( Click here to return to page 1.) Marcus Owens: I think in terms of a practical approach to struggling with this, I think the time actually is ripe for that because of the Wisconsin Right to Life decision. I think what has to happen is a small group has to develop a rule along the lines of the Section 49-11 regulations. I would see it as a regulation coming out of Section 4955 and Section 162 where there is also a prohibition on political campaign intervention. So we could throw in (c)(4), as well. But what it would do -- I would suggest as a starting point would be that you would have a presumption that you do not have intervention unless you have a call to action coupled with a candidate’s name or a clear analogy to a candidate, a liberal conservative kind of description. And then we would build off that and create a presumption that it is not intervention, followed by some analysis of how you would -- that presumption would be rebutted by the government. This group would draft that proposal. I would suggest as a draft regulation and then it would be presented to the IRS accompanied by support from across support from across the political spectrum and accompanied by congressional pressure. Because the IRS did not, as you accurately pointed out -- and I [indiscernible] it did not self generate the Section 49-11 regulations; it was a cram-down as they say. And it would have to be the same thing. I do not think this is an area that is really susceptible to legislation. I think we have the legislation to give the IRS the excuse to write a usable rule. What they need is the inspiration; they need the document that they could then adopt as their own. They will not be able to self-generate. The agency, for any variety of reasons, will not go there. So, I think the proposal would be over the next four to five months. Produce a rule, seek broad-spectrum support, seek congressional support, and then pressure Treasury and IRS to adopt it before the 2008 elections. Male Voice: I'm wondering what the reality is that will allow this to happen. Congress is [indiscernible] some lobbying [inaudible] lobbying reform, which seems to be based on the Democrats’ perceived inability to pass reform. I think that a lot of the (c)(3) groups are -- that will be affected by this might be perceived as being potential enemies of the Democratic majority. Republicans might be hostile as well. What is the congressional strategy on this? Karl Sandstrom: I think part of the congressional strategy would be that someone who represents, let’s say, the NAACP -- someone who represents other churches; someone who represents the more conservative churches and say that they should not have to run the risk of losing their tax-exempt status. But the risk of these audits and the costs associated with it -- that regardless how you conclude it should be defined that the risks are too great and you -- well, the NAACP — when you look at who is to Chairman of the Ways and Means Committee, you might be able to have some influence. Given the chairman’s record on these issues and on issues related to NAACP. And some of the others, I would say, are on that committee -- other senior members from different communities. So and then I think many of the churches who have more conservative philosophies have a deep and abiding interest. And then if that is joined by issue groups, (c)(3)s throughout the political spectrum, saying, going to Congress with a common proposal -- I think that will be the strategy. Male Voice: Yes. But what is your sense then of what the final state would look like? Because it seems like you look at the guidance that is available to us now, I think there is a very conservative approach that even if you get more clear [sounds like] even if you get [indiscernible] out of the IRS and pass the bright line test, how are we going to have tests that are going to actually help us do business in a different way, which I think is a separate question? Beth Kingsley: I think that is right. It is really critical that if -- I mean if -- for one thing, I think Marc’s right; it is not going to be something that’s going to come from the IRS. And then if we put together a proposal that is carefully thought out, you can avoid this sort of thing they might come up within their own. And I think it is really important to organize around it. I think there is a broad coalition across the political spectrum that has come together in the past in support of nonprofit speech rights and that probably could be mobilized again. Marcus Owens: I think the starting point is to remember that the prohibition is a statutory rule, albeit, one based on common law, and opposing it is a constitutional way of free speech. So it seems to me the safe harbor or the standard has to start from the presumption that it should err on the side of permitting the speech. And I think the government, the IRS and Treasury Department — whatever the administration -- and this is a nonpartisan approach to interpretation by the executive branch has been to err on the side of prohibition, not on the side of free speech. There has been a failure to really come to grips with that fact and dodge the idea of taxation with representation and I think “dodge” is the right word. But I think, fundamentally, you have to