IRS Drops Case Against NAACP

by Amanda Adams*, 9/12/2006

On Aug. 31 the National Association for the Advancement of Colored People (NAACP) announced that, after an investigation lasting nearly two years, the Internal Revenue Service (IRS) found the group did not violate the ban on partisan electioneering in 2004. The group will thus retain its tax-exempt status. The case raised questions about the right of charities and religious organizations to criticize elected officials' policies, the role of partisan politics in IRS investigations, and the legality of the new IRS enforcement program. The results of this case should reassure nonprofits of their right to speak out on the issues of the day.The NAACP announced the IRS action at an Aug. 31 press conference. NAACP Board Chair Julian Bond, whose 2004 convention speech criticizing Bush policies was the focus of the investigation, told reporters at the event, "We'll continue to speak truth to power."

NAACP President and CEO Bruce S. Gordon, told reporters, "Tax-exempt organizations should feel free to critique and challenge governmental policies under the First Amendment without fear of IRS intervention." He said the investigation was a cloud that hung over the group's activities, diverting resources from its principal mission of fighting racial discrimination. Bond added, "It has never been a crime or violation for American citizens to criticize government policies and it is not a crime or a violation to do so now."

The NAACP criticized the IRS for taking nearly two years to complete the investigation, conducted under a "fast-track" process the IRS established in 2004 and continues to use in 2006. The IRS letter informing the NAACP of its decision claims the investigation was delayed because the NAACP had not complied with an administrative summons asking for documentation about the 2004 convention. (The NAACP had refused to comply with the summons, claiming its timing violated IRS rules.) The IRS letter states the agency was able to complete its investigation by watching a video of Bond's speech, noting that the "video footage allowed the Service to gain information regarding the context in which Mr. Bond's speech was made. That additional information, when added to the information that the Service had previously been able to gather, indicated that political intervention did not occur."

Bond, however, called the IRS's justification for its delay "dishonest and disingenuous," noting that the video and full text of the speech had been available on the NAACP website throughout the investigation and that no new evidence had emerged.

Some have accused the IRS of playing partisan politics by opening the investigation one month before the 2004 election. Although the IRS letter to the NAACP said the investigation was launched "as a result of information received from the general public," the NAACP obtained documents from its IRS file that show several Republican members of Congress requested the probe. The NAACP used Freedom of Information Act requests to obtain over 1,500 pages of documents in the IRS files. These documents show complaints against the NAACP to the IRS were made by several members of Congress, including Sens. Lamar Alexander (R-TN) and Susan Collins (R-ME); then-Senator Strom Thurmond (R-SC); Reps. JoAnn Davis (R-VA.) and Larry Combest (R-TX); and then-Reps. Robert Ehrlich (R-MD) and Joe Scarborough (R-FL).

Ehrlich, who is currently governor of Maryland, said his request was only a constituent service because he was following up on a complaint from Richard Hug. According to the Baltimore Sun, Hug is Ehrlich's chief campaign fundraiser. The IRS denies the charge, saying its decisions are made "without regard to political considerations."

The case has raised questions about the legality of the IRS's new procedures for enforcing the ban on campaign intervention by charities and religious organizations. Prior to the 2004 election cycle investigations into possible violations did not begin until after a 501(c)(3) organization filed its annual information return (Form 990). The new procedures allow the IRS to initiate investigations before the Form 990 is filed, in order to prevent repeat violations.

The Political Activities Compliance Program (PACI) would have been contested in court if the IRS had not closed its investigation of the NAACP when it did. In January the NAACP moved to force resolution of the case by paying the excise tax it would have owed if the IRS found it had violated the ban on partisan activity. The excise tax rate is 10 percent of the cost of a prohibited communication. The organization then filed for a refund, giving the IRS six months to act before the NAACP would be entitled to go to court for a review of its claim.

The IRS may not have avoided a court battle by acting just before the end of the six-month deadline. NAACP officials are still seeking further disclosure of relevant IRS files under the Freedom of Information Act, some of which the IRS has withheld.