Exempt Organizations Advisory - IRS Provides Guidance on 501(c)(3) Political Activity

Today, the Internal Revenue Service released a report from the Political Activity Compliance Initiative Project Team regarding political activity by section 501(c)(3) organizations during the 2004 election campaign.

The report found some level of prohibited political activity in nearly three-quarters of the 82 exams that have been completed to date, including exams of churches. In fifty-five of the reviewed cases, the tax-exempt organization engaged in prohibited campaign activity, but only as a one-time, isolated violation, and the IRS issued written advisories. In three cases, none of which involved churches, the IRS decided that prohibited political campaign activity occurred and was serious enough to warrant revocation of the organization’s exempt status. Some of the specific instances of the examined prohibited political activity were the following:

• 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; 4 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); and
• Charities, including churches, making cash contributions to a candidate’s political campaign (7 alleged; 5 determined).

In connection with the report and as part of the Political Activity Compliance Initiative, the IRS also released new procedures for 501(c)(3) organizations for the 2006 election season. Click here for more information. The procedures, which provide additional guidance to charities regarding their political activities, are meant not only to educate 501(c)(3) organizations regarding the prohibition on political activity but also to "put them on notice" of the enforcement program and to address noncompliance so that there are no reoccurrences.

IRS educational and enforcement efforts also include a new fact sheet to provide charities with advance notice of the statutory rules involving political activity in order to help them stay in compliance with federal tax law as enacted by Congress, Treasury regulations, and court decisions. Click here for more information. The fact sheet includes many of the types of political intervention activities that came under scrutiny during the 2004 election cycle.

For the full report, click here and, for the executive summary, click here. 

For more information on this topic, please contact Catherine W. Wilkinson, Suzanne Ross McDowell, or the Steptoe attorney(s) with whom you usually work.

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) 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.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.