The rules have been on the books for roughly half a century, but it's only recently that those who work at the Internal Revenue Service are considering the degree to which they may be ignored or abused.The rules in question are those that define the behavior that is appropriate for organizations organized under Section 501(c)(3) of the Internal Revenue Code, including churches, hospitals, universities and other not-for-profit entities. Tax-exempt organizations that must adhere to the 501(c)(3) rules are explicitly prohibited from engaging in any form of political intervention, either directly or indirectly.

According to IRS Commissioner Mark W. Everson, a "disturbing amount of political intervention" was carried out by charitable organizations during the 2004 election year, causing the IRS to address the need for clarification and enforcement of the exempt organization rules regarding political campaign intervention.

Last year, the IRS requested documents from the National Association for the Advancement of Colored People, after its chair, Julian Bond, made politically partisan remarks against President George W. Bush at the group's annual convention, which was held just prior to the 2004 presidential election.

The civil rights organization was charged with "distributing statements in opposition of George W. Bush for the presidency."

Charitable organizations that violate the prohibition on political activity place themselves in the position of possibly losing their tax-exempt status, as well as facing excise taxes.

In addition to publicizing the types of political intervention deemed inappropriate, the IRS has launched a campaign to crack down on nonprofit groups that break the rules.

"The real question is, how do you distinguish what is political from what isn't? Then, assuming that you are able to distinguish that, how do you monitor the activity?" said Richard Larkin, national technical director for nonprofit organizations at BDO Seidman. "You've got people, some of whom are volunteers, some of whom are paid - they're running around the country doing things - how do you ensure they don't do something inadvertently?" he continued. "You have to have controls in place."

Jane Searing, tax shareholder in the not-for-profit group at Bellevue, Wash.-based Clark Nuber, said that if she were advising a not-for-profit organization about how to deal with the need to separate its charitable activities from politics, she would recommend that members of the board of the organization "educate themselves as to what constitutes political activity and lobbying action within the IRS, and advise board members if they're going to be involved in politics, to represent those as their personal views, rather than the views of the organization."

Harvey Berger, Grant Thornton's national partner-in-charge of not-for-profit tax services, has this advice for 501(c)(3) organizations: "The important thing is to be careful in terms of the obvious things you do, like you shouldn't be endorsing candidates or giving them money. You also have to be careful as to what ends up on your Web sites, who has access to posting on your Web site, and be careful of cross-references and links on your Web site that go to a candidate's site."

"Everybody in an organization should understand what the rules are," Berger continued. "There are a lot of people watching, not just the IRS. You've got watchdog groups and other people watching for this stuff."

Nonprofit, not nonpartisan

During the 2004 election cycle, the IRS examined 132 charities and churches after receiving numerous complaints of political intervention. The IRS determined that 110 of the selected organizations warranted a detailed review.

Examinations have been completed on 82 of the 110 cases, with the conclusion that almost three-quarters of the organizations examined did indeed participate in prohibited activities. The IRS has recommended revocation of tax-exempt status in only three of the cases to date.

The sample of organizations examined by the IRS obviously represents a minute portion of the entire tax-exempt community. The Baltimore Sun recently reviewed candidate finance reports, and discovered that more than 100 churches in Maryland alone made contributions to political candidates.

The law does not prohibit candidates from accepting contributions from charitable organizations, even though the organizations are prohibited from contributing.

The IRS plans to take decisive action to thwart continued political activities performed by exempt organizations. The IRS has issued a fact sheet (available on the IRS Web site at, setting out information geared toward helping 501(c)(3) organizations stay in compliance with the laws prohibiting political intervention.

The guidelines included in the fact sheet do not prohibit charitable organizations from providing voter education or encouraging voter registration, as long as specific voting recommendations are not provided. The hosting of nonpartisan public forums is also considered an acceptable activity.

The IRS is soliciting comments on the fact sheet; the address for submitting comments is posted at the Web site.

Besides offering information on its site, the IRS is reaching out to 501(c)(3) organizations through press releases, workshops, speeches, the IRS Nationwide Tax Forums and letters to national political parties.

Before the 2006 election year heats up, the IRS plans to make educational materials about inappropriate political activity widely available to charitable organizations, expand its team of examiners in the area, publicize its plans to enforce the prohibition on political activity, and start that enforcement early in the election year.

While charitable organizations must comply with the IRS guidelines for avoiding political intervention, the IRS is not suggesting that individuals cannot express their own opinions, as long as those individuals communicate the fact that those opinions are their own, and not those of their organization.

"Just because I'm the chair of a public charity doesn't mean that I can't express my own personal views," said Clark Nuber's Searing. "People can say whatever they want."

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access