come to grips with that and once they do, once they can accept this of that, then it is easier to write a rule like that. Karl Sandstrom: I would like to say I'm big in reducing the instances that you get capital punishment. I think capital punishment should be reserved for terrorists and if you make a good faith judgment that this was permitted activity, the penalty should be that you only would pay, in fact, to the government [indiscernible] the tax subsidies. You should not have to run the risk in going out of business. I mean, you should not shut down this wonderful church on Pasadena because of what the preacher, in his passionate [guest preacher] said in his a passionate sermon. Male Voice: But does that speak more to [inaudible] immediate sections? Karl Sandstrom: I think that the sanction should be similar to what would be done in the tax code in the profit area, I think. If I mistake a business deduction, the result is I do not have to give up my occupation. I have to pay more tax. I mean, I have to pay a penalty associated with that additional tax, but I do not have to give up my occupation. Greg Colvin: Karl makes a really did point because when you look at 501(c)(6)’s and 162(e), which is the portion of the code dealing with business expenditures for lobbying and political activity, there is that kind of scalability where to the extent that you are making expenditures for lobbying and political activity, that does not qualify for the business deduction. So if the amount of your subsidy disappears when you make those kinds of expenditures. That does not exist in the charitable area; it is a pass-fail kind of test. But what is intriguing about looking at things the way it is done for business is that it will eliminate the necessity to be continually setting up these different tax-status organizations. If you could have a single organization that could engage in these activities with money that was not coming from deductible sources, you would not have to set up a separate (c)(4) or even a separate 527; you would report on a single 990 to the IRS what you did and how you paid for it, and it would not have to have a separate corporation in this house of tandem affiliates. You know, I would love to participate in a short crash project before 2008 to get a better standard. And I have done those kinds of things, not necessarily directed toward the next six months, but through the ABA -- some projects in trying to get better guidance. And I think we are facing a couple of difficulties in doing that before the 2008 election. One is that, the decision was just made basically taking away what had been a test that indicated what was and was not acceptable election activity — the electioneering communications prohibition, indicating I think more of a limitation on the FEC’s power to matters of expressed advocacy. In that environment, it is going to be tough to define a standard that sweeps in more activity than the expressed advocacy standard and it has been tried in numerous occasions and it is difficult to pass those other tests under McCain, Feingold Law, to promote -- Female Voice: Support, attack, oppose. Male Voice: Promote, support, attack, oppose; another way of looking at what it is you are saying about a candidate and whether -- if it is not an expressed advocacy, it still would cross a line. I think Marc’s idea of a presumption or whether there is a safe harbor -- and it has some way in which you are connecting action and candidates is the right approach. But to try to advance in this environment a sense that there is a separate tax standard that is more punitive than the standard that the Supreme Court just looked at, is going to be tough. And it may take, as it often has, going through an election cycle with the existing removal of restraints to see whether people feel there is such a level of abuse that now we know what we have to do to fix it. The other thing that I think makes it difficult right now is that the IRS, at long last, after 25 years did put out a pretty long revenue ruling which is precedential and addresses a the number of the issues about what is or is not political intervention. Granted it was not a bright line; it is a multifactor test. But it is something more than what we had before and there might be some desire to let that work through an election cycle to see whether it is truly inadequate. So, I think those are some difficult things to consider as you decide when you might put forward a safe harbor or a presumption rule, although that has never stopped me before. And when you put these things out, they are there and they are there for the time in which it may be right to pick it up and make use of it. Kay Guinane: We have a question and it has come in through the folks on the phone and because several of the questions have addressed the issue advocacy problem and defining what that is. What about endorsing issues when you are not urging vote for a specific candidate? But could it be interpreted -- that is, a de facto endorsement of the candidate because they have the same position as your organization on the issue? Is there any relief from the fact that the candidates may endorse your issue first and -- or what if both major candidates have taken position in support of your issue. Does