DATELINE: June 1, 2007, Chicago
Today, the IRS issued Revenue Ruling 2007-41, 2007-25 I.R.B., in its continuing efforts to provide guidance to charities regarding the line between permissible activity and impermissible political campaign interventions. The tax bar now has 21 new examples to mull over.
As is often the case in this area, many of the examples are obvious, but that is not necessarily a bad thing given the overall message running through the examples. That message being the importance of neutrality. Phrased more practically, the IRS is essentially telling charities, "Both of us know when you are stepping over the line."
We had heard through the grapevine that there was strong debate within the IRS over the question of...
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linking to other Web sites, with some people arguing that links to links to links had to be followed to the end of the Web to determine whether any of the linked pages endorsed a candidate. Even though there might be ten or twelve degrees of separation between the charity and the Web site endorsing a candidate, the charity would still run into trouble in the eyes of those demanding that all links be followed. Others wanted to take a more practical approach, looking just to Web sites that the charity had directly linked to. In our estimation, the latter approach is the only workable one. After all, why is it called the Web? If the IRS adopted "a link to a link to a link to a link" approach, charities probably couldn't link to other Web sites.
Interestingly, Revenue Ruling 2007-41 does not directly address the question of how many degrees of separation there must be before a charity no longer has to worry about a prohibited campaign intervention. That may mean that there is still internal debate going on within the IRS. The ruling nevertheless does provide common sense guidance on direct links. The degree of commonsense reflected in the guidance could be read to suggest that when the IRS finally confronts the question of degrees of separation, it will most likely adopt a common sense approach, focusing on the intent of the charity when linking to a particular Web site rather than a requirement that every link to a link be analyzed.
As for the specific examples, Situation 19 involves a charity that posts an unbiased, nonpartisan voter guide on its Web site. That is clearly permissible, but the charity goes one step further, creating links to each candidate's Web site so that people can obtain additional information. In creating those links, the charity adopts what the IRS refers to as "neutral links," as in "Here is each candidate's Web sites for your convenience, now do what you want with the information." Not surprisingly, the IRS concludes that the charity has not engaged in a political intervention.
Situation 20 is far more interesting. It involves a hospital that describes some of its treatment programs on its Web site. At the end of the description, it lists a number of links to other Web sites that will provide users with additional information. One of the links is to a newspaper article that praises the hospital's treatment program. The newspaper also has an online editorial page that endorses candidates, but in a different location on its Web site. The IRS concludes that the hospital has not engaged in a prohibited campaign intervention because the link's context and the hospital's relationship to the newspaper indicate that the hospital did not link to the newspaper to endorse a political candidate. In other words, the IRS examined the intent behind decision to link to the newspaper's site. Moreover, it recognized that newspapers provide a wide variety of information, both news and editorial. It is this example that causes us to believe the IRS will be reasonable when defining required degrees of separation. In fact, it suggests that degrees of separation may be largely irrelevant because there was no degree of separation in Example 20—the link was a direct link from the hospital site to the newspaper site. Instead, as we noted, the IRS's focus seems to be on the intent behind the decision to link. That would suggest that if a (c)(3) organization separated itself with twenty successive links before the reader got to the endorsement, but the exempt organization clearly intended the reader to get to that endorsement site, the IRS would find an intervention. Of course, who is really going to follow twenty links?—unless the exempt organization says "We will give you a $100 if you follow the links and find the page with a red ball on it," with that page just so happening to be the endorsement page.
Some commentary preceding these two examples can be read to suggest that charities should be periodically reviewing linked pages to make sure what was once neutral has not been chanced to endorse a candidate. We think that is a good idea.
The EO gurus will also find Situations 14, 15, and 16 to be of particular interest because they deal with the distinction between issue advocacy and political campaign intervention. All three examples reach the right result. Situation 14 involves a university that takes out a newspaper ad shortly before a primary election in which Senator C is a candidate. The ad notes that legislation is currently pending in the senate that would permit more state residents to attend college. The ad advises residents to write Senator C to request that he support such legislation. In the past, Senator C has opposed such legislation. Educational issues have not been raised in the campaign as a basis for distinguishing Senator C from other candidates. The IRS concludes that the ad is not a prohibited campaign intervention because the it does not mention the campaign and educational issues are not a factor in the campaign.
Example 15 reaches the opposite result. Here a governor is running for re-election. A charity that educates the public about increased public funding of education runs an ad that tells the public to "Tell Governor E what you think about our under-funded schools." That statement was preceded by numerous statistics showing that schools are underfunded. In this election, public funding of education is a major issue, with the governor's opponent focused on the governor's veto of an income tax increase that would have increased funding for public education. Moreover, there is no legislation currently pending that addresses public funding of education. As we suggested earlier, no surprise here. The IRS concludes that the charity has engaged in a prohibited intervention. The lesson: Charities probably should not engage in ostensible issue advocacy shortly before a campaign if no relevant legislation is pending and the issue in question represents a major division between the candidates on an issue that is hotly debated as part of the campaign.
Example 16 involves a not-so-veiled reference to an upcoming election, referred to as providing an "important choice." One candidate is very much in favor of legislation for funding mass transit, while the other wants to build new highways. At an annual fundraising dinner shortly before the election, the executive director of a charity that favors mass transit refers to the upcoming important choice, but without using the words election. Not surprisingly, the IRS characterizes this as a prohibited political intervention.
There are a number of unrelated examples that focus on whether the executive director or other person affiliated with a nonprofit is acting in his official capacity. For example, in Situation 3, the president of a hospital joins with five other prominent community leaders in endorsing a candidate for public office in a newspaper ad. The ad states that the individual is the president of the Hospital J, but that "Titles and affiliations of each individual are provided for identification purposes only." The IRS concludes that the hospital has not engaged in a prohibited political intervention because the individual was acting in his personal capacity rather than in his official one.
Situation 4 is quite interesting. Here a college president writes a monthly column in an alumni newsletter under the heading "My Views." In the issue published just before the election, the president endorses a candidate. He tries to stave off the IRS by paying for the cost of printing that particular column, but the IRS nevertheless finds a prohibited intervention because the publication is an official college publication.
Organizations are also likely to find Situations 17 and 18 to be of interest. One involves the rental of a theatre group's mailing list at fees comparable to those charged other presumably non-political organizations. That candidate supports increased funding for the arts. The group refuses to rent the list to other candidates. This is viewed as a prohibited campaign intervention. On the other hand, a museum rents its reception hall to a candidate for staging a fundraising dinner. The candidate pays the standard fee. This is deemed permissible because the museum is willing to make the hall available to anyone on a "first come, first served basis."
All and all, Revenue Ruling 2007-41 represents another successful effort on the part of the IRS to provide charities with useful guidance. It is useful because it covers a wide range of situations and focuses on several meaningful factors.
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