Newsday reports today that the Internal Revenue Service is investigating the NAACP, a Section 501(c)(3) organization, for engaging in forbidden...
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political activity. The investigation was triggered by Julian Bond’s speech this past July in Philadelphia. Bond is the NAACP’s chairman of the board, and he made the speech at the NAACP’s annual convention. Section 501(c)(3) prohibits charitable organizations from “participat[ing] in, or intervene[ing] in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
Newsday quotes Bond as having said:
The election this fall is a contest between two widely disparate views of who we are and what we believe…One view wants to march us backward through history -- surrendering control of government to special interests, weakening democracy, giving religion veto power over science, curtailing civil liberties, despoiling the environment. The other view promises expanded democracy and giving the people, not plutocrats, control over their government.We have not read the text of the entire speech, but have already called the NAACP in an effort to obtain the text and the letter issued by the IRS. Our call has not yet been returned. We imagine the NAACP will eventually post these documents to their website, which leads to the interesting question: If the NAACP posts the text of the speech, has it committed a "second violation" of the prohibition against political activity, assuming, of course, that the speech, itself, was a violation? We do note that both President Bush and Senator Kerry were invited to speak at the annual convention. Senator Kerry accepted the invitation, but President Bush declined.
As we stress in our Guide, Section 501(c)(3) organizations should steer clear of any activity that could be construed as participating in a political campaign. Having said that, we are not at all certain that the quoted language constitutes prohibited intervention—we assume the quoted language is the language that sparked the IRS investigation. The language does not specifically endorse a candidate. Nor does it expressly call for the audience to vote one way or the other. At the same time, the inferences to be drawn are pretty clear, leading to the question: Where is the line between issue advocacy and intervention on behalf of a particular political candidate?
The IRS has published an outstanding internal training document entitled Election Year Issues (2002) written by Judith E. Kindell and John Francis Reilly. The document addresses the issue, stating:
The regulations provide that activities that constitute participation or intervention in a political campaign include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to a candidate for public office. Reg. 1.501(c)(3)-1(c)(3)(iii). See also Reg. 53.4945-3(a)(2). Consequently, a written or oral endorsement of a candidate is strictly forbidden. The rating of candidates, even on a non-partisan basis, also is prohibited. See Association of the Bar of the City of New York v. Commissioner, 858 F.2d 876 (2d Cir. 1988), cert. denied, 490 U.S. 1030 (1989), discussed below. Similarly, an IRC 501(c)(3) organization may not distribute partisan campaign literature, provide or solicit financial or other forms of support to or for candidates or political organizations, or establish political action committees (PACs). In situations where there is no explicit endorsement or partisan activity, there is no bright-line test for determining if the IRC 501(c)(3) organization participated or intervened in a political campaign. Instead, all the facts and circumstances must be considered. Some of the facts and circumstances to be considered in specific situations are discussed below.This question was presented in the following form at the meeting of the Exempt Organizations Committee of the ABA Tax Section, held on February 4, 1992:
Many charitable organizations conduct mass media advocacy on issues such as abortion rights, the environment, crime, defense spending, health care and tax reform, during non-election periods. If certain candidates become identified with positions on these issues during a campaign, must the organization alter its advocacy in order to avoid the IRC 501(c)(3) electioneering prohibition? Can the charity use the opportunity of the campaign to gain greater attention from candidates and the public, to its issues? Suppose a pro-life political group, during a campaign, heavily attacks pro-choice positions in TV ads, implying criticism of pro-choice incumbents. Can a pro-choice charity pay for TV ads to respond solely on the issues, using free air time provided by the TV station?
No situation better illustrates the principle that all the facts and circumstances must be considered than the problem of when issue advocacy becomes participation or intervention in a political campaign. On the one hand, the Service is not going to tell IRC 501(c)(3) organizations that they cannot talk about issues of morality or of social or economic problems at particular times of the year, simply because there is a campaign occurring. As the 1995 ABA Comments state:
Nothing in Section 501(c)(3) prohibits a charity from purchasing media time for a discussion of issues in furtherance of its exempt purposes, whether or not such discussion coincides with an election. A charity's issue based message should be no more limited during an election campaign than it is during any other time of the year. The fact that candidates have aligned themselves on one or another side of an issue should not impact a charity's ability to reach the public with a pure issue message, FOOTNOTE 9 particularly in view of the fact that the candidate's position is an external factor beyond the charity's control. The independent actions or positions of candidates should not be imputed to exempt organizations.