that make a difference? Beth Kingsley: That highlights a problem o the facts-and-circumstances test. We do not know. It depends on the issue; it depends on the ways. I think, you know, Karl talked about the problem of is it a fair campaign issue. What if I -- if this is my issue, this is what I have been doing for 20 years, and it is hard to know when your commentary on that issue becomes a problem because of the way it is being talked about in the race. But IRS does say that if you have a history on the issue and a history of similar communications, those are good factors. But we are in this multifactor test. Greg Colvin: If you have to deal sometimes with 501(c)(3)’s being attacked by candidates for being an ACLU card- carrying member I think that would justify the ACLU in taking some public stand on the credibility of being a member of the ACLU. It has happened to Planned Parenthood; it has happened to a number of groups. I think if that is how you have been drawn in to the public sphere, you should have greater latitude than if you are the one taking the initiative to try to have the candidates define themselves on your issue. But that is just trying to interpret the facts and circumstances. Karl Sandstrom: I represent a couple of organizations who are very involved in environmental issues; new organizations who think the time is right to push the issue and push it into the campaign. It is somewhat ironic; they were successful at that because they knew they cannot speak on it. So, they are actually able to make global warming the major issue next year because they have no track record. They are essentially barred from talking about it. They are being created specifically for the purpose of assuring that this is debated in election year. They think it is a critical issue. Why would we any way mute them? In particular, we talked about -- when the Supreme Court talks about this is a sign of a healthy political system; not an unhealthy one. Kay Guinane: Any more questions from the audience? I have a hypothetical situation just to throw out there that I think illustrates some of the problems we have and see if you have any ideas that might probably work our way out of in trying to craft a bright line rule. This whole question of how positions on issues are valid and basic values that a charitable religious organization may have can enter into its discussion of public policy issues and the way that it urges other people to view public policy issues. Vision America has announced this year, which is not an election year, a big voter registration drive. They are recruiting patriot pastors to help get people engaged in the election process and paying attention to it. They want the values that they see are important as something that is reflected in the debate on the election and similar to the groups that are trying to get global warming into the debate. Because their particular values may seem to be more identified with one political party or candidates than another, do they have to hold back in articulating those values? Are there ways that we can tell them they can promote those values without intervening in an election or supporting or voting a particular candidate? Marcus Owens: I think there is a -- I would like to step away from the specifics of your example because I think there really is an interesting factual question as to whether you do not have an example of churches using their deductible monies in political campaigns there, and talk about just the idea of issue advocacy and discussion when that same issue is also present legitimately in the charitable, religious, and educational sector, and has been historically and is also deeply embedded in the political campaign and how you can even talk about that issue. And I think that highlights the absurdity of the current IRS approach, which is, frankly, that discussion of issues is itself indicative of political campaign intervention. And that has been the statement leading -- in the letters of two of my clients announcing their IRS audit, in the accusory statement the criticism of the government’s policies was campaign intervention; criticism of the incumbent’s ideas was political campaign intervention. Now, the salient issue was the war in Iraq. And I have clients for whom one of their deeply held religious beliefs is “Thou shall not kill.” I have other clients who are generally not in favor of war. One, -- there is a political candidate, John McCain, who has come out in support of the war in Iraq. There are other candidates who had come out against the war in Iraq. How does one talk about one’s religious beliefs that include the concept of not killing other people? How does one talk about the war in Iraq from the standpoint of public policy and what is going to happen next week and next month without regard to the political election when that same issue is itself now a divisive issue? There are candidates strongly in favor and candidates strongly against; you cannot discuss it without endorsing or opposing a candidate. It is impossible. The only answer is the Constitution promotes freedom of speech, so you ought to be able to talk about it. Any other answer runs counter to the fundamental precepts, the ones on which this country is founded. And so we have to