In a joint statement, seven nonprofit groups, including Alliance for Justice, Charity Lobbying in the Public Interest, Council on Foundations, INDEPENDENT SECTOR, National Committee for Responsive Philanthropy, National Council of Nonprofit Associations and OMB Watch, praise the Internal Revenue Service's decision to halt an audit program of charities that lobby pending a review of the program. The move came after a meeting requested by the nonprofits, based on what appeared to be selective targeting of 501(c)(3) organizations that elect to use the expenditure test to measure their allowable lobbying budgets. (See background information and letter to the IRS requesting the meeting.) The full text of the joint statement is below: IRS Halts Audits of Charities That Lobby At a meeting on April 24 with representatives of seven organizations from across the nonprofit sector, Internal Revenue Service (IRS) officials stated that they were halting an IRS program in which a sample of charities was audited because they reported lobbying activities. The IRS, however, indicated that it was not examining organizations simply because they had made a 501(h) lobbying election, contrary to concerns raised by some of these organizations as recently reported in the press. We, the nonprofit groups that attended that meeting, applaud the move by the IRS, but we urge the IRS to take strong, affirmative steps to remind the nonprofit sector that lobbying by charities is legitimate. Representatives of the Alliance for Justice, Charity Lobbying in the Public Interest, the Council on Foundations, Independent Sector, the National Committee for Responsive Philanthropy, the National Council of Nonprofit Associations, and OMB Watch met with senior staff from the IRS Exempt Organizations division. The groups had requested the meeting after learning several weeks ago that the IRS appeared to be targeting audits on some public charities that reported more than $10,000 in expenditures for lobbying. At that time it appeared that charities that had made the 501(h) election were being targeted for audits. Steve Miller, the director of exempt organizations for the IRS, confirmed that lobbying by charities had been a factor in selecting a group of organizations for audit, but he said that the project had not specifically targeted charities making the 501(h) election. Miller said that lobbying, combined with other factors, was one of nearly 20 different sets of criteria the IRS had been testing to see if any of these sets of criteria could be used as “non-compliance indicators” – tests to identify organizations violating federal tax law. Forty-six organizations have already been audited under the lobbying set of criteria, said the IRS’s Miller, and another 50 to 100 organizations similarly selected were pending some action by IRS field offices. To date, however, targeting groups that lobby has not uncovered any significant violations of the law. The lobbying-related indicator that the IRS used in this program “doesn’t seem to work,” according to Miller. Miller stated that the IRS would halt this effort for the time being. No further organizations will be included in this program. Of the 50 to 100 audits still pending in the field under this program, IRS staff will complete any audits already begun and will review a Form 990 for any selected organization for which the audit has not yet begun. Unless this review suggests some problem with the return, IRS field agents will close the case without auditing the organization. The IRS is internally reviewing all of these cases to determine whether some enforcement effort around lobbying might be advisable in the future. Although Miller emphasized that these audits had not been specifically targeted to charities that had made the 501(h) election, he responded to the concern on the point by agreeing to consider changes to the Internal Revenue Manual (the guide for IRS staff). The Manual previously had suggested that IRS examiners use neither the 501(h) election nor lobbying by electing organizations as grounds, by themselves, for examination because charities making the 501(h) election were more, not less, likely to be complying with the law. Miller said that the IRS would look at whether this assumption was valid and that he would consider adding language to the Manual related to how or when the IRS would audit charities that lobby. In addition to considering changes to the Manual, Miller expressed continued IRS support for the position stated in speeches and letters by IRS officials over the past 25 years that the IRS would not select charities for examination simply because they made an election under 501(h). The members of Congress who passed the 501(h) law likewise appreciated the important policy role that lobbying by charities can play. As then-Senator Robert Dole put it during the debate: “Charities can be and should be important sources of information on legislative issues.” Although he expressed concerns about competing priorities and the limited resources of the IRS, Miller agreed to consider conducting additional public outreach to spread the word that lobbying within the legal limits is a legitimate activity for charitable organizations and that simply making the 501(h) election will not attract IRS scrutiny. Miller also agreed to communicate with the nonprofit sector if the IRS decides to implement any future change to the IRS position that charities will not be selected for examination simply for making a 501(h) election. IRS Halts Audits of Charities That Lobby The organizations represented at this meeting with the IRS are co-signing this statement to reiterate our belief that the nonprofit sector has a unique and vital role to play in the public policy process. We will continue to encourage nonprofits to promote good public policy, and we will oppose any threats to the rights of nonprofits to engage in policy matters. More specifically, we urge the IRS not only to act swiftly to restore the protection for electing charities once stated in the Internal Revenue Manual but also to help us promote lobbying and other advocacy as a legitimate and essential aspect of the larger work of the nonprofit sector. Finally, we respectfully suggest to the IRS that charities that recognize their right to lobby and that are sufficiently aware of the law to comply with their reporting obligations on the Form 990 are likely to be poor targets for the limited enforcement resources available to the IRS at this time. Whatever action the IRS, Congress, or others may take, our organizations will work to keep the sector informed about future developments in this area. Alliance for Justice Charity Lobbying in the Public Interest Council on Foundations INDEPENDENT SECTOR National Committee for Responsive Philanthropy National Council of Nonprofit Associations OMB Watch