Inconsistent Enforcement: IRS Findings in NAACP and All Saints Church Cases

A comparison of two high profile IRS investigations into allegations of election intervention - the All Saints Church and NAACP cases -highlights the vagueness of the regulation and the inconsistency of IRS enforcement. According to OMB Watch's analysis, the facts and circumstances of the All Saints Church and NAACP cases are very similar, but the IRS findings were very different. According to IRS Revenue Ruling 2007-41, the IRS decides whether a charity has violated the ban on election intervention using "all of the facts and circumstances of each case." The IRS provides little information on how it evaluates these facts and circumstances, however, leaving the charitable community to wonder: Which facts and circumstances are most important? If one fact suggests a violation and another fact indicates compliance, how does the IRS reach a conclusion? How does the IRS ensure consistency in its enforcement of the ban across different and complex situations? The IRS concluded that All Saints Church violated the ban, while the NAACP did not. In a warning letter to the church, the IRS wrote that All Saints had committed political intervention, but that no further action would be taken. Both organizations retain their nonprofit tax exempt status. Similarities Between NAACP and All Saints The NAACP and All Saints Church cases have several characteristics in common. Criticism of the Bush administration In both situations, speakers condemned the policies of the Bush administration during the lead up to the 2004 elections. On Oct. 31, 2004, the former pastor of All Saints Church — Rev. George F. Regas — gave a guest sermon titled "If Jesus Debated Senator Kerry and President Bush". In the lecture, Regas criticized the Bush administration's policies on the Iraq war and poverty. Regas did not endorse either candidate, however, and stated that "good people of profound faith" could vote for either candidate on Election Day. In his speech on July 11, 2004 at the NAACP's annual convention, Chairman Julian Bond spoke of his concerns about President Bush's policies. Bond had given similar speeches at each previous convention where he had spoken. In its initial letter to the NAACP, the IRS asserted that the speech constituted political intervention because Chairman Bond "condemned the administration policies of George W. Bush on education, the economy, and the war in Iraq." Fighting Back: Response to IRS The NAACP and All Saints Church each maintained their innocence throughout lengthy IRS investigations. Both organizations rejected the IRS claim that the speeches represented political intervention and both refused to respond to IRS's overly broad and duplicative requests for additional information in their individual cases. In its Jan. 17, 2005 letter to the IRS, the NAACP argued that Chairman Bond's "comments were consistent with the organization's long-standing practice of advocating positions in the interest of minorities in the United States without regard to election cycle." The letter went on to urge the IRS to "immediately close the examination and issue an appropriate letter confirming that the NAACP remains exempt under Section 501(c)(3)." Throughout the investigation, the NAACP refused to respond to the IRS's request for information about the conference because it said the IRS did not follow proper procedures and the agency's actions were politically motivated. When the IRS issued a summons of the NAACP in February 2005, the NAACP also declined to appear. In June 2005, All Saints wrote the IRS explaining that the sermon by Rev. Regas built upon the church's record of promoting peace and justice and denied any wrong doing. In September 2005, an IRS agents told All Saints that the investigation would be dropped if the church promised to avoid similar speeches in the future. The church's leadership declined the offer, explaining that they were not willing to restrict their free speech rights. In July 2006, the IRS requested more information. In a letter responding to this inquiry in August 2006, All Saints Church respectfully declined to provide the information, objecting to the questions as too broad and as an intrusion of the government into its religious worship services. In September 2007, when the IRS closed the case with a warning letter saying the church had intervened in the election, All Saints demanded an apology and requested that the Treasury Inspector General for Tax Administration review the case and explain which elements of the sermon constituted political campaign intervention. Same legal counsel Both organizations were represented by Attorney Marcus Owens of the law firm Caplin & Drysdale. Owens is a former IRS Director of the Exempt Organizations Division and now represents a broad range of nonprofit organizations. Differences Between NAACP and All Saints Timing The most obvious difference between the two cases was timing before the election. If proximity to the election was the critical factor leading to the differential outcomes, the IRS should clarify its position for the benefit of the charitable and religious communities. Without such clarification, these organizations will continue to be silenced out of fear of an IRS investigation. Refund Request The NAACP tried to force a resolution of its case by paying what it estimated it would owe in excise taxes if the IRS found against it. The NAACP estimated it spent $176.48 to disseminate Bond's speech, so it sent the IRS $17.65, consistent with the 10 percent excise tax rate and indicated this was not an admission of wrongdoing. Instead, the NAACP filed for a refund of the $17.65, giving t he IRS six months to refund the money or allow the NAACP to contest the issue in court. If the IRS had not closed its investigation of the NAACP when it did it would have faced litigation. All Saints did not pay excise tax and request a refund. Possible Explanations for the Inconsistent Results Why did the IRS reach different conclusions in the All Saints and NAACP cases? Given the regrettable lack of transparency in IRS regulations, the nonprofit community cannot know for certain what distinguished these two cases in the opinion of IRS investigators. Here are our best guesses: Timing before election Perhaps the difference in timing prior to the 2004 election was the critical distinction the IRS made between the two cases. Reverend Regas gave his lecture two days before the election, while Bond's speech took place several months before, in July of that year. The IRS has stated that proximity of comments to an election is one of the factors considered in determining whether the ban on political intervention has been violated. If timing is a primary concern, the agency should clarify its rules on when and how timing matters. Are comments critical of a sitting administration a month before an election safe ground? How about comments two weeks before the election? With little guidance from the IRS, charities are left to guess about where the IRS draws the line. Distinction between religious and non-religious organizations The NAACP is a civil rights organization and the All Saints Church is a religious organization. Perhaps the IRS differentiates between the religious and non-religious entities in its enforcement of the ban on partisan election intervention. Or perhaps the distinction is between organizations like the NAACP who consistently engage in advocacy and religious organizations that do so less frequently. The IRS has not acknowledged that it makes such a distinction. Political and financial power of charity As the nation's oldest and largest civil rights organization, the NAACP's national presence, political connections, and resources far exceed those of All Saints Church. The IRS investigation of the NAACP on this matter was news in most major news outlets across the country. While the NAACP has members across the country, the members of All Saints Church reside in Pasadena County, California. Whereas the NAACP had several prominent members of Congress express anger at the IRS for investigating the organization, only the member of Congress who represents the Pasadena, Rep. Adam Schiff, came to the defense of All Saints Church. Political and financial clout should not determine whether a charity has the right to speak critically of elected officials. In October 2004, in response to public concerns about the IRS investigation of the NAACP, IRS Commissioner Mark Everson said "The IRS follows strict procedures involving the selection of tax-exempt organizations for audit and resolution of any complaints about such groups." Need for More Transparent Standards & Process The ambiguity of the IRS regulations and enforcement of the prohibition on election intervention has chilling consequences for nonprofit advocacy, as experienced by the two organizations highlighted in this analysis, who underwent lengthy and expensive investigations. In a September 2007 press release, All Saints stated "Synagogues, mosques, and churches across America have no more guidance about how the IRS rules now than when we started this process over two long years ago. The impact of the letter leaves a chilling effect cast over the freedom of America's pulpits to preach core moral values. We have no choice but to demand clarification on this matter with the IRS." In a letter to the IRS, the NAACP made a similar statement about the IRS investigation: "We must conclude that the intention was to chill appropriate voter registration and get-out-the-vote efforts, whether conducted by the NAACP or by other organizations that are targeted by similar examinations in the program." Given the impact of IRS decisions to the charitable community and its ability to speak freely about policy, one would hope that the IRS has clear internal guidelines that justified the different conclusions reached in the NAACP and All Saints Church cases. Clarification from the IRS