craft a standard, we the public at large because the IRS is not going to step up to the plate that acknowledges that, and creates the open debate, allows it to occur. Karl Sandstrom: I think one of the learned lessons from WRTL is the FEC did not step up to the plate. They had an opportunity between the WRTL 1 and WRTL 2 in crafting regulation; they chose not to. A lot of pressure from the reforming community, the editorial pages of small or major newspapers. It has essentially set the FEC on the course to lose WRTL, too. And the IRS could find themselves in a very simple position if they continue to have this aggressive program where the standards that they are enforcing remain vague. If someone -- eventually, is going to get this to court and one of the things I just -- with respect to my other proposal, if you would just pay the tax and then going to seek a refund we will have more court decisions resolving what the line is. Rather, you just change that much, you could go in and change the IRS stance and all these facts and circumstances start to fade away. Marc Owens: I think there is a real problem with that approach, and that is, unlike the FEC, which has to go to court to have its actions reviewed, the IRS always has the ability to back out. The NAACP did that. They paid the tax; they filed for refund, set the clock running, and the IRS stepped back before they found themselves in court. So you cannot rely on litigation to develop the rule here, because the government always has the ability to back away from a tough case. Karl Sandstrom: I just want to give the IRS the opportunity to regulate that away. Marcus Owens: We do not develop long [cross-talking] Karl Sandstrom: I am all in favor of going to the Congress and trying to get the law changed. Marcus Owens: You will not end up with a useful standard there, either. Karl Sandstrom: But I will tell you how it can change. Marcus Owens: We have the law. We have the guidance from Congress. Karl Sandstrom: Yes, but if I can change essentially -- if I can do away with capital punishment, that I change how we advise clients. Beth Kingsley: Yes. I would love to see the test case that pushes this, that really puts the IRS over the line; that the FEC — that they were just pushed over. But they do that so regularly back down. I was so hopeful that the Christian Coalition was going to give us guidance. I was hopeful the NAACP was going to give us guidance because they were not backing down and the government repeatedly does and it is very disappointing. And that really highlights the sort of -- if you have the resources to fight, you may just be able to walk away in the end. Greg Colvin: Well, maybe the next call we should make us to Jim Baugh [phonetic], because I think he has done a tremendous public service in First Amendment Law by bringing these cases, not necessarily on behalf of my clients and my own political views, but it is really good to fairly test these rules and every manifestation that they present themselves, including with the IRS. And we are, I think, somewhat at a disadvantage that for the most part there is no organized force within the non-profit communities that says, “You know, this is an important way to spend money over decades and that is to bring the necessary test cases to get the latitude that we think we should have in the First Amendment to engage in the kind of speech that we are all frustrated about here.” I do think -- thinking more about how you solve a problem of people being in non-profit organizations able to speak out on issues. There are a couple of things that the IRS could just come right out and clarify. One is, as Marc was suggesting, that if you are discussing an issue like the war in Iraq, as long as -- and I am not talking about a safe harbor now — that you should have no risk to your tax exempt status, no penalty if you discuss an issue. And during the discussion of that issue you make, no mention of voting, candidates, elections that might connect that issue to an upcoming election. And you should be able to discuss those issues broadly and widely at any time and in any place. I would love to hear the IRS say that. I mean, obviously there are -- sometimes when you cannot talk about the war in Iraq without talking about the incumbent President who is running for reelection, and there you have some difficulty. But usually you can discuss the issues without bringing up the name or the administration of somebody who is running for office. The second thing that the IRS could do is to say -- and I heard Cathy Livingston who is one of the leading lawyers for the IRS, working on these regulations that the IRS will not take evidence of intent into account. Because as Karl said, evidence of intent can cause two different speakers to be treated differently because somehow you have some e-mail or phone message or whatever that indicates what they are really trying to do with respect to an upcoming election versus someone who is never uttered such a phrase. If intent is really not going to be counted against an organization, then let us just say so because it really is a better administrative system to look at where do you cross the line based on what you do, not on what you thought you might do, or what you hoped the result might be. It