IRS report on political activity compliance by exempt organizations

Federal tax law prohibits organizations exempt from tax under 26 U.S.C. § 501(c)(3) from participating in campaigns for or against the election of candidates to public office.¹ The Internal Revenue Service has issued a report with executive summary on the results of its examination of political activity by exempt organizations during the 2004 election campaign. The report and executive summary are available at http://www.irs.gov/pub/irs-tege/final_paci_report.pdf and http://www.irs.gov/pub/irs-tege/exec__summary_paci_final_report.pdf. The initiative was a result of strong indications of increasing political activity by tax-exempt organizations, including churches, and IRS’ concern over the dramatic increase in the amount of money financing campaigns.

The results of the examinations show that there is a lack of understanding of the relevant federal tax rules. Some level of prohibited political activity by section 501(c)(3) organizations was found nearly three-quarters of the 82 cases reviewed. Most of these examinations concerned one-time, isolated occurrences of prohibited political campaign activity. In three cases to date, however, the prohibited activity was egregious enough to warrant proposing revocation of the organizations’ tax-exempt status. Statistics from this investigation are available at http://www.irs.gov/pub/irs-tege/one_page_statistics.pdf.

In connection with the report, the IRS also unveiled new procedures for handling similar issues during the 2006 election season. These procedures are available at http://www.irs.gov/pub/irs-tege/paci_procedures-feb_22_2006.pdf.pdf. As part of its approach to combating this activity, the IRS has issued Fact Sheet 2006-17: Election Year Activities and the Prohibition on Political Campaign Intervention for Section 501(c)(3) Organizations. This publication, available at http://www.irs.gov/newsroom/article/0,,id=154712,00.html, provides additional guidance to charities regarding political activities. This educational effort will help ensure that charities have enough advance notice of the statutory rules against engaging in political campaign activities. Kicking off the campaign, IRS subject matter experts joined private sector representatives in a panel discussion webcast for the Tax Talk Today program on March 14. To see this program, visit the Program Topics page at http://www.taxtalktoday.tv.

¹ Section 501(c)(3) prohibits tax-exempt organizations (including churches) from “participat[ing] in, or interven[ing] in (including the publicizing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”