The IRS recently restored tax-exempt status to two organizations publicly associated with former House Speaker Newt Gingrich. The Abraham Lincoln Opportunity Foundation (ALOF) and the Callaway Foundation had their standing as 501(c)(3) public charities revoked in 1998 and 2000, respectively, when the IRS determined that both organizations had operated for the benefit of the Republican Party and GOPAC, a Republican political action committee.

The controversy began with a 1996 House Ethics Committee probe of Gingrich. The inquiry led to IRS investigations of both charities, which concluded that both organizations had engaged in prohibited political campaign activity. The investigation focused on ALOF's production of American Citizen Television (ACTV), first known as American Opportunity Workshops (AOW), a series of television programs originally produced by GOPAC. GOPAC loaned funds to ALOF for the ACTV project, which ALOF repaid with charitable funds. The IRS determined that ACTV was a part of GOPAC's project to train Republican political activists. According to the Service, the Callaway Foundation was implicated as well because it had made donations to ALOF to fund ACTV.

ALOF appealed the revocation in Tax Court in 1999 but was unsuccessful because, as a dissolved corporation, it lacked standing to bring a case to court. Callaway appealed for a refund of excise taxes levied after its status was revoked, but was refused as well. In 2001, both cases were referred to the newly-established IRS Office of Independent Review (OIR), which recently announced restoration of ALOF and Callaway's tax-exempt status.

Press reports of this ruling have suggested that the OIR action means that the IRS will now allow 501(c)(3) charities to conduct political activities. This is a perilous assumption. Since the materials examined by the OIR are not available to the public, it is impossible to determine the basis for the IRS's reversal. The lawyer for ALOF and Callaway asserts that the initial IRS determination was based on incorrect facts and that the OIR decision merely applied traditional IRS analysis to a better-developed factual record.

Reports have also suggested that the reversal is the result of a Republican administration looking favorably upon its own party's activities. As tax expert Paul Streckfus emphasized in a recent open letter, the IRS has released none of the actual facts of the cases, and only minimal information about the Independent Review Process used to examine the Callaway Foundation and ALOF. Without this information, the reasons for the Service's reversal remain, as Churchill said of actions of the Soviet Union, a riddle wrapped in a mystery inside an enigma.

By Amy Licht





IRS Publishes E-Filing User Guide For Political Organizations

E-Filing for Political Organizations just got a lot easier: section 527 organizations may now take advantage of the new IRS user guide for online filing and disclosure. The IRS has created a comprehensive web-based user guide for its Political Organization Filing and Disclosure website to help users navigate the process of filling out and filing forms electronically. The guide, which includes both text-based directions and corresponding screen shots, can be found at http://www.irs.gov/pub/irs-pdf/p4216.pdf. It provides a user-friendly walk-through of all the website's features, including step-by-step instructions for completing Forms 8871 and 8872 online.

The address of the IRS Political Organization Filing and Disclosure website is http://www.irs.gov/charities/political/article/0,,id=109644,00.html.

By Josh Sadlier

Form 990-W Users Get Partial Tax Deferral Until October

If your exempt organization pays estimated taxes using Form 990-W, then it can defer 25% of taxes otherwise due in September 2003 until October 1, 2003. The Jobs and Growth Tax Relief Reconciliation Act of 2003, signed by President Bush on May 28, 2003, states that the installment due date for 25% of any corporate estimated tax payment is now October 1, 2003. Since the worksheets for Form 990-W were printed before the Act was passed, they do not reflect the new payment schedule. Please note that the due date for the other 75% of the September 2003 payment remains the same.

For more information on the major changes enacted by this new legislation, visit http://www.irs.gov/formspubs/article/0,,id=109879,00.html.

By Josh Sadlier

DC Council Replaces Master Business License Program

The DC Council has replaced the unpopular Master Business License (MBL) with a scaled-down "Basic Business License" (BBL) that will require fewer organizations and individuals to register. The new system is intended to eliminate the perceived overreaching of the MBL, while still centralizing the city's business regulation and licensing system.

Unlike the MBL, which was required of any District organization with annual gross income over $2,000, the new registration requirement is based solely on the type of business activity and does not have an income threshold. Under the new system, organizations and businesses formerly required to obtain city licensing because they require special investigations or approvals, such as gas stations and restaurants, will be required to obtain a BBL. Businesses that were not licensed by the city before the MBL program was instituted do not require a BBL.

Organizations that are required to register for charitable solicitation in the District will need to obtain a BBL with a General Business Endorsement. Organizations not soliciting in the District will not need a BBL. Organizations that already have a MBL are not required to obtain a BBL until their MBL expires.

Application forms for the BBL are available at the DC Department of Consumer and Regulatory Affairs (DCRA). The DCRA has a website on the BBL program that provides additional information. The website address is http://mblr.dc.gov/information/need_lic/index.shtm.

By Amy Licht





The End of D.C. Real Property Exemptions for National Charities?

The District of Columbia Court of Appeals appears to have finally shut the door on the property tax exemption for buildings in the District that are owned by any charity whose work is national or international in orientation. As we have previously reported, the Cato Institute, an IRC 501(c)(3) public charity, has been engaged in litigation aimed at obtaining real property tax exemption for its office building on Massachusetts Avenue. Overturning a Cato victory in the D.C. Superior Court (see NN 10/02), the Court of Appeals recently held that the building is not eligible for tax exemption.

The D.C. Code creates an exemption from taxes for "[b]uildings belonging to and operated by institutions . . . which are used for purposes of public charity principally in the District of Columbia." In the earlier decision, the Superior Court essentially adopted the IRS definition of "public charity" – a 501(c)(3) organization that is publicly supported. The Superior Court further determined that Cato satisfied the geographic locus requirement because its activities are primarily concerned with policies of the federal government, which is primarily located in the District, and because the majority of its activities take place at its D.C. office.

Reversing the decision of the Superior Court, the Court of Appeals determined that the term "public charity" in the D.C. statute is much narrower than its meaning in the IRS context. Although the Court does not fully explain its criteria, in order for an organization to obtain a D.C. real property tax exemption, it appears the organization would need to show that its offices are used to provide direct services to the public, and, in addition, that the majority of the organization's clientele are District residents.

As we reported in February, D.C. Office of Tax and Revenue (OTR) regulations expressly limit the availability of the real property tax exemption to charities "which provide[] benevolent services to the public that otherwise would be provided by the District of Columbia or the United States of America." (NN 2/03) The Court of Appeals' decision in District of Columbia v. Cato Institute, seems to support the OTR's statutory authority to limit real property tax exemptions to organizations that provide services directly to the public. It is still to be seen how or whether the OTR will enforce the requirement that the charity's services must also be of a type that a government would otherwise provide.

By Paul Tanis





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.

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