In contrast to the "pure issue message" scenario set forth in the 1995 ABA Comments, an IRC 501(c)(3) organization may avail itself of the opportunity to intervene in a political campaign in a rather surreptitious manner. The concern is that an IRC 501(c)(3) organization may support or oppose a particular candidate in a political campaign without specifically naming the candidate by using code words to substitute for the candidate's name in its messages, such as "conservative," "liberal," "pro-life," "pro-choice," "anti-choice," "Republican," "Democrat," etc., coupled with a discussion of the candidacy or the election. When this occurs, it is quite evident what is happening -- an intervention is taking place. See TAM 91-17-001 (Sept. 5, 1990) for an example of coded language constituting political campaign intervention. FOOTNOTE 10
Basically, a finding of campaign intervention in an issue advertisement requires more than just a positive or negative correspondence between an organization's position and a candidate's position. What is required is that there must be some reasonably overt indication in the communication to the reader, viewer, or listener that the organization supports or opposes a particular candidate (or slate of candidates) in an election; rather than being a message restricted to an issue. As is stated in TAM 1999-07-021 (May 20, 1998), in order to violate the political campaign prohibition, an advocacy communication "should contain some relatively clear directive that enables the recipient to know the organization's position on a specific candidate or slate of Election Year Issues.
9 In a footnote, the 1995 ABA Comments state: "We are assuming an issue-oriented message without coded candidate labels, calls to action, or other objectionable elements."
10 A finding of political campaign intervention from the use of coded words is consistent with the concept of "candidate" -- the words are not tantamount to advocating support for or opposition to an entire political party, such as "Republican," or a vague and unidentifiably large group of candidates, such as "conservative" because the sender of the message does not intend the recipient to interpret them that way. Code words, in this context, are used with the intent of conjuring favorable or unfavorable images -- they have pejorative or commendatory connotations. When combined with discussions of elections, the code words also make specific candidates identifiable -- the organization would not use up air time or newspaper space with a code word if the word was not intended to communicate to the viewer, listener, or reader a specific elective choice. The voter in Vermont, hearing an exhortation regarding "liberal" candidates, may not know who fits that label in Kansas, but presumably he knows who stands for what in Vermont, which is why the code word is used in the first place. Another factor may be whether the organization has used similar language in communications outside of a campaign or only airs such communications during campaigns. The specific facts and circumstances of each case will determine whether an intervention in a political campaign has taken place.
While we have always taken the position that Section 501(c)(3) organizations should assume they will lose their exempt status if they engage in engage in any prohibited activity, this in fact may not always be the case, as evidenced by TAM 200437040. In that ruling, the IRS decided not to revoke a church's exemption for statements made by its leader, pointing to the House Budget Committee Report (H.R. Rep. No. 100 391, 100th Cong. 1st Sess. 1623, 1624 (1987) explaining the relationship between Section 4955 violations and the campaign intervention prohibition in Section 501(c)(3). The report stated that (id.):
. . . the Internal Revenue Service may hesitate to revoke the exempt status of a charitable organization for engaging in political campaign activities in circumstances where that penalty may seem to be disproportionate i.e., where the expenditure was unintentional and involved only a small amount and where the organization subsequently had adopted procedures to assure that similar expenditures would not be made in the future. . . .
The IRS did decide to impose the Section 4955 excise taxes in this case.
IRS Commissioner Mark Everson has stated "The IRS follows strict procedures involving the selection of tax-exempt organizations for audit and resolution of any complaints about such groups,...Career civil servants, not political appointees, make these decisions in a fair, impartial manner." We have seen Commissioner Everson speak, and he does strike us as a straight shooter, but we would be remiss if we did not note that he is one of two IRS political appointees. The other is IRS Chief Counsel Donald Korb (who we have also seen speak).
We welcome the current investigation of the NAACP by the IRS because the rules prohibiting political intervention by Section 501(c)(3) organizations scream for more clarity. We take no position on the merits, particularly because we don’t have all the facts. In related developments, we do note that there have been countless stories in the press this year of churches on all side of the political spectrum engaging in similar suspect activity. We think the IRS should widen its probe, and when it is complete, issue some definitive guidance so that organizations can better assess what is prohibited and what is not. No organization should have to "guess" when it comes to expressing its views on issues. Uncertainty should not be used to chill free and permitted speech.
In any event, don't expect to see the NAACP's tax-exempt status revoked. No administration is that stupid. It ain't going to happen.
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FOLLOW-UP POST
Here is what the NCAA had to say about the matter:
October 29, 2004
NAACP Questions Timing Of Irs Examination Of Tax Exempt Status
Internal Revenue Service claims speech by Chairman Bond critical of Bush was partisan
The National Association for the Advancement of Colored People (NAACP) today raised questions about the timing of an Internal Revenue Service (IRS) examination of the nation’s oldest and largest civil rights organization. According to the IRS, the NAACP’s tax exempt status is being reviewed because of remarks by NAACP Chairman of the Board Julian Bond during the NAACP National Convention last July.
