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Archive
2006 Issue 1
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New IRS Guidance of 501(c)(3) Political Activity, Past and Future Audits IRS Letter Ruling Suggests Standards for Assessing Candidate Participation in Fundraising Activities WARNING - Incorporated 501(c)(3) Organizations Are Now Subject to Restrictions on Certain Television and Radio Ads At the end of last year, the Federal Election Commission (FEC) issued regulations that prohibit incorporated 501(c)(3) organizations, just like for-profit and other kinds of tax-exempt corporations, from making electioneering communications. Electioneering communications are television and radio ads that refer to a clearly identified federal candidate and are run within 30 days before a primary or 60 days before a general election and are directed to the candidate's electorate. The revisions to these regulations were prompted by a U.S. District Court for the District of Columbia ruling that struck down many of the regulations written by the FEC in response to passage of the Bipartisan Campaign Reform Act of 2002 (BCRA) (See Nonprofit Navigator, October 2004). The two relevant regulations struck down by the court were the exemption the FEC had created for 501(c)(3) organizations from BCRA's prohibition on corporations making electioneering communications and the exemption for ads aired for free. While 501(c)(3) organizations are prohibited under federal tax law from participating or intervening in the election of a candidate for public office, there are circumstances in which a charity could seek to make a grassroots lobbying communication, which would not be prohibited as an electioneering communication. As a result of the change in the FEC regulations, incorporated 501(c)(3) organizations must be careful to avoid running broadcast ads intended to encourage grassroots lobbying of officeholders who happen to also be federal candidates in close proximity to elections. Additionally, charities that produce public service announcements featuring federal candidates should take care to ensure that stations do not broadcast or transmit the ads just prior to the candidate's election and within the candidate's jurisdiction, even if the station is running the ad for free. The BCRA restriction on electioneering communications may yet be relaxed. A challenge to these prohibitions as unconstitutional restrictions on free speech has been remanded to the District Court by the Supreme Court. In addition, a coalition of free speech advocates has petitioned the FEC to undertake a rulemaking to allow grassroots lobbying communications in the window of time when these ads are prohibited. Unless the FEC changes the regulations once again, tax exempt corporations must be careful to avoid electioneering communications. By Paul J. Murphy  New IRS Guidance of 501(c)(3) Political Activity, Past and Future Audits In February, the Internal Revenue Service simultaneously issued a new fact sheet providing helpful additional guidance on 501(c)(3) election-year activities and a report on the IRS audit program targeting partisan activity by 501(c)(3) organizations during the 2004 elections. The new information helps to clarify some key issues about the ban on political campaign intervention. In addition, the report on the audits exposes some possible traps for the unwary and provides useful information about ongoing IRS enforcement efforts and possible legislative proposals. New Guidance on 501(c)(3) Election-Related Activities Fact Sheet 2006-17 offers some helpful guidance regarding the activities that constitute illegal "campaign intervention" by 501(c)(3)s, a sometimes murky area of law. The fact sheet provides a plain-language discussion of permissible election-year activities by 501(c)(3) organizations and offers more than twenty examples illustrating 501(c)(3) activities that either comply with or violate the ban on electioneering. A few highlights:
IRS Audits and Future Plans On the same day it released the new fact sheet, the IRS also released a detailed report of its "Political Activity Compliance Initiative" (PACI), a special audit project conducted by the IRS in response to allegations of illegal electioneering by 501(c)(3) organizations. According to the report, PACI found violations of the law by nearly three quarters of the organizations investigated, although only a few are expected to result in fines or loss of the organization's 501(c)(3) status. The program also found some common pitfalls. In particular, the IRS found that many 501(c)(3)s did not understand that their election-related activities could violate the ban on political campaign intervention even if the organization did not expressly urge people to vote for or against a particular candidate. The report makes it clear that the IRS remains concerned about political activity by charities and will be conducting similar education and enforcement efforts during the 2006 elections. The report also suggests that the IRS might ask Congress to make changes in the law to strengthen the enforcement authority of the IRS. IRS staff in charge of the project also urged the IRS to make greater use of its power to strip organizations of their 501(c)(3) status in future efforts. We will continue to monitor these possible developments and provide any further information in future issues of the Nonprofit Navigator. By John Pomeranz IRS Letter Ruling Suggests Standards for Assessing Candidate Participation in Fundraising Activities A recent private letter ruling eases the restrictions on 501(c)(3) organizaitons seeking to enlist elected officials in their fundraising campaigns, in contrast to an earlier IRS technical advice memo. Both rulings appear to involve letters sent by members of Congress on behalf of the Heritage Foundation. The recent private letter ruling found that two fundraising letters sent by conservative members of Congress did not amount to prohibited political campaign intervention by the organization. The letters, written on each officeholder's letterhead and signed by him, lauded the nonprofit organization by highlighting certain wedge issues on which the officeholder agreed with the organization. The letters specifically used the terms "conservative" and "liberal." Each letter concluded with a plea to make a contribution to the nonprofit organization. A prior IRS technical advice memo had found that a similar letter sent by Senator Robert Dole during the 1996 presidential campaign did constitute political campaign intervention by the Heritage Foundation. The recent ruling features a number of important differences between the two fundraising letters considered here and the letter signed by Senator (and then-presidential candidate) Robert Dole:
By Scott Macbeth Harassment Policies Training Claims for harassment, especially sexual harassment, remain one of the top employment risks for nonprofit organizations. The best protection against these claims is to have a good anti-harassment policy, and to periodically train your employees. Harmon, Curran, Spielberg & Eisenberg, LLP can assist you in developing policies, training your employees, and addressing harassment claims. For more information, contact Anne Spielberg or Ruth Eisenberg at (202) 328-3500. This publication is designed to provide accurate and authoritative information about the subject matter covered. It is not distributed with the intent to render legal, accounting, or other professional advice. The services of a competent professional should be sought if legal advice or other expert assistance is required. Newsletter Home | HarmonCurran Home | |