it determined that the organizations had conducted political activities. These numbers are presumably so high because PACI relied on referrals rather than randomly initiated audits. PACI conducted limited-scope examinations of charities that had been reported for alleged political intervention. The reported charities are not a random sample of the charitable community and hopefully this does not reflect a large number of charities engaging in these banned activities.

In advance of the 2006 election season, the IRS plans to ramp up its educational and publicity efforts to provide charitable organizations numerous reminders and the information they will need to ensure they do not conduct impermissible political activities. As the general public is reminded what their charitable dollar may not endorse, and politics again takes a center stage in our world, there should be no shortage of uncompensated whistleblowers to keep PACI busy well into the future.

There are organizations, also exempt under Section 501 (c)(3), whose purpose is to watch for and publicize such activities. In fact, PACI's Classification Unit reported in the IRS Political Intervention Examinations Report (the PACI report) that it often received multiple referrals of alleged 2004 election season violations by charities. These whistleblowers are necessary to police the one-million strong charitable community because, according to the PACI report, their political activities are often unrecorded or otherwise captured.

Motivation for the IRS's enforcement of the political intervention ban does not come from lucrative penalties. Violation consequences consist of either a penalty based on the amount of money spent to conduct the political intervention and/or revocation of exempt status. However, charities may conduct political activities for little or no cost. For example, allowing a candidate to speak about his or her candidacy at a charity event or posting campaign signs on charity property costs nothing so the penalty base is zero. In fact, most of the violations merely resulted in the issuance of an IRS advisory letter, with no other penalty. The IRS proposed only three revocations.

Instead, protection of the charitable community's image justifies enforcement of the ban. The IRS reasons that if the public loses faith that its charities are above the political fray charitable donations will dwindle. If this occurs, organizations may have to terminate charitable operations that they can no longer sustain, thus increasing pressure on the government to provide services formerly provided by the charities. So while the government will not collect more revenue currently through enforcement, in the long run it will avoid adding expenses.

As indicated by Commissioner Everson and the PACI report, the IRS continues to prioritize enforcing the ban on political intervention. What should charities know to avoid inadvertent political intervention? PACI's findings reveal a glimpse of what charities are doing wrong.

See the accompanying chart on page 26 to find the types of activities PACI found to be political intervention by charities.

Clearly, walking the thin line between permitted activities, such as issue advocacy and banned political intervention, is no job for the clumsy. The IRS evaluates all the facts and circumstances to determine if a violation has occurred.

The specific facts PACI used to determine whether Web sites contained political activity or endorsement statements were attributed to a charity is not known because by law the IRS may not disclose enforcement details. But we can look at the guidance issued and develop a cautious strategy to decrease the probability that a charity will have a political intervention issue.

A good place to start is with IRS Fact Sheet 2006-17. Dated February 23, 2006, this fact sheet contains general descriptions of prohibited activities as well as 12 examples finding no political intervention and nine examples illustrating political intervention. The IRS describes the Fact Sheet as a first step in its effort to increase the educational material available to charities. You can read it at,,id=154712,00.html

The political intervention line may be crossed inadvertently whenever your organization opens its communication forums to the public or related or like-minded entities. Specific challenges include Web site content and distribution of candidate-friendly or candidate-adverse statements at charity facilities or charity events.

Web site content

Charities may inadvertently engage in political intervention using their Web sites. The IRS scrutinizes this communication tool just as it does verbal statements and printed material of the organization. Your organization is responsible for the statements posted on your Web site as well as the content of Web sites to which you decide to link. You have control over postings and the decision to link to additional sites.

If you link to Web sites that you cannot control, you take the chance that the entity with control will post items that you are unable to post under the political intervention rules. According to Fact Sheet 2006-17, organizations may reduce the risk that the IRS will perceive their Web site links as political intervention if they monitor the linked content and make any necessary adjustments.

Limiting Web site linkage to only the Web sites of other tax-exempt organizations will not ensure you avoid political intervention. Section 501(c)(3) organizations related to organizations exempt under other sections often link to the other organization's Web site or occupy pages on that site. But you must remember that non-charitable tax-exempt organizations face far less restrictive rules on political activities than you do.

Fact Sheet 2006-17 is silent on how the IRS views candidate-endorsing message board postings and other user-posted content on your Web page. However, applying the control test that justified charity responsibility for linked content, you control whether you enable others to add posts to your Web site and, therefore, you may be responsible for the contents of these posts.

Literature available at charity facilities or functions

As the PACI report shows, it may be an impermissible political activity if you allow political candidates or their supporters to make supporting literature available at your organization's facilities. Just more than one-third of the charities investigated for this mason were found to have intervened in a political campaign. Fact Sheet 2006-17 does not provide examples indicating when this may be permissible.

As we learned above, the IRS looks at charities as the responsible party when they open a forum for public comment or choose to allow content from another entity into their endorsed space. The same principle may apply if you allow the public onto your property or into your functions. If it does happen, the same corrective action, monitoring and removal of inappropriate literature, should minimize risk of a political intervention finding.

Non-leader endorsement statements at charity functions

The IRS singles out organization leaders (presidents, chairpersons, ministers, etc.) and prohibits them from making partisan comments in official organization publications or at official organization functions. Fully 100 percent of the allegations investigated concerning non-candidate endorsement at a charity function were political intervention under PACI.

Treatment of non-leader endorsement statements, however, is unclear. Arguably, it's again an open forum controlled by your organization. But part of the control discussed with other types of political intervention was some ability of the charity to take corrective action to limit its risk. Unlike your ability to remove improper literature or delete improper Web content, organizations limited by current technological advances cannot delete oral statements from the hearing of those present at your functions.

Perhaps so long as you do not encourage statements of candidate endorsement, you have insufficient control over your public forum to create responsibility for the political content. Guidance on the level of encouragement required to create control would help charities understand their responsibilities in this area.

Issue statements

Issue statements present a different issue that may cause you to inadvertently engage in political intervention. Organizations that make issue statements often seek to create and take advantage of a political spotlight on the issues important to them. If successful in their efforts, candidates take up the charity's issue and campaign on it. Organizations could find it difficult to stifle broadcasts of their support for candidates that get their issue right.

Fact Sheet 2006-17 includes examples of how these broadcasts can cross into political intervention.

The IRS looks at the following "key factors" in its facts and circumstances analysis of issue statements as political intervention:

* Whether the statement identifies candidates for political office;

* Whether the statement expresses approval or disapproval for one or more candidates' positions and/or action;

* Whether the statement is delivered close in time to the election;

* Whether the statement references voting or an election;

* Whether the issue has been raised as an issue distinguishing candidates for a given office;

* Whether the statement is part of an ongoing series of communications by the charity on the same issue that are made independent of the timing of any election; and

* Whether the timing of the statement and identification of a candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also is a current candidate for public office.

Naming a candidate may only be permitted in relation to a non-electoral event described in factor seven or in an issue-oriented campaign that mentions neither an upcoming election nor keeping the candidate in office, if the campaign meets factor six. A Jan. 13, 2006 private letter ruling allowed officeholders to sign fundraising campaign letters that satisfied factor six. However, again the IRS will look at all of the facts and circumstances relating to the factors described.

If your organization wants to become involved in educating the public during this election season, you will need to carefully consider your options. Everything connected with campaigns is newsworthy and closely monitored today. While this shouldn't prevent you from performing your exempt purposes, you will have to act cautiously. As the PACI report illustrates, the IRS is watching.

Harvey Berger, CPA, is a partner and national director of not-for-profit tax services in Vienna, Va., for the accounting and management consulting firm Grant Thornton LLP His email address is Jocelyne C. Miller, JD, is an associate in the Washington, D.C. area not-for-profit tax practice of Grant Thornton. Her email address is
Activity Percentage of
 cases involving

Endorsement of the candidate by a third party at
 a charity function 100%
A candidate speech at an official charity function 82%
Display of candidate-endorsing signage on charity
 property 75%
Endorsements by a charity official at an official
 organization function 75%
Financial contribution to a campaign by a charity 71%
Church officials making statements during normal
 services endorsing candidates 63%
Charity endorsement of candidates on its Web site
 or through linked content 47%
Distribution of printed documents supporting
 candidates 38%
Distribution of biased voter guides or candidate
 ratings 29%
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Title Annotation:Taxing Issues; Internal Revenue Service; rule on political activity by nonprofit organizations
Author:Berger, Harvey
Publication:The Non-profit Times
Geographic Code:1USA
Date:Apr 1, 2006
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