DATELINE: May 5, 2008, Chicago
Nobody doubts that we are in full campaign mode right now. In fact, most people are a little tired of the entire process notwithstanding the battle royale taking place on the Democratic side of the aisle. Last month, Lois Lerner, IRS Director, Exempt Organizations, issued a memo to her staff outlining the Service's goals regarding its Political Activities Compliance Initiative (PACI) for the current election cycle. Lerner was quick to note...
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that the current procedures will remain in place. These procedures provide important taxpayer and consistency safeguards and advance the examination process. EO will continue to use the PACI Referral Committee and a project coordinator. As in the past, this committee of career civil servants with EO tax law experience will continue to determine which cases to pursue, and the project coordinator will help ensure consistency.
But there are some noteworthy additions. Specifically,
Issue Advocacy. The Service will be taking a closer look at voter guides sponsored by organizations that are engaged in issue advocacy (an otherwise permitted activity) when the voter guides focus on just one issue. To determine whether a communication is permissible issue advocacy or prohibited political campaign intervention, consideration will be given to the context in which the guide is distributed, and to whether the manner of distribution and other facts and circumstances surrounding the communication tips the scale in one direction or another. Distribution of a communication that on its face appears to satisfy the requirements of a permitted issue advocacy communication may become a impermissible campaign intervention if it is accompanied by a statement, or an action, that ties a position articulated in the communication to a particular candidate or election.
What makes this statement particularly interesting is the fact that earlier in the memo, Lerner states:
EO must be prepared to face taxpayer challenges, which may lead to court, regarding IRS published positions on issue advocacy, whether the fact patterns involved match the examples provided in the Revenue Ruling or present novel facts and circumstances.
The Service finally has decided to strap on its boxing gloves. In our view, the Service has been far too tentative in the past when it comes to yanking the exemption of groups that in our minds have intentionally violated the rules.
Internet Links. Lerner's memo states that experience indicates that information posted on Web sites that have resulted in numerous cases of potential campaign interventions. She focuses in particular on links. According to the Lerner:
[T]he context for the link on the organization's Web site matters, as does the directness of the links between the organization's Web site and a Web page favoring or opposing a candidate. The principles articulated in the revenue ruling are reinforced by work on these cases which suggests that electronic proximity – including the number of "clicks" that separate the objectionable material from the 501(c)(3)'s Web site – is a significant consideration.
Lerner then draws a distinction between linking to related and unrelated Web sites. In the case links to the an unrelated organization's Web site, the Service will ask whether the Section 501(c)(3) organization "is organization is promoting, encouraging, recommending or otherwise urging viewers to use the link to get information about specific candidates and their positions on specific issues."
We would have thought the Service would be tougher on links to related organization Web sites because the relationship means the Section 501(c)(3) would be more aware of the likely content, but just the opposite appears to be the case. According to Lerner,
EO will focus on analyzing the context around a link in the unrelated organization cases, and not pursue, at this time, cases involving a link between the Web site of a section 501(c)(3) organization and the home page of a Web site operated by a related section 501(c)(4) organization.
This decision is rooted in Justice Blackmun's concurring opinion in Taxation with Representation of Washington. We don't buy this rationale. This case stands for the proposition that 501(c)(3) and (c)(4) pairings are permissible if the finances are kept separate. We don't see how requiring that the Web sites be kept separate is inconsistent with that principle. Nor do we see how requiring that the two be kept separate impairs on free speech any more than the prohibition on campaign interventions.
Political Contributions. We are always surprised when we learn that a Section 501(c)(3) organization makes a contribution to a political campaign. This seems to us to be the most obvious and egregious campaign intervention. Yet, Lerner's letter suggests that the Service must continue to watch for this violation, implying that it is more prevalent than we would have ever imagined.
And so with Hillary and Barack continuing to battle it out, the Service continues to fight its own battle against violations of the prohibition on campaign interventions. No doubt things will get even more interesting once the Democrats make their selection.
Expect a final report on PACI cases by March 31, 2009. As in the past, we suspect it will demonstrate that the Service continues to act in non-partisian manner when it comes to case selection.
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