Exempt Organizations Advisory - Treasury Releases Updated Anti-Terrorist Financing Guidelines for Charitable Sector

On October 31, the Treasury Department published updated "Anti-Terrorist Financing Guidelines: Voluntary Best Practices for U.S-based Charities (Guidelines)," which are intended to aid the charitable sector in protecting against potential abuse and exploitation by terrorist groups and their support networks. Treasury also issued a response to comments submitted regarding the Guidelines.

The Guidelines have been controversial since they were originally released in November 2002 in response to the terrorist attacks of 9/11. In response to comments from affected charitable organizations, including recommendations that the Guidelines be withdrawn, Treasury issued revised Guidelines in December 2005 in draft form and requested further comment. Treasury again received comments, including many that recommended that Treasury withdraw the revised Guidelines.

According to Treasury, the Guidelines are "voluntary, not mandatory, and they do not amend or supersede existing statutes and regulations governing charities. The Guidelines provide recommended best practices, which are intended to help charities develop, reevaluate, and build upon pre-existing internal controls and protective measures."

Although charities agree that the Guidelines’ final version is an improvement over those first issued in November 2002, many of their concerns have not been addressed to their satisfaction. For example, there is concern that the Guidelines may become de facto legal requirements even though they are called "voluntary." Additionally, many charities are concerned that they will viewed as agents of the United States in foreign countries and that this perception will undermine their ability to interact with those they seek to help and may endanger the safety of charity workers.

Two stories last week show that political campaign activities continue to be a major issue for tax-exempt organizations. Watchdog groups, as well as the Internal Revenue Service, are on the look out for organizations whose activities are not permitted by law. (Please see our EOA from 2/24/06 for more information.) Although Americans will go to the polls tomorrow for the mid-term elections, these issues will continue to challenge exempt organizations as the campaign for the Presidential election of 2008 becomes increasingly active.

US Chamber of Commerce

On October 31, Public Citizen, a nonprofit watchdog group, filed a complaint with the IRS against the U.S. Chamber of Commerce, a 501(c)(6) business association, and the Institute for Legal Reform (ILR), an organization affiliated with the Chamber. Public Citizen alleged that these groups failed to report taxable political expenditures, as well as grants and allocations to other organizations, on their Forms 990 for the years from 2000 to 2004. The complaint also accuses the Chamber and ILR of commingling funds in a shared bank account to hide accurate reporting for tax avoidance purposes.

Under IRS rules, 501(c) tax-exempt organizations are required to report their political expenditures on their annual Form 990, and such expenditures are subject to tax. The Public Citizen complaint alleges that the U.S. Chamber of Commerce repeatedly either failed to report or underreported its political spending from 2000 to 2004, in contradiction to its public statements that the group spent many millions of dollars over those years on activities designed to influence the outcomes of key election campaigns.

Churches

On October 31, Americans United for the Separation of Church and State, a religious liberty watchdog group, issued a press release to advise houses of worship against "Religious Right" voter guides, which are being issued in advance of mid-term Congressional elections by a variety of organizations. Many of the organizations producing the guides are 501(c)(4) organizations, which may legally endorse candidates and work to influence elections. Churches, temples and mosques, as 501(c)(3) organizations, are not legally allowed to do either.

Americans United, in a campaign to inform churches about federal tax law which forbids partisan politicking by tax-exempt groups, warned that the bias of the voter guides puts the tax-exempt status of houses of worship at risk when they distribute them. "These guides are clearly partisan and deceptive," said the Rev. Barry W. Lynn, Executive Director of Americans United.

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.

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