Exempt Organizations Advisory - Interim Guidance Regarding "Political Referrals" for 501(c)(3) Organizations

The IRS recently released a memo providing interim guidance to revenue agents and IRS managers regarding political intervention case procedures for both church and non-church 501(c)(3) organizations.  A "political intervention case" is a case in which a 501(c)(3) organization has allegedly participated or intervened in a political campaign on behalf of or in opposition to any candidate for public office.  The purpose of the procedures is to focus the IRS' resources during election cycles in order to expeditiously address instances of political intervention by Section 501(c)(3) organizations.  The procedures reflect the Service's intention to increase its enforcement presence on this issue.

Procedures
The memo requires a "Fast Track" procedure for political intervention cases during election cycles.  An election cycle begins March 1 of even numbered years and ends November 30 of that year.  In odd numbered years, the Director of EO Examinations has the authority to determine whether the "fast track" procedure is necessary for state or local elections

The "fast track" procedures begin with a referral and end with a closed case.  The exam may be initiated before a return is filed and before the end of the tax year.  If a 501(c)(3) organization is selected for examination, the case is referred to a field group within 20 working days.  Within 2 days of receipt by the group, the case is assigned to an agent.

All cases are classified by a classification committee as either a Type A or Type B case.  Type A cases are those which are likely susceptible to resolution via correspondence and are relatively non-complex.  In contrast, Type B cases are complex and would likely require a review of the organization's books and records.
 

Taxpayer Contact by Examination
When and how the taxpayer is contacted by examination depends on whether the case is classified as a Type A or Type B case.

• Type A: The field agent is required to send an initial contact letter within 5 days of the group's receipt of the case.  This letter will include details of the alleged conduct or activity and an IDR asking for an explanation.
• Type B. The field agent is required to send an initial contact letter within 10 days of the group's receipt of the case.  The letter will indicate that information has been received, will identify the agent assigned to review the matter, and will set forth briefly the legal provisions dealing with political intervention and the possible consequences.  After the initial contact letter, a second contact letter will be sent by the agent no sooner than 8 working days and no later than 15 working days after the initial contact letter.  This letter will include the specific details of the alleged conduct or activity and will be similar to the Type A initial contact information. 

For more information on this topic, please contact Catherine W. Wilkinson or Suzanne Ross McDowell.

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.

For more information on this topic, please contact the authors or the attorneys with whom you usually work at Steptoe.

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