August 06, 2007
Tax Lawyers Ask IRS to Clarify Election Rules for Nonprofit Groups
By Peter Panepento
Washington
Several prominent lawyers who specialize in nonprofit issues are calling on the Internal Revenue Service to be clearer about which types of political discussion are allowed — and which are prohibited — before the 2008 election intensifies.
The IRS has been cracking down on nonprofit groups that have been participating in possible partisan activity, opening investigations into more than 350 nonprofit organizations related to their activities during the 2006 election cycle.
But speakers at a forum last week organized by OMB Watch, a Washington advocacy group, said the tax agency’s increased enforcement is stifling legitimate political discussions by nonprofit groups because the agency has yet to offer clear definitions about what is off limits.
“We really don’t know how to comply with the ban on partisan political activities,” said Kay Guinane, director of OMB Watch’s Nonprofit Speech Rights Program. “The uncertainty surrounding these rules makes our job difficult.”
Federal law prohibits religious congregations and other nonprofit groups from participating in partisan political campaigns in support of, or in opposition to, candidates for public office. Organizations that violate the law run the risk of losing their tax-exempt status.
IRS officials have said that they have seen a sharp increase in complaints about possible partisan activities since the 2004 election cycle. In turn, the agency has started an internal effort to patrol such abuse more aggressively.
“Every election season brings reports of charities supporting or opposing particular candidates,” Steven Miller, the IRS’s tax-exempt division commissioner, said in recent testimony before members of the House Ways and Means committee. “The number of allegations of improper activity, together with increased campaign spending, has raised concerns about whether prohibited funding and activity are growing.”
But as the tax agency probes more organizations for possible illegal activity, critics say it is snaring potentially innocent nonprofit organizations because it uses a hard-to-interpret set of factors to determine whether a church or other nonprofit group is crossing the line.
The tax agency earlier this summer offered some clarification to nonprofit organizations when it released a document spelling out 21 scenarios that involve tax-exempt organizations and political discussions. Those scenarios each included a determination by the IRS about whether the described activity was a violation of the law.
Gregory L. Colvin, a San Francisco lawyer who specializes in representing nonprofit clients, said that document is a step forward — but it doesn’t go far enough.
“There is still not a bright line,” Mr. Colvin said. “At the very least, we’d like to have the ability to tell our clients that there are specific gray areas and there are specific things that will get you in trouble.”
At the OMB Watch forum, Mr. Colvin offered a proposed “safe harbor” document that would provide nonprofit leaders with a more defined list of safe activities.
Mr. Colvin’s proposal, for instance, says nonprofit groups can mention a public official in their communications as long as they do not expressly advocate the election or defeat of the politician and make no mention of his or her candidacy.
It also would allow churches and other nonprofit groups to discuss public-policy issues, elections, and voting as long as the discussions do not specifically mention any elected officials by name, political parties, or any public office.
Without such guidance, many organizations are unsure whether legitimate policy discussions related to their missions will prompt an IRS investigation, said Marc Owens, a Washington lawyer who from 1990 to 2000 served as head of the Internal Revenue Service’s division that oversees tax-exempt groups.
Mr. Owens, who has represented several of the organizations investigated by the IRS for election-related activities, cited the “absurdity of the current IRS approach” for fostering a climate in which religious organizations are afraid to talk about their opposition to the war in Iraq and environmental groups are worried about talking about hot-button political issues such as global warming.
But while the rules are opaque, the IRS is unlikely to provide clarity unless its hand is forced by nonprofit leaders, said Beth Kingsley, a Washington lawyer who specializes in tax exemption, lobbying, and election law.
Ms. Kingsley said she believes nonprofit groups need to quickly mobilize lawmakers behind their cause if they want to push for more guidance in time for the 2008 election.
But even if the rules get spelled out more clearly, some critics say the real problem is with the way the IRS investigates organizations it suspects of violating the law.
“The IRS confuses itself with the Centers for Disease Control,” said Karl Sandstrom, a former commissioner of the Federal Election Commission and a lawyer in Washington who specializes in political and federal campaign-finance law.
Mr. Sandstrom said the tax agency views political discussions by nonprofit organizations as symptoms that must be examined. As a result, it conducts costly audits and threatens organizations with revocation of their tax-exempt status if they are found to violate the law, steps Mr. Sandstrom said are often not warranted by the facts.
According to the IRS, five groups lost their tax-exempt status for engaging in partisan activities following the 2004 election cycle.
Quite often, though, Mr. Sandstrom believes, the punishment does not fit the crime.
“In cutting out the tumor, they tend to cut out vital organs,” Mr. Sandstrom said.
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