In a letter dated October 8, 2004, the IRS contends that “Bond condemned the administration policies of George W. Bush on education, the economy and the war in Iraq.” According to the IRS, Bond allegedly intervened in a political campaign when he made these and other statements during the convention.
As a part of its examination, the IRS has requested a written response to several questions, including: “who authorized the speech” given by Bond. However, the NAACP feels that Bond’s remarks fall into the realm of acceptable free speech. Moreover, these are civil rights issues irrespective of what party is in power.
NAACP President and CEO Kweisi Mfume said: “It is regrettable that the Internal Revenue Service would seek to silence the voices of the nation’s oldest and largest civil rights organization for having done nothing wrong. We take exception to the assault on the NAACP by the IRS and we question the suspicious timing of this action. In over 95 years, Americans of all races and political persuasions have been proud to fight for the ideals and beliefs of justice and fairness that we’ve held high.”
Historically, the NAACP has criticized both Republican and Democratic administrations. Bond said: “The NAACP has always been non-partisan, but that doesn’t mean we’re non-critical. Only in an Orwellian world would honest disagreement be considered partisan, or honest differences called election interference.”
“To announce there must be no criticism of the President, and to stand by the President, right or wrong, is not only unpatriotic and servile, it is morally treasonous to the American public.” – President Theodore Roosevelt
The National Association for the Advancement of Colored People (NAACP) is the nation's oldest and largest civil rights organization. Its half-million adult and youth members throughout the United States and the world are frontline advocates for civil rights in their communities and monitor equal opportunity in the public and private sectors.
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FOLLOW-UP POST
The Letter the NAACP Received from the IRS
Date: October 8, 2004
National Association for the Advancement of Colored People
4805 Mount Hope Drive
Baltimore, MD 21215 3206
Dear Sir or Madam:
We are conducting an examination of your organization. At this time, the focus of our examination is limited to the issue of whether or not your organization has intervened in a political campaign as described in detail in the attached Form 4564, Information Document Request.
Organizations exempt under Internal Revenue Code (IRC) section 501(c)(3) are prohibited from directly participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. Whether a tax exempt charitable organization is engaging in prohibited political campaign activity depends on all the facts and circumstances. If the IRS finds a section 501(c)(3) organization engaged in prohibited campaign intervention, the organization could be subject to an excise tax on the amount spent on that activity.
IRC 4955(a)(1) provides for an initial tax on an organization of 10 percent of each political expenditure. IRC 4955(b)(1) imposes an additional tax on the organization of 100 percent of each political expenditure previously taxed and not corrected within the taxable period. IRC 4955(d)(1) defines political expenditures as "any amount paid or incurred by a section 501(c)(3) organization in any participation in or intervention in (including the publication or distribution of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."
We realize some organization may be concerned about an examination. We hope we can relieve any concerns you may have by briefly explaining the examination process and what your appeal rights are if you do not agree with the results.
When we complete the examination, we will explain our recommendations and how they may affect your exempt status or tax liability. You should fully understand any recommended changes and their ramifications. Pleas do not hesitate to ask questions about anything that is not clear to you,
If we recommend changes involving your tax liability and you agree with the changes, we will ask you to sign an agreement form. By signing the form, you will indicate your agreement to the amount shown as a refund due or additional tax owed. You do not have to agree with our recommendations. You may request a conference at a higher level as explained in the copy of the appeal procedures that we will provide you.
We would appreciate your providing us the name and telephone number of an officer with whom we can discuss this matter. If you wish us to discuss this matter with your representative, you must file a power of attorney in order for your representative to receive or inspect confidential information. You may use Form 2848, Power of Attorney and Declaration of Representative (or any other properly written power of attorney or authorization), for this purpose.
If you have any questions, pleas call the contact person at the telephone number shown in the heading of this letter. If you write, please tell us the most convenient time to call if we need to contact you. Please respond within 15 days from the date of this letter.
Thank you for your cooperation.
Sincerely
Kathleen D. Kraczyk
Internal Revenue Agent
Enclosures:
Publication 1, Your Rights as a Taxpayer
Form 4564
[ENCLOSURES OMITTED]
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our Guide/Tutorial for non-profit directors and officers entitled “Avoiding Trouble While Doing Good: A Guide for the Non-Profit Director and Officer.” Copyright 2004, Auto Didactix LLC. All Rights Reserved. You may not copy any portion of this post to a computer "clipboard" for reposting anywhere or e-mailing, or otherwise reproduce this post. If you want others to review this post, you may provide them with a link to this web blog. Any use of the material or ideas in this post by reporters or other publishers shall make reference to Jack Siegel, author of "Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer" and this web blog. |
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