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Keep Out of Politics: The IRS Political Activities Compliance Initiative

With the 2008 presidential campaign season officially upon us, some nonprofits and their employees could soon find themselves faced with gray areas regarding the types of political activities they may or may not be permitted to become involved with.

The issue is a serious one: engaging in prohibited political activity can result in excise taxes or even loss of tax-exempt status. In 1992, the Landmark Church in Binghamton, New York, took out newspaper ads opposing Bill Clinton's candidacy for president. Three years later, the IRS revoked the church's tax exemption. A federal judge and then a federal court of appeals upheld the IRS's decision.

On the surface, the rules are pretty simple. The Internal Revenue Code states that
501(c)(3) tax-exempt organizations may not "participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office." Within set limitations, however, these same organizations are permitted to advocate for or against specific issues or ballot initiatives.

To ease the burden of ambiguity, the IRS has announced that its Political Activities Compliance Initiative (PACI) is once again in effect. Education is one of the two main themes of this program, as the IRS seeks to ensure that charitable organizations have easy access to the information they need to make the proper decisions regarding political activities.

"We take very seriously our obligation to ensure that tax-exempt organizations have the information they need to make the right decisions about political campaign activities," said Steven T. Miller, commissioner of the Tax Exempt and Government Entities Division at the IRS. "The vast majority of organizations want to do the right thing, and, as in past years, we will continue our efforts to make sure they have the information they need."

Enforcement is the second theme of the program, with the IRS Exempt Organizations Division making it clear that it intends to impose these restrictions—as well as the punishments that stem from their transgression—both firmly and fairly.

In the interest of education, the IRS has:

  • Sent letters to the committees of national political parties to ensure that the restrictions on nonprofits are clearly understood
  • Published a letter in the Federal Election Commission's newsletter requesting that candidates closely monitor their interactions with charities
  • Issued a press release on the subject of nonprofits and political campaigns, as they have for each of the past four presidential elections
  • Posted a letter on the IRS Web site to its own employees outlining the objectives of the 2008 PACI
In regard to enforcement, the IRS will concentrate on the identification of flagrant violations of these rules and the implementation of appropriate penalties. From past experiences, the PACI has identified certain areas where violations are most likely to occur.

Examples of situations that may merit IRS involvement include an organization advocating for or against an issue by providing information about the positions of specific candidates and a nonprofit Web site that posts information linking to other sites that include impermissible material supporting or opposing a particular political campaign.

The IRS plans to use the experiences of the 2008 PACI to improve future efforts and to continue working with the sector to identify specific areas that call for further guidance or explanation.

Patrick Ferraro, June 2008
© 2008, Philanthropic Research, Inc. (GuideStar)

Patrick Ferraro is a freelance writer in Seoul, Korea, and a former editor of the Newsletter.
Topics: Law and Regulations