With the 2006 elections just months away, the IRS is moving to educate churches and charitable organizations regarding what is and is not allowed under tax law in a bid to minimize the violations that peaked in the 2004 election year. The March 14 webcast of Tax Talk Today featured a panel of IRS officials and tax professionals, who reviewed the specific limitations placed on 501(c)(3) organizations regarding political campaign intervention.

“Charities are going to know ahead of time what the rules are,” said Celia Roady, partner, Morgan, Lewis & Bockius LLP. “They’re also going to be put on fair notice that the
IRS is going to be prepared to deal with any violations of those rules.”

The organizations covered
by the prohibition are all organizations exempt under Section 501(c)(3), both organizations that have applied and been recognized exempt by the IRS, and organizations, notably churches, that are not required to apply for formal recognition to qualify under section 501(c)(3). Under current tax law, these organizations are prohibited from directly or indirectly participating in, or intervening in any federal, state or local campaign on behalf of, or in opposition to any candidate for an elected public office.

“The prohibition applies to all Section 501(c)(3) organizations as a condition for exemption under Section 501(c)(3),” said Thomas J. Miller, technical advisor to the director, Exempt Organizations Rulings and Agreements, Tax Exempt and Government Entities Operating Division, IRS. “It’s not a freedom of speech or free exercise of religion issue, but a provision on exemption.”

Prohibited activities for 501(c)(3) organizations include:

• Endorsements for or against, or contributions to,
  a candidate;
• Publication or distribution of statements,
  including voter guides, that favor or oppose a particular candidate;
• Allowing the use of facilities or other resources to a campaign on a preferential basis;
• Placing signage for or against a particular candidate on the organization’s property; and,
• Posting impermissible information on the organization’s web site, or posting links to other Web sites that violate the 501(c)(3) provisions.

Some election-related activities can be undertaken, however, as long as the organization carries them out in a fair and neutral basis. For example, encouraging
participation in the election process, conducting
non-partisan voter registration, or giving all candidates equal access to facilities are some examples of permitted activities. In addition, the prohibition of campaign intervention or participation does not cover all activities that might be considered “political.” For example, actions on behalf of a nominee for an appointed office or a ballot proposal are considered attempts to influence legislation (“lobbying”) and are not within the prohibition of political campaign intervention.

The prohibition of political campaign intervention applies to section 501(c)(3) organizations, and does not restrict individuals acting in their own capacity. But charitable organizations, especially churches, need to exercise particular care regarding the activities of officials such as ministers who are the public face of the organization. These personnel are free to intervene in political campaigns on their own time, but they may not utilize the resources of the section 501(c)(3) organization in doing so. The use of an organization’s resources by employees also causes the organization to intervene in a political campaign.

IRS officials on the panel encouraged churches and charitable organizations to make the rules for political campaign intervention readily available to employees via employee handbooks or organization-wide memos.

New information on political intervention limitations for 501(c)(3) organizations is available in Fact Sheet 2006-17: “Election Year Activities and the Prohibition on Political Campaign Intervention.” The Fact Sheet and Publication 1828: Tax Guide for Churches and Religious Organizations, provide real-life examples and also cover lobbying issues.

Penalties for violation of the Section 501(c)(3) political intervention prohibition can include an excise tax based on the organization’s political expenditures. The IRS can also revoke the organization’s 501(c)(3) status, on an extreme and unusual circumstance.

“The goal of the program is not to go out and revoke everybody; the goal of the program is to try and bring everybody into compliance,” said Judith E. Kindell, tax law specialist, Exempt Organizations Rulings and Agreements, Tax Exempt and Government Entities, IRS.

If an organization discovers, on its own and without an IRS examination, that a violation may have occurred, there are specific procedures to follow in order to rectify the situation. In these instances, the expert panel recommended that the organization consult a tax professional right away.

“You definitely would want to talk with your tax advisor and figure out what’s the best way to un-ring the bell,” said Deirdre Dessingue, associate general counsel, United States Conference of Catholic Bishops.

A full transcript of the webcast — titled “Political Intervention: Do’s & Don’ts for Charities and Churches” — can be accessed online.