Exempt Orgs and Political Activity -- a continuing saga

Exempt organizations and their activities during an election year continue to be a hot news item.  I have blogged here, and readers have likely seen news articles, about activities by 501(c) organizations (generally we are talking about (c)(3)s, (4)s, (5)s, and (6)s) that seem to exceed the allowable limits under the tax code, but the IRS is not (yet) doing anything about it.  Here are some links to a few items that those following these news developments might find interesting:

On August 19, 2012, ProPublica published an article summarizing their recent research, entitled: "How Nonprofits Spend Millions on Elections and Call it Public Welfare."  This article provides a good outline of how prevalent this issue is and provides a series of examples (on both sides of the aisle) of organizations that quite possibly are abusing their tax status.  Overall, I am completely on board with ProPublica's message that these organizations need to be better regulated and that greater transparency should be required.   However, I do have a couple of quick comments.  First, readers may notice (particularly after reading the 2nd CRS report linked to below), that ProPublica incorrectly implies that organizations are in the wrong if their reporting to the FEC and IRS don't match.   The article touches on the fact that the definitions are different, but I think gives the wrong impression.  I don't doubt that some/many of the organizations discussed are in the wrong -- but the issue is less black and white than it is made out to be.  Similarly, the article critcizes organizations that make grants to others, who then use it for politcal purposes (without the first organization reporting it as a poltiical expenditure).  Again, this issue is not as clear cut as it is made out to be, particularly without seeing the grant agreements themselves.  

On August 21, 2012, the Congressional Research Service released a report entitled: "501(c)(3) Organizations: What Qualifies as "Educational"?"  This report does not take a position on any current developments (CRS provides nonpartisan research on issues relevant to Congress), but it is a good quick background for those not well-versed in the subject as to what qualifies as "educational" in the 501(c)(3) context, particularly in light of accusations that some 501(c)(3) organizations are acting outside the boundries of their tax status during this election year.

On August 29, 2012, the Congressional Research service released yet another report, this one entitled: "Political Ads: Issue Advocay or Campaign Activity Under the Tax Code?"  As with the prior report, because CRS is solely reporting research, the report does not take a position on any current issues.  However, I do think that any readers of this report not already familiar with this murky, facts and circumstances area of tax law, that there are likely many organizations out there this election year that are exceeding the boundaries of what the law allows.

On August 31, 2012, Greg Colvin, posted his recent letter to Lois Lerner (Director of Exempt Organziations at the IRS), requesting that the IRS clarify guidance that they have given regarding political campaign activity by 501(c) organizations.  For those of you not familiar with Greg, he is a fantastic asset to the exempt organization world and has a great reputation in the community of attorneys that represent the sector.  That, along with his reasonable (and well-reasoned) request will hopefully push the IRS for clarification in this arena.



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