NAACP Disputes Timing of Audit, Refuses to Turn Over Records to IRS

The National Association for the Advancement of Colored People has refused to provide the Internal Revenue Service with documents and other information it needs to audit the organization, saying the tax agency overstepped legal bounds last year when it started an investigation of the group.

The IRS told the organization it was concerned that a speech by the group’s chairman, Julian Bond, might have violated the government’s ban on politicking by charities.

The NAACP denies that the speech was improper — and says the announcement of the audit, which came before Election Day, seemed to be motivated by Mr. Bond’s criticism of President Bush.

In protesting the audit, the NAACP says the IRS has misinterpreted a legal provision that allows it to audit groups before they have closed the books on their fiscal year.

As part of the 1986 overhaul of the Internal Revenue Code, Congress granted the IRS the power to audit an organization immediately if its activities “constitute a flagrant violation of the prohibition against making political expenditures.”

But the NAACP says that nothing it has done met that standard.

“Congress clearly did not intend to authorize the IRS to apply these extraordinary remedies when campaign intervention was merely suspected or even considered to be likely occurring, but rather only in cases involving an ongoing flagrant expenditure of funds,” wrote Lloyd H. Mayer and Marc Owens, the organization’s lawyers, in a letter they sent to the IRS last month. Mr. Owens spent a decade as the head of the IRS division that oversees charitable groups.

The IRS, as is its customary policy, said it could not comment on the specifics of a case involving a particular organization. However, Steven T. Miller, commissioner of the IRS’s tax-exempt and government entities division, said it decided during the 2004 election campaign that it would use the provision that allows early audits.

“The process was designed to get out as quickly as we could to organizations once we had determined it was worth a look,” he said last week. “That didn’t happen perfectly, but the delays were not major.”

The tax agency has said that the NAACP was one of about 60 such election-related audits it was pursuing at a broad spectrum of political organizations. Mark Everson, the IRS commissioner, told Congress that the IRS decided to investigate “one or more organizations” after a request from two lawmakers, whom he declined to identify.

July Speech

According to the NAACP, the IRS’s main area of inquiry is a speech made by Mr. Bond in July, at the charity’s annual meeting, that criticized President Bush’s policies. Under federal law, churches and charities must not support or oppose a candidate for public office, but tax lawyers say that charities may take positions on issues related to their missions.

The IRS asked the NAACP to provide details about its operations, including the names and identities of board members, the cost of the convention, who authorized Mr. Bond’s speech, and minutes of board meetings in which a decision was made to distribute copies of the speech, which was posted on the charity’s Web site.

Lawyers for the NAACP said in their letter to the IRS that Mr. Bond’s speech did not qualify as “campaign intervention.” His comments were consistent with the NAACP’s policy of supporting issues of interest to minorities without regard to election cycles, they said. They also noted that the NAACP invited both the Republican and Democratic candidates to speak at the convention, although Mr. Bush declined, while Sen. John Kerry, the Democratic challenger, accepted.

“While criticism of an administration’s policies might constitute intervention under some set of circumstances, it hardly rises to the level of a ‘gross violation’ or a ‘flagrant’ expenditure,” Mr. Mayer and Mr. Owens wrote.

Broad Implications

Advocacy groups of all kinds are watching the IRS investigation closely because, they say, the outcome could lead to a new standard for what types of views charities can express without getting into legal trouble.

If the IRS decides to contest the NAACP in court on the question of the audit’s timing, many lawyers said, the organization has a good chance of winning. But even if the NAACP were to win in court, said Bruce R. Hopkins, a lawyer in Kansas City, Mo., the victory could be short-lived. “All the IRS has to do is wait until the NAACP files its return, and then start over.”

Some observers question whether the IRS would do that, saying it might decide to drop the case to put an end to all the publicity it has generated.

In addition to charging that the timing of the audit was incorrect, the NAACP also charged in its letter to the IRS that the audit was politically motivated. Lawyers were divided in their views over whether that claim could succeed as a legal defense — and whether it had any merit.

Hugh Webster, a lawyer in Washington whose firm represents several groups he called politically conservative, said plenty of organizations have tried and failed to bring similar charges. “It’s a tough case to make. It’s tough to find proof, even if it’s true.”

He added: “Over the years, many right-leaning groups have been investigated and they invariably raise the charge that it’s politically motivated. The pendulum swings back and forth, and I think in the end it all evens out.”

Politics Concern

Frances Hill, a law professor at the University of Miami who studies the advocacy rights of tax-exempt organizations, says she’s not so sure.

“I’m very disquieted that the IRS, on such a fast track and so soon before a national election, would have seen fit to launch an audit under such unusual circumstances,” she said. “I cannot take off the table the hypothesis that the service was politically pressured.”

Ms. Hill said she is concerned that the NAACP case will prevent small charities from speaking out on issues they care about out of concern that they could not afford lawyers to challenge the IRS if audited.

On the other hand, she said, the case could “encourage the very wealthy and powerful” to be more aggressive in pushing the edges of permissible political activities. “This may be the answer to their dream,” she said. “They can use an example of the IRS overreaching to delegitimate any enforcement of campaign-finance laws. I think they’re going to just dare the IRS to come after them now.”

Regardless of the outcome, said Gregory L. Colvin, a nonprofit lawyer in San Francisco who said his office is representing other organizations being audited for alleged political activities, the NAACP’s decision to fight the early audit has implications for all nonprofit groups.

“Any time the tax-exempt community resists questionable examinations like this, or puts the IRS to the test as to what the standard is for political intervention,” he said, “we can hope that the outcome eventually will clarify the law for everyone, and make it easier to comply in the future.”