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IRS Probes Political Activity by Non-Profits

An Internal Revenue Service investigation into political activity by tax-exempt organizations found “a disturbing amount of political intervention” in the last presidential election, according to report released Friday.

Prompted by an increase of complaints of political involvement during the 2004 election cycle, the IRS examined 82 tax-exempt organizations suspected of violating law that forbids them from engaging in partisan politics. Nearly three-fourths were found to have participated in some forbidden practice, including 37 of 47 churches that were included in the investigation.<?xml:namespace prefix = o ns = “urn:schemas-microsoft-com:office:office” />
 
Most of the cases involved a one-time, isolated occurrence of prohibited campaign activity, which the IRS addressed through a written advisory. Three however, involving charities but not churches, were egregious enough that the IRS recommended revoking the organization’s tax-exempt status.
 
Even though charities are precluded from intervening in political campaigns, the IRS says there has been growth in the number of allegations of such violations in recent elections. That, along with dramatic increases in the amounts of money being spent on political campaigns, prompted the agency to step up educational efforts and to launch a Political Activities Compliance Initiative to respond quickly to credible allegations of political intervention by non-profits.
 
“If left unaddressed, the potential for charities, including churches, being used as arms of political campaigns and parties will erode the public’s confidence in these institutions,” according to an executive summary of the IRS report.
 
Specific instances reviewed in the study included religious leaders using the pulpit to endorse or oppose a particular candidate and of charities, including churches:
 
–Distributing diverse printed materials that encouraged their members to vote for a particular candidate.
 
–Endorsing or opposing a candidate on their Web site or through links to another Web site.
 
–Disseminating improper voter guides or candidate ratings that encourage readers to vote for particular candidates.
 
–Placing signs on their property that show they support a particular candidate.
 
–Giving improperly preferential treatment to certain candidates by permitting them to speak at functions.
 
–Making cash contributions to a candidate’s political campaign.
 
While the vast majority of the nation’s 1.5 million tax-exempt organizations play by the rules, IRS Commissioner Mark Everson said, there are “increasing indications that the scourges of technical manipulation and outright abuse that developed some years ago in the profit-making sector of the economy are now spreading to parts of the tax-exempt sector.”
 
If political organizations that should be taxed masquerade as charities, there will be a loss of tax revenues, Everson said. And if Americans lose faith in charities because of abuses, they will stop giving, and people in need will suffer.
 
“Americans have always held our charities and churches in high esteem,” Everson said. “We recognize the vital role they play in our national life.”
 
The IRS has long provided an exemption from tax for organizations with charitable, religious or educational purposes, Everson said, in recognition that they operate “exclusively for the public good.”
 
In 1954 Congress passed a law to separate charities and churches from politics. Section 501 (c)(3) of the Internal Revenue Code states that charities, including churches, are not allowed to “participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office.”
 
The U.S. Supreme Court said in essence that tax exemption is a privilege and not a right, ruling “Congress has not violated [an organization’s] First Amendment rights by declining to subsidize its First Amendment activities.”
 
The IRS report acknowledges that enforcing the prohibition on political activity presents “unique challenges,” because activities that give rise to questions also raise legitimate questions about freedom of speech and religious expression. The law also provides no “bright line” test for evaluating political activity, meaning violations must be determined case-by-case.
 
“Clearly political intervention by charities and churches is an area where the IRS must tread carefully,” Everson said. “There are few bright lines for evaluating political intervention; our work requires a careful balancing of all the facts and circumstances. But I am convinced that we must act. We can’t afford to have our charitable and religious institutions undermined by politics.”
 
Barry Lynn of Americans United for the Separation of Church and State applauded the report as evidence that the IRS is serious about enforcing federal tax law barring partisan political activity by churches.
 
“Churches have no business becoming cogs in a candidate’s political machine,” <?xml:namespace prefix = st1 ns = “urn:schemas-microsoft-com:office:smarttags” />Lynn said. “It damages the integrity of the church, and it violates federal tax law. This report indicates that the IRS takes allegations of violations seriously.”
 
Lynn, an ordained minister in the United Church of Christ, said the report also should “lay to rest religious right claims that houses of worship have a right to engage in partisan politicking.”
 
“They don’t,” he said, “and any that ignore the law and do so anyway could face severe sanctions.”
 
Bob Allen is managing editor of EthicsDaily.com.
 
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