November 02, 2006

Battle Continues Over 501(c) Organizations' Election Activities

Campaign season would not be complete without allegations of illegal attempts to influence elections. Public Citizen has asked the IRS to investigate the U.S. Chamber of Commerce, which has publicly boasted of spending millions from 2000 through 2004 to elect business-friendly state supreme court justices, attorneys general and members of Congress, yet has reported far less political spending on its tax forms. In fact, for 2000 through 2003 the Chamber didn't report any political spending despite stating publicly that it dumped $6 million on state races in 2000 and planned to dump $40 million on state and federal races in 2002.

The problem is that the Chamber of Commerce, a non-profit organization under section 501(c)(4) of the tax code, gets special tax treatment for its expenditures on those activities that are NOT related to influencing elections and is only allowed influence elections so long as that is not their primary activity. In other words, if Public Citizen is right, the Chamber avoided reporting these activities in order to save on taxes.

This is only one example of the disputes over non-profits and political activities. It gets nastier when the conversation turns to those organizations subject to section 501(c)(3). They're not supposed to engage in political activities at all (that is, they're not supposed to spend money or raise money helping candidates win elections) because they get even better treatment under the tax code. Contributions to 501(c)(3)s are deductible, and the taxpayers clearly don't want tax breaks used to subsidize a particular candidate's campaign.

But some 501(c)(3)s, especially churches, have a hard time knowing exactly what activities are political and therefore forbidden. Americans United for Separation of Church and State has warned churches that voters' guides being distributed to them by the Christian Coalition may cross the line. The guides present the results of questionnaires given to candidates that require them to give simple, one-word answers no matter how complicated the issue is and no matter how biased the language of the question is. They also sometimes list responses based allegedly on a candidate's public statements even though he or she actually did not respond to the questionnaire. Americans United warns that these tactics, some of which the IRS has warned specifically against, may cause a church that distributes them to endanger its 501(c)(3) status.

As we have mentioned here before, the IRS needs to have clearer rules on what constitutes political activities are not permissible for non-profits. Organizations may be intimidated from even speaking out on political issues - which they are entitled to do. But so far there have been very few that have actually lost their tax-exempt status due to violations of these rules. According to OMB Watch, no violation was found in most of the IRS investigations of 501(c)(3) organizations carried out in 2004. Only 58 entities were found to have engaged in partisan activity that year (out of more than a million tax-exempt entities) and in only three of those cases were the violations serious enough to cause the IRS to revoke tax-exempt status.

Nonetheless, some believe that the tax code should include special privileges for churches that want to engage in politics. OMB Watch reports that just before Congress adjourned to hit the campaign trail, Senator James info (R-OK) introduced S. 3957, a bill to allow churches to speak out on "public issues, election contests, and pending legislation made in a theological or philosophical context." In other words, Inhofe believes that ministers should be able to tell their congregations who to vote for or what positions to support and get tax breaks for doing it. What's odd is that this privilege would only be granted to churches and not other 501(c)(3)s, which would effectively discriminate against other organizations. One hates to be cynical but it's hard to avoid the conclusion that the conservative Senator believes churches are more likely to endorse candidates of his party than are other types of non-profits. A similar bill was introduced in the House, the so-called "Houses of Worship Free Speech Restoration Act." Although it didn't get anyway this session, it is sure to come back.


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