is just those two things - issues and intent would really, I think, bolster the sector in being able to have some confidence about what they can say and how they can discuss it with their fellows. Marc Owens: I would only point out litigation is not a sure thing. You can be surprised whether it is a court opposing Bob Jones University or supporting it. And so, I would just point everyone to the example of the Section 4911 Regulations. We are really talking here about an administrative rule; we are not talking about a statutory principle. We have a statutory principle. We can create a usable appropriate administrative rule under that. The problem is it will not be self-generated by the agency. It is going to have to be done outside the agency and delivered to the agency in a very vocal and demonstrative way. That has worked. Gary Bass: I am not even sure and know how to phrase all this, but there are things that, the fear I have is that this approach of trying to make a good challenge. For most of us that are executive directors or the management of (c)(3)’s, it does not help us, except maybe years down the road. As a board member of organizations, there is a notion of saying, “Do not get involved; it is safer.” Because of the ambiguities. So Marc, your approach may help them by coming up with something that is clearer; it is in a regulation. But at the same token, after this huge battle on the 4911 a couple of years. I did not see this rush of sea breeze coming in to either elect or to demonstrate more expenditures for lobbying. So, despite any of the rules; we did not see this huge shift. So, I am really nervous about all of this discussion of whether it is really going to help in the longer run. I also say that if we go to the regulatory approach -- Greg, I’m going to probably do battle with you because I’m not happy about the notion about mentioning the member suddenly [background noise] cross the line [indiscernible] and the reason for that is I should be able to talk about the war and I should be able to say that McCain supports the war. I do not have to say I’m for McCain or against McCain. I’m not going to use those magical words, but I should have every right as an organization that cares about issue to speak about it and bring your contacts to where members of Congress or candidates this hour. I do not understand why they would cross the line. So, I would do battle and I do not know how you resolve those things in a regulatory context. Greg Colvin: Just to react to that, I think what is difficult is to talk about safe harbors, like a safe harbor for a speech that does not mention anyone as running for office just so people know they can talk on issues that are very involved even in campaign debates. But fitting into a safe harbor does not mean that when you are outside of that safe harbor, you are in trouble. It just means that you are in an area of relative risk and that is where we are now. Beth Kingsley: And I think it is really important that if what gets advanced is a safe harbor that it not -- we be careful not to let it become a floor. I mean, I still think there is a benefit to a safe harbor but I think that is a risk of -- once you are outside of this, oh, that is bad. No, that is just back to we cannot craft the bright line yet or have not yet. Karl Sandstrom: I’d like to reduce the fear. I’m trying to take people who are more timid, including all board members, and make them a little less timid, that they can be a little bolder and not leave that to how other organizations should try to dictate. What you had for instance in the course of the last cycle of course, the last cycle is incredible -- 527 -- millions of dollars were pumped in to discuss issues where those issues -- some of these organizations could well have used some of that money to discuss the issue in a more informal way, because they had experienced with that issue; they had membership on that issue, rather than coming up with these organizations on the fly; for instance organization dealing with the war of 2004. They were created late in the cycle. They went up -- some of them ended up flush with cash after the election because the money kept coming in because what they were doing was considered effective in highlighting that issue. It would be better to have a system where those organizations that put in time and effort and intellectual capital on these issues can use it. Marcus Owens: I think we have to remember the structure; simply looking at the prohibition, if it was removed from the Internal Revenue Code, I think, actually, the fear of board members once they realized what the actual statutory framework is would be greater because Section 4955 applies a tax to the organization and to the individual who approved the action. The cost of an IRS audit now, if it is an aggressive one, is well past $100,000. Now, if you are on the board of an organization that took an aggressive action, you approved it as a board member, the IRS comes in. They do not threaten tax exempt test; they just say, “We want to conduct an inquiry to determine if the excise tax should apply.” You as a board member at that point should go seek and engage your own counsel and that will not be inexpensive. The organization has to engage separate counsels and then you have to deal with the battle of information, document request, third party record keeper summonses, depositions. It is not fun; it is a great distraction and it is a tremendous use of resource. At the end of the day you get a no-change letter. And so, any board member who realized that is what they are facing, why this particular statutory scheme that includes Section 1255 -- further repercussions are not there. The IRS revokes very few organizations, but it does put a lot through that audit wringer and that is incredibly expensive. Kay Guinane: Does the language and the Wisconsin Right to Life case that talks about the burdens on a group being investigated in the FEC context thing? There should not be too much discovery in that kind of thing. That language, in Wisconsin Right to Life; that had an impact on how far the IRS goes in making these examinations costly and burdensome. Marcus Owens: I do not think so. The IRS is given very broad authority to make up inquiries to determine whether the tax laws have been -- and that has to be the case. And there are far too many creative people out there playing games with their taxes that have nothing to do with criminal activities. The IRS needs to be able to conduct in-depth inquiries, or else the system of support in our government collapses. Karl Sandstrom: Sure. I think our way of saying it is some soul-searching at the IRS. If they can exact the penalty without vindicating the law that they are relying upon, there is something wrong. If I can essentially accomplish my own personal, political agenda not expressed in the documents ore regulations or anything like that, by bringing in action, and threatening directors with large fines and causing the organization to incur large expenses, something is amiss. We need to find a way to address that. Maybe the only way to address it is for some soul-searching at the IRS about what are they seeking to achieve. And I think that is what has been missing at the IRS. Any idea; what purpose are they actually advancing? Because they are largely not advancing a little -- checking a tax subsidy. Greg Colvin: There is another possible approach not from the enforcement standpoint, but from the standpoint of organizations that are facing these kinds of dilemmas. And that is to treat the excise tax as a little bit of an override, an extra 10 percent for engaging in activity. And it reminds me - I think I heard about this from the authors of the book Freakonomics, where, apparently, there have been studies of child care centers that have rules; you have to pick up your kid by six o’clock and they found that most parents complied with that, but some did not. And in order to try to get better compliance, they charged you a dollar a minute for coming in late. And they found that fewer parents actually complied because they lost this social approbation that comes from this and ended up with just a cost of being late. So, when you look at the various tax penalties for political activity, it is amazing that the 4950 excise tax rate on the organization, not on the directors, is so low; it is only 10 percent. If you go over your lobby limits under 501H, it is 25 percent and I have had add clients willingly, proudly pay that because in a particular year they needed to go over the limit. Likewise under 162, if you are a trade association that has understated your non-lobbying expenditures, you pay a proxy tax of 35 percent. So that is another way of -- not from the IRS enforcement standpoint but from the standpoint of what would it mean if we did not have revocation hanging over. But this was treated as a cost doing political business. Some -- not all -- but some organizations might react in just this way. Karl Sandstrom: Which may be good. Greg Colvin: Yes. [Cross-talking] Karl Sandstrom: But I do not see that that is necessarily bad if they end up having to pay a tax similar to proxy tax and we increase public discussion of the issues during an important presidential year. That seems to me, all for the better. Beth Kingsley: I think if that where the case (c)(3)’s would become the campaign vehicle of choice because what is the marginal rate most people are paying on that charitable contribution? Twenty-eight percent? And the charity only needs to pays 10 percent for the political activity? I mean you could play [cross-talking]. Male Voice: [Cross-talking] there are agencies in every state of this country. I used to be on an agency here in Washington, the FEC, that regulates political activity. And the court has identified what can be regulated under the Constitution --what is not. And so, we leave it to the agencies that regulates politics to regulate those agencies, (c)(3)’s too. Kay Guinane: We clicked noon time and so I think we are going to have to draw to a close for today. But I appreciate your time and attention. Everyone, we will be putting out a report in the fall that summarizes this discussion and I hope that that will lead to the kinds of next steps we have heard described here today. The sector needs to take because we collectively need to take to better protect our rights, speak out. So, thank you for your attention and also thank you very much for our panelists here today. 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