Many Americans probably have no idea that there are tax rules that affect whether or not a church or a nonprofit organization can support a political candidate or party, and many would ask how the IRS ever got in the business of policing political activity by these entities. The truth is that it makes sense for the IRS to do this to a degree because most churches and nonprofits enjoy tax-exempt status granted by Congress through the tax code. It would be entirely against our constitutional traditions to have the federal government subsidizing (through the tax code) organizations that support particular candidates. Such a tax subsidy would essentially amount to the use of public money to help a particular party to stay in power.
But what exactly is the behavior that should be prohibited? This question has become controversial in the last couple years.
On one side there are those who feel that some nonprofit entities, particularly churches and religious organizations, are taking the taxpayers for a ride by using their tax-exempt organizations to support certain candidates. Americans United for Separation of Church and State is sending letters to 117,000 churches to warn them that they could lose tax-exempt status if they use their resources to support particular candidates. The group says that the conservative Christian organization Focus on the Family has asked for volunteers from churches in key battleground states to implement voter drives and to distribute voter guides. Focus on the Family claims these voter guides are non-partisan, a claim that Americans United finds hard to swallow.
On the other side of the debate are those who fear that the freedom of nonprofits and churches to speak out on issues that are important to them is being curtailed. A report issued by OMB Watch in July found that the IRS has created a great deal of uncertainty in its efforts enforce laws designed to keep tax-exempt non-profits from engaging in partisan activities. OMB Watch argues that clearer rules are needed to determine what activities are allowable to ensure that non-profits do not feel pressured by the IRS to give up their constitutional rights.
According to the report, no violation was found in 64 percent of the investigations of 501(c)(3) organizations carried out in 2004. Only 58 entities were found to have engaged in partisan activity (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. Nevertheless, the lack of clarity in the IRS's rules about, for example, the difference between partisan campaigning and issue advocacy, could have a chilling effect on churches and organizations that have opinions on political issues.
It's also worth noting that it is not clear whether the IRS's enforcement harms conservative or liberal causes more. Focus on the Family is conservative, but BNA reported that All Saints Episcopal Church in Pasadena is being investigated by the IRS after its pastor make speeches opposing the war in Iraq during the 2004 election. However, at the time that investigation first made news, the executive director of Americans United did point out that a pastor in Arkansas who gave a sermon more clearly praising George W. Bush and criticizing John Kerry was not investigated by the IRS.
Other types of progressive nonprofits are also at risk. After spending almost two years investigating whether the NAACP should lose its tax-exempt status as a consequence of criticizing President Bush, the IRS dropped the case just last month. OMB Watch hailed the decision as an indication that nonprofits can be assured that their freedom of speech does not disappear during this election season. This investigation was particularly troubling because documents obtained by the NAACP under the Freedom of Information Act imply that the IRS began its investigation at the behest of Republicans in Congress.
OMB Watch certainly has a point that the rules and standards regarding political speech and activities are currently too vague. The rules say that 501(c)(3) organizations are "absolutely prohibited" from intervening in elections on behalf of or in opposition to any candidate, but uses the facts and circumstances to determine whether this occurs. The IRS also begins an investigation if it has a "reasonable belief" that a violation has occurred.
In a 1964 free speech case involving the definition of obscenity, Supreme Court Justice Potter Stewart declined to define hard-core porn but merely said, "I know it when I see it." Hopefully, we'll get a better definition of political activities that are prohibited for tax-exempt entities.
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