On Oct. 28 the National Association for the Advancement of Colored People (NAACP) announced that the Internal Revenue Service (IRS) is investigating their tax-exempt status because Chairman Julian Bond criticized the Bush administration's policies in his speech to the group's July convention. The NAACP is a 501(c)(3) organization, and as such is barred from intervening in elections. The nation's oldest and largest civil rights organization questioned the timing of the IRS action, calling it a politically motivated attempt to silence the organization and discourage blacks from voting. The IRS denied political motivation. The NAACP's problems began Oct. 8 when it received a notice from the IRS that an examination is underway, focused on "whether or not your organization has intervened in a political campaign...." Initially the NAACP response was due Oct. 23, but the IRS granted an extension until Nov. 5. The IRS notice said, "We have received information that during your 2004 convention in Philadelphia, your organization distributed statements in opposition of George W. Bush for the office of presidency. Specifically in a speech made by Chairman Julian Bond, Mr. Bond condemned the administration policies of George W. Bush on education, the economy and the war in Iraq." The IRS appears to have equated criticism of policies and actions of office holders with partisan electioneering. This breaks with the long-standing legal distinction between prohibited intervention in a campaign and the constitutionally protected right of 501(c)(3) organizations to speak out on the issues of the day. Frances Hill, a University of Miami law professor, told Knight-Ridder News Service that she read the speech, and although it criticizes Bush, it appeared to be on safe legal ground because it did not focus solely on the election and had a broad focus, including issues of long standing concern to the NAACP, such as equality and justice. Hill said, "You can be passionate and still have a tax-exempt status. If the IRS thinks that this speech is sufficient to trigger an audit, then I think we have quite a new standard, and they must be planning to audit hundreds of other groups." The IRS is requiring the NAACP to supply a wide range of information, including:

• Who authorized Chairman Bond's speech
• How much the convention cost
• The names, addresses of each person on the board in July
• Copies of minutes of board meetings where the speech was discussed and voted on
• Supportive documentation if they believe the speech was not prohibited campaign intervention.

These information requests imply sanctions beyond loss of tax-exempt status, since the letter notes a tax of 10 percent can be imposed on the group for "political" expenditures and a tax of 2.5 percent on any manager who agreed to it. This is a direct threat of personal sanctions for the NAACP's 64-person board. A Republican tax and election law lawyer, Jan Baran, told the Washington Post that he could not think of a similar recent IRS action, but that cautionary letters have been sent to churches. On Oct. 29 an IRS announcement said 60 charities are currently being examined, including 20 religious organizations. Tax law prohibits the IRS from releasing names of the groups being investigated. The statement said the investigations are based on decisions made by civil servants following strict procedures, which the statement did not describe. IRS Commissioner Mark Everson said. "Any suggestion that the IRS has tilted its audit activities for political purposes is repugnant and groundless." Reaction to the IRS examination was swift. Bond said, "I think what's at issue is our right to criticize the president of the United States." He also noted, "We have always been nonpartisan, but we are not non-critical." Rep. Charles Rangel (D-NY) issued a statement on Oct. 28 saying, "This is a tactic of a police state if I've ever seen one." As the ranking Democrat on the House Ways and Means Committee, Rangel joined Reps. Fortney "Pete" Stark (D-CA), and John Conyers (D-MI) in an Oct. 29 letter to Everson, saying, "It is not against the tax law for the NAACP, or any tax-exempt organization, to discuss or oppose various aspects of the Bush administration's policies. We demand to know why the current administration, through the IRS, is attacking the NAACP." The same day Senate Finance Committee ranking Democrat Max Baucus (MT) also wrote to Everson asking several questions, including whether the "political activity" limitation imposed on 501(c)(3) organizations has been broadened, what steps lead to the decision to examine the NAACP and if groups critical of Bush's opponent have also been examined. He said, "Mere criticism of an administration's policies is clearly a proper activity for an organization with 501(c)(3) designation." Baucus also noted former President Richard Nixon used the IRS to intimidate groups that disagreed with him and, "As a result, many taxpayers lost confidence in the IRS's ability to enforce the law judiciously, and the agency's reputation suffered immensely." Bush's opponent in the presidential election, Sen. John Kerry (D-MA) requested an investigation by the Department of Justice Civil Rights Division. In an Oct. 29 statement Ralph Neas of People for the American Way said, "The people running this administration are bullies." OMB Watch posted a statement Oct. 29 that said, "The election-eve IRS investigation regarding the nonprofit status of NAACP, the nation's oldest and largest civil rights organization, is part of a growing pattern of intimidation and suppression of free-speech and advocacy rights of charities and other nonprofits." The NAACP case was announced just days after OMB Watch published Continuing Attacks on Nonprofit Speech: Death by a Thousand Cuts II , which documents retaliatory action by the administration and its conservative allies against nonprofits that publicly disagree with their policies and action. However, the IRS action against the NAACP goes far beyond any of the abuses cited in our report, attacking the fundamental right of nonprofits to comment on issues of the day. This is exactly what the sector was concerned about in the spring when the 527 rules were proposed to the Federal Election Commission.