DATELINE, June 1, 2007, Chicago
One thing is clear, the IRS's Political Activities Compliance Initiative Project is working. Today, the IRS issued a report for the 2006 election year. The 2004 report was based on 166 referrals, which resulted in 110 organizations selected for examination. Candidates and their supporters apparently took note. The 2006 report saw the number of referrals increase to 237, but only 100 of those warranted examinations. The higher number is in part due to a nine-month collection period in 2006, compared to a six-month period in 2004. The referrals continue to be evenly split between alleged violations by...
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churches and non-churches.
What is particularly surprising is the number of cases involving direct contribution by Section 501(c)(3) organizations to political campaigns. There were 269 such apparent violations, with the total contributions totaling $343,963. Of that amount, about $121,000 has already been refunded to charities. These cases are in addition to the main ones described in the 2006 report.
The PACI examinations are limited in scope and expedited. The examinations are categorized into the following three categories:
- Category A—Single Issue non-complex
- Category B—Multiple issue complex
- Category C—Egregious and repetitive alleged violations
The IRS is getting very quick at responding to alleged violations. Of the 100 examinations, 40 involved churches that fell into Categories A and B, with an average resolution period of just under 80 days. There were no churches placed in Category C. Fifty three (53) of the examinations involved non-churches that were placed in Categories A and B. Here the IRS was able to resolve the matter, on average, in just under 35 days. There were only 4 organizations that fell into Category C. Here the average resolution time was 26 days.
Tax counsel to organizations that are inclined to cross the line should take note of the problem areas, as detailed in the following chart:
Allegations |
2004 Totals |
2006 Totals |
EO distributed printed documents supporting candidates |
24 |
14 |
Church officials made a statement during normal services endorsing a candidate |
19 |
13 |
Candidate spoke at an official EO function |
11 |
16 |
EO distributed improper voter guides or candidate rating sheet |
14 |
7 |
EO posted sign on its property endorsing a candidate |
12 |
15 |
EO endorsed candidates on its Website or through links to another Web site |
15 |
11 |
EO official verbally endorses a candidate |
8 |
5 |
EO makes political contribution to candidate |
7 |
11 |
EO allows non-candidate to endorse a candidate during speech at EO function |
4 |
2 |
EO's facilities used for political campaign intervention |
0 |
6 |
At this time, the IRS has proposed no revocations for any of the 2006 cases included in the 2006 report. In 26 cases, the IRS substantiated the intervention and issued a written advisory. In 14 cases, the political intervention was not substantiated. Ten of those cases involved churches, suggesting that the populace is quick to react to what it believes to be inappropriate interventions.
It appears that unless prohibited activity is egregious, charities get a free bite at the apple. We wouldn't advise anyone to take that bite, because there is always a chance that the IRS will expel them from the Garden of Tax-Exempt Eden, but the statistics suggest a free-bite policy. The second bite is very likely to be noticed. The 2006 report indicates that the IRS has implemented a follow-up process where it conducts quarterly Internet research on organizations that previously received written advisories for isolated incidents.
The 2006 report also notes that the IRS is researching various state campaign finance report databases looking for inappropriate campaign contributions from charities. In other words, the IRS has significantly broadened its radar. It is this additional effort that identified the 269 cases of inappropriate campaign contributions noted earlier. Beware.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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