Exempt Organizations Advisory - IRS and FEC Report Growth of Illegal Political Activity by Exempt Organizations

By: Catherine W. Wilkinson (cwilkinson@steptoe.com)
Suzanne Ross McDowell (smcdowell@steptoe.com)

On September 19, Lois Lerner, IRS’s Director of Exempt Organizations, spoke at the annual meeting of the Council on Governmental Ethics Laws (COGEL).  According to an article in BNA’s Daily Tax Report, Lerner reported that the number of complaints received by the IRS about illegal political activity by exempt organizations grew from 2004 to 2006.  BNA further reported that the IRS intends to follow up on all credible complaints during this election cycle.  

According to BNA, another focus of the panel discussion was the increasing use of 527 organizations and complaints that these tax-exempt organizations are not following FEC rules.  Mark Shonkwiler, an enforcement staff attorney from the Federal Election Commission (FEC), reported that the FEC has collected fines of nearly $2.5 million from 527 organizations involved in settlements with the FEC.  Shonkwiler suggested that, since rules governing 527 organizations have now been clarified, future illegal activity by 527s could face stiffer penalties, including liability of individual donors or officers of groups.

The IRS has been working to educate exempt organizations on the types of political activity that are prohibited for section 501(c)(3) organizations.  Recently, the IRS issued a Revenue Ruling on this subject.  For more information on this recent Revenue Ruling, please see our EOA of June 5, 2007.