Article Archives >> Lead Stories >> March 1-15, 2006
IRS Revokes 3 Exemptions for Electioneering;
Will Continue Monitoring During ’06 Elections
Nearly 3/4 of charities reviewed engaged in political activity;
Service imposes tax on one, gives written warning to others
The Internal Revenue Service has recommended revocation of exemption of three charities and the imposition of excise taxes on another in 82 completed examinations of alleged political activity during the 2004 election year. It closed another 55 cases with written warnings to the organizations, including churches.
The Service also announced that it will move more quickly to address possible intervention in the 2006 election cycle by activating a Political Activity Classification Committee to screen all complaints at least weekly and initiate investigations within two weeks. (IR-2006-36.)
Section 501(c)(3) charities are prohibited from participating in election campaigns and, unlike lobbying where certain levels are entirely appropriate (See Ready Reference Page: “Lobbying Rules Create Opportunity for Charities.”) they can lose their exempt status for electioneering. (See Ready Reference Page: “Charities May Not Participate in Elections.”)
The Service found “confusion” in interpreting the statutory language that charities “may not participate in, or intervene in (including the publishing or distributing of statements, any political campaign on behalf of (or in opposition to) any candidate for public office.” Especially in cases involving churches, it said, the phrase had been interpreted to mean that the prohibition on political intervention was limited to expressly endorsing or opposing candidates. The majority of the cases alleged against churches “suggested that the pastor made a conscious effort to avoid an express endorsement, yet made an indirect endorsement clearly conveying a message on behalf of, or in opposition to a candidate.”
In an effort to clarify the rules for the future, the IRS issued a new Fact Sheet (FS-2006-17) giving guidance on its interpretations. (See Ready Reference Page: “IRS Issues New Guidance on Electioneering” March 1-15, 2006 Ready Reference Page.)
Some of the specific instances of alleged political intervention included:
• Charities, including churches, distributing diverse printed
materials that encouraged their members to vote for a particular
candidate (24 alleged, 9 determined).
• Religious leaders using the pulpit to endorse or oppose
a particular candidate (19 alleged, 12 determined).
• Charities, including churches, endorsing or opposing a candidate
on their website or through links to another website (15 alleged;
7 determined).
• Charities, including churches, disseminating voter guides
or candidate ratings that encourage readers to vote for particular
candidates (14 alleged, 7 determined).
• Charities, including churches, placing signs on their property
that show they support a particular candidate (12 alleged, 9 determined).
• Charities, including churches, giving improper preferential
treatment to certain candidates by permitting them to speak at functions
(11 alleged, 9 determined).
• Charities, including churches, making cash contributions
to a political campaign (7 alleged, 5 determined).
The IRS concluded at the outset of its examination that 22 cases did not need further investigation and is still working on 28 open cases. In five cases, it found violations not involving political intervention, including failure to file proper returns.
The written warnings were issued where the Service believed that the organization had engaged in political activity but “the activity appeared to be a one-time isolated violation and the organization corrected the violation where possible (e.g. recovered the funds spent on the activity), and, in most cases, took affirmative steps to ensure it would not violate the prohibition in the future,” the IRS said. The written advisories include “a warning that the organization risks possible revocation of tax-exempt status should it become involved in political activities in the future.”
YOU NEED TO KNOW
The fact that the IRS has issued results and guidance before it
has completed the project suggests that it is serious in seeking
to create a climate where violation of the electioneering prohibition
may actually have consequences. The rule has often been discounted,
especially with churches.
Article Archives >> Lead Stories >> March 1-15, 2006
