The IRS Has Some Explaining to Do

The official end of the Internal Revenue Service’s investigation of the NAACP was as inexplicable as its beginning.

Even though the organization was cleared of allegations that it had violated federal law on partisan campaigning, the way the group was treated raises important issues about how the government handles matters involving tax-exempt groups, especially the right of charities to influence public policy.

The inquiry involving the National Association for the Advancement of Colored People began when the IRS said it was concerned that Julian Bond, the chairman of the organization, made a speech at the charity’s 2004 annual convention that criticized President Bush — and seemed to violate federal rules that prohibit charities from getting involved in partisan politics.

The announcement of the IRS’s investigation of the NAACP caused immediate protests. It came just a few weeks before voters were to go to the polls in the presidential election and seemed to be a sign that the Bush administration was trying to silence a public-policy debate.

Last month the IRS informed the NAACP that after a review of Mr. Bond’s speech, it had decided that the group had not violated federal law and was no longer under investigation.

The IRS offered no explanation for its decision apart from noting that it had viewed the video of Mr. Bond’s speech, and “this video footage allowed the service to gain information regarding the context in which Mr. Bond’s speech was made.”

This explanation strains credulity. Had the IRS not read the speech as part of the process of deciding whether to start an investigation? The text of the speech was widely available. Had no one at the IRS viewed the publicly available video, which was posted on the NAACP’s Web site? If the IRS had not done either of these things, why did it decide to investigate — and keep its inquiry going for two years?

The IRS should not harbor any illusion that it can now simply walk away from the substantial issues of legitimate public concern raised by its conduct in this matter, nor should nonprofit groups simply celebrate the NAACP’s victory.

After seeing that the NAACP had to spend two years battling with the IRS, charities that want to comply with federal law may well decide it is too risky to speak out about issues that are prominent in election campaigns, and may withdraw from their legitimate role in public discourse.

Meanwhile, organizations that are deliberately overstepping legal boundaries and abusing their tax-exempt status will claim that they are innocent victims of IRS enforcement, like the NAACP, and nobody should question their efforts to speak out about political affairs.

This is a situation that no one, neither the IRS nor responsible nonprofit organizations, should regard with anything but intense concern. Undermining the IRS’s effectiveness in punishing abusive groups is just as serious as suggesting the agency has been choosing inappropriate targets for its investigations.

The IRS can avoid the worst consequences of its missteps in the NAACP case by moving quickly to explain its policies and procedures to the public.

While the IRS is prevented by law from disclosing details of particular cases, it could do much more to offer appropriate guidance on which all nonprofit organizations can rely and to clarify its procedures for conducting examinations of election-related activities.

It should also explain why it has been so reluctant to use the full range of sanctions available when it uncovers clear-cut cases of groups violating the law.

The first step the Internal Revenue Service should take is to offer coherent explanations of how it has treated groups that have been accused of partisan activity — stating why nonprofit groups have been found guilty of politicking and why they have been excused of wrongdoing.

In addition, it needs to articulate the criteria it uses to judge whether charities have violated the law in terms that focus on the realities of the contemporary roles of nonprofit groups in elections.

The most challenging issue for charities and regulators is to figure out whether certain types of activities should be considered improper involvement in political campaigns.

This is a very difficult area that calls for balanced judgment of all relevant facts and circumstances. But since the facts and circumstances of each case are different, it is impossible to say one type of activity is always acceptable or always prohibited. Nevertheless, the IRS could offer clearer guidance on what factors are relevant and more helpful advice on how those factors might be weighted in different situations.

The idea that context matters is scarcely new, but on what contextual details did the IRS rely in the NAACP case? Why was it apparent only from viewing the video? Explaining the specifics would help other groups avoid trouble.

The IRS must also explain how it chooses to investigate a group. When the IRS announced that it was examining the NAACP, it said it was acting under its legal authority to stamp out “flagrant” violations of the prohibition on improper involvement in election campaigns.

But since it appears that Mr. Bond’s speech was typical of those at any charity convention, just what was it that made the IRS investigate the NAACP? No one is asking the IRS to violate its duty of confidentiality, but everyone should be asking the tax agency to clearly state what activities it considers to be flagrant violations.

The IRS has confirmed that members of Congress asked it to investigate the NAACP. What role did these requests from members of Congress play in the IRS’s decision? Were other political considerations at work?

Mark W. Everson, the commissioner of the Internal Revenue Service, has rejected any suggestions of improper partisan influence, but such questions will persist as long as the IRS fails to explain the ground rules it uses to decide when to start investigations of the type it pursued with the NAACP.

One way the IRS could have explained itself, without violating privacy laws, would have been to write a more-forthcoming explanation when it informed the NAACP that the case was over.

The IRS has done this in other matters, and organizations have often released the letters themselves because they understand the value of making public information that shows how the government works.

Protecting taxpayer confidentiality does not mean that the IRS should be able to escape accountability.

In a report on the IRS’s efforts to make sure charities followed federal law in the 2004 campaign, the inspector general of the Treasury Department called on the agency to establish regular procedures for dealing with information the public provides about possible tax-law abuses.

One would like assurances that these procedures are being put in place and that they include details about how the tax agency should respond to suggestions from elected officials and party leaders about which groups deserve to be scrutinized.

Enforcement of tax laws can be effective only if it is based on clear explanations about what is right and what is wrong. Logical and even-handed administration of the law should be the least we expect from all government agencies.

In this matter the IRS aimed improperly at the NAACP, shot itself in the foot, and inflicted by no means negligible damage on tax-exempt groups and on the integrity of elections.

Now that it has ended its investigation of the NAACP, the IRS needs to deal with the collateral damage and, in the process, restore its own credibility.

Frances R. Hill is a professor of law at the University of Miami.