The recent IRS scandal confirms that the IRS is capable of, and at times does, abuse their regulatory authority over tax-exempt nonprofits. While most of the tax-exempt organizations involved thus far have apparently been section 501(c)(4) “social welfare” organizations, section 501(c)(3) public charities have also felt the bright lights of the IRS’s inappropriate content-based scrutiny.
Extensive inquiries, unreasonable delays, and other questionable IRS practices may combine to hinder an organization’s ability to raise charitable funds. Of even greater concern, such practices can chill participants’ First Amendment rights of free speech, freedom of assembly, freedom of religious expression. The U.S. House Ways and Means Committee recently heard first-hand testimony from Americans who fought back against the IRS, in order to gain tax exemption approval. Having been been closely involved with one of these groups, I write now to comment briefly on section 501(c)(3) organizations’ intersection with politics and related First Amendment concerns.
Many deeply moral issues so commonly addressed by religious, educational, and charitable organizations – like sanctity of life, marriage, and religious liberty – are increasingly clashing with the overlapping political realm. It’s just plain hard for many nonprofits to stay away from “hot button” issues, as part of their efforts to improve the world. Nonprofits should thus be well informed of their legal rights and help their participants to stand up for their First Amendment freedoms.
Against this backdrop, it is obvious that the current restrictions on politically related speech make it easy for IRS agents to cause trouble for 501(c)(3) organizations involved in such speech. Despite our country’s rich history of free political discourse stretching back to revolutionary times, from the pulpit to the public square, section 501(c)(3) representatives are nonetheless legally prohibited from speaking for or against political candidates – no matter what the issue, moral or not. This restriction creates quite a burden of conscience for many religious and other community leaders. The prohibition most certainly has been constitutionally suspect since it was enacted about a half century ago, with many believing that it is a First Amendment infringement. The IRS has never been well equipped or positioned to enforce this prohibition, nor should it be – as a government agency primarily focused on collecting tax revenues. Repealing this legally dubious prohibition would be a big step in the right direction.
In addition, the legal restrictions on section 501(c)(3)’s lobbying activities are problematic. How much lobbying is too much? It depends on whether the activity is “substantial” or “insubstantial.” Got that? Better ask a lot of questions of exemption applicants to figure it out . . . These restrictions thus invite the very content-based misconduct that has already occurred, which can so easily scar the public trust. One solution may be for the IRS to apply its bright-line expenditure percentage limits under the optional “section (h) election” for all 501(c)(3)s, thereby avoiding both undue vagueness and potential for abuse.
Until these regulatory issues are properly resolved, 501(c)(3) organization leaders should recognize that substantial participation in lobbying and/or candidate endorsement can potentially jeopardize an organization’s tax-exempt status. They thus should carefully evaluate their activities accordingly.
The IRS’s exempt organizations’ practices also need significant improvement. The IRS exemption application contains numerous questions, all of which are designed to address relevant “red flag” areas. When these application answers indicate the requisite exempt qualifications, IRS agents should leave applicants’ answers alone, absent evidence of wrongdoing. Continuing education and training for IRS agents needs to be substantially improved. Such training should contain regular reminders of applicable legal standards. For example, if an applicant indicates that it plans to educate the public (e.g., health-related dangers, economics, or any other fact-based area), IRS agents are legally bound to review such information with “disinterested neutrality,” even if the topics are controversial. In other words, back off! No more questions. If only the IRS agents in Cincinnati had applied this legal standard correctly!
Despite the growing politicization of our society’s moral issues, our nations’ nonprofits can and should continue striving to achieve their religious, educational, and charitable missions. Just be sure that as you stand up for your constitutional freedoms, you are aware of the ways in which the IRS can make things difficult for exempt organizations that engage in these “hot button” issues. Qualified nonprofits deserve tax-exempt privileges without harassment, unreasonable delays, or infringement of their participants’ First Amendment freedoms.