March 9, 2006 | Read Time: 5 minutes
The Internal Revenue Service last month released its long-awaited report on the involvement of tax-exempt groups in the 2004 elections. The investigation was designed to determine whether charities and religious groups had broken laws that prohibit charities from supporting or opposing candidates for political office, and was the beginning of what the IRS promised would be a more-aggressive effort to punish wrongdoing.
Although its investigation turned up numerous violations of federal law, most of what the IRS found were minor lapses — so inconsequential that the tax agency simply sent the groups letters advising the organizations to stop what they were doing.
But while the IRS said it was trying to reduce uncertainty about the law on electioneering, the report it issued to summarize the result of its investigations — and the advice it issued along with it — has actually made the boundary between acceptable advocacy and unacceptable campaigning even blurrier.
The big-scale investigation grew out of an unprecedented, “fast track” effort to examine allegations of illegal behavior by nonprofit groups during the last election cycle.
A special team of IRS officials looked closely at 110 churches and other kinds of tax-exempt groups accused of violating the law. So far, they have found violations at 59 of the 82 groups, with the rest still under review. The illicit activities included endorsing or opposing candidates, distributing voter guides, and, in five instances, contributing money to political campaigns.
Unfortunately, because IRS rules require that its investigations remain confidential, the identity of the organizations under review and the extent of their transgressions are unknown.
Unless organizations provide the information voluntarily, what happened to groups publicly identified as under investigation by the IRS, such as Pasadena’s All Saints Episcopal Church, which reportedly permitted an anti-Bush sermon near Election Day, is apt to remain concealed.
Although such secrecy undoubtedly spares embarrassment to the groups concerned, it limits the value of IRS efforts for guiding the actions of others.
In any event, the abuses of the rules against campaigning do not seem to have been severe. The IRS called for revoking the tax exemptions of the groups under investigation in just three of the 82 cases it has finished reviewing. It levied a fine on one other organization. For the rest, a letter, indicating the nature of the offense and soliciting a promise from the organization not to commit it again, apparently sufficed. Indeed, in many of these cases, the report suggests the violations of the law were inadvertent.
To be sure, the IRS looked at just a tiny fraction of the tax-exempt world — those nonprofit groups whose conduct was egregious enough to come to public attention.
But even among that portion, many of the problems apparently stemmed from mistaken judgments in the heat of a hotly contested election, rather than deliberate efforts at wrongdoing.
While clearer rules and stricter enforcement might curb deliberate attempts to skirt the politicking rules, they are unlikely to deter the tens, if not hundreds of thousands of nonprofit groups that, caught up in the excitement of a campaign, do something they shouldn’t.
Even with substantially more investigators, the IRS will be no more able to prevent such slip-ups than more police on the highways can reduce automobile accidents.
Nonetheless, along with beginning its compliance activities earlier in this year’s election season, the IRS plans to increase its educational efforts, starting by distributing a new fact sheet expanding on its previous guidelines for nonprofit political involvement.
According to last month’s report, many of the groups cited, especially churches, tried to avoid directly endorsing or opposing candidates, but did not realize that even faint praise, under the right circumstances, could amount to the same thing in the eyes of the law.
In addition, as the new guidelines make clear, statements and publications on issues of concern to a nonprofit group can sometimes be considered campaigning. For example, a report describing how office seekers stand in relation to an organization’s position could be a violation, if published while an election is under way.
Although not a departure from previous rules, these new guidelines are the most explicit indication yet that the IRS — like the Federal Election Commission, which regulates political contributions — no longer regards the use of so-called “magic words,” such as “vote for” or “vote against,” as essential in determining whether a group is participating in a campaign.
Instead, it plans to judge the political involvement of tax-exempt groups by the manner and effects of their actions. If a group behaves so as to help or hinder a candidate, including by advocating for changes in public policy that one politician supports but another doesn’t, it could be considered to have become involved in an election. While more consistent with the policy laid out in the Bipartisan Campaign Reform Act of 2002 (often referred to as the McCain-Feingold bill), this stance also opens the door to IRS scrutiny of a wider range of nonprofit activities.
As a result, tax-exempt groups now face considerably greater risks. In light of the publicity given to the IRS’s 2004 efforts and the more vigorous efforts planned for 2006, “organizations should clearly have an understanding of the rules,” the IRS report concludes, “and the message that the IRS is serious about enforcing the prohibition” against campaigning by tax-exempt groups.
However, while no doubt may exist about the determination of the InternalRevenue Service, the issue of which political activities are permissible is still a long way from being resolved. And with more money being spent on election campaigning, and activists from all parts of the political spectrum urging nonprofit groups to become more involved, the chances of more organizations unwittingly being caught up in the next round of IRS examinations have grown.
What’s more, the IRS envisions the possibility that new legislation might be necessary “to ensure our ability to effectively regulate in the area” and that it might make greater use of its power to revoke tax exemptions in the future.
In the past, the difficulty of defining when nonprofit organizations have taken part in elections led to a policy of selective enforcement, which singled out the most flagrant abusers in order to warn other charities to be more careful about their own activities.
Now, though the meaning of campaigning has broadened, compliance efforts seem headed toward becoming more efficient, a direction that is sure to make the environment in which nonprofit political activity occurs more challenging.
Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.
