Initial Findings on 2006 IRS Political Activities Enforcement Efforts Released

The Internal Revenue Service (IRS) published a summary of its 2006 program enforcing the ban on partisan electioneering by charities and religious organizations on June 1, 2007. While only 40 of the 100 cases selected for examination have been closed, the report provides a useful picture of the Political Activities Compliance Initiative (PACI), as well as updated information on the IRS' 2004 enforcement cases. The 2006 report also details a new program that matches state campaign finance reports to the IRS database of 501(c)(3) organizations. On the same day the IRS published guidance in Revenue Ruling 2007-41 on what is considered prohibited intervention in elections. Overall, the results indicate a low level of violations by 501(c)(3) organizations.

The introduction to the IRS report refers to "a high level of noncompliance" in 2004. However, an analysis by OMB Watch showed that the IRS based this claim on cases referred for investigation after two rounds of review that eliminated 81 cases. Overall, in 2004 only about one-third of cases referred to the IRS were found to have violations, of these only three, or less than one percent, were severe enough to merit revocation of tax exempt status.

The data for 2006 indicated continued low levels of violations. Overall the IRS received 237 referrals, and 137 were dismissed after the initial review. Of the remaining 100 subjected to investigation, 44 percent are religious organizations. The IRS has completed investigations, and none merited revocation of exempt status. Here are the results to date:

2006 Closed PACI Cases as of June 1, 2007
Revocations 0 0
Written advisories 26 4 religious organizations, 22 non-religious organizations
No violations 14 10 religious organizations, 4 non-religious organizations

The IRS divided the cases into three categories:

  • Type A: single issue/non-complex
  • Type B: multiple issues/complex
  • Type C: egregious/repetitive alleged violations

There were only four Type C cases, all non-religious organizations. Since we have not found any news reports of the IRS using its authority to take egregious cases to court for seeking an injunction to stop impermissible partisan activity, we can only assume that even in these cases the violations were not severe enough to merit court action. The report lists that the 100 cases being investigated include 40 religious organizations with Types A or B cases, and 53 non-religious organizations with Types A or B cases.

The types of activities alleged in the 237 referrals selected for examination are roughly the same is those investigated in 2004. Since the investigations are not yet complete, it is not possible to draw conclusions about what situations are most likely to lead to problems for charities and religious organizations. However, the breakdown of activities selected for further examination indicates that a high number of cases occur in gray areas of the law, such as allowing candidates to speak at organizational functions or distributing printed materials. This makes the new guidance a welcome development, but clear rules are still needed.

The IRS is keeping track of ongoing activities of organizations that received written advisories as a result of activities in 2004. The Review of Operations program (ROO) uses quarterly Internet searches to review public statements in order to see if there are subsequent violations. So far the ROO program "found no instances of repeat political intervention."

A new IRS program, the Political Contributions Sub-Project, tracks state data reporting campaign finance contributions with the IRS lists of 501(c)(3) organizations. After eliminating contributions to ballot initiative efforts, which is permissible, the IRS found 269 cases of possible direct campaign contributions. Of these 87 were religious organizations. Investigations into 92 of these cases has been completed, with 65 organizations receiving written advisories, and about $121,098 returned to charities from campaigns. In 21 cases no violations were found, and the match appeared to be due to errors in state databases.

Updating Information on 2004 PACI

At the time the IRS released its 2004 PACI report it had only completed 82 of the 110 determined cases found to merit investigation. The new report updates the data on closed cases, with only five remaining open. One additional organization had its tax-exempt status revoked, and there are two proposed revocations, all for non-religious organizations. 25 cases were dismissed and written advisories were issues to 69, which included 42 religious organizations. The new report says the IRS received 166 referrals for 2004, making the percent of overall violations 44 percent of referrals. In the 2004 PACI report the IRS included other pending cases, bring their total to 191. Using this figures, the overall violation rate is 38 percent.

PACI Procedures Unchanged

The report does not reflect any substantial changes in the PACI procedures. Our concerns about the timely completion of investigations and lack of meaningful appeal for groups that may want to challenge a written advisory remain unchanged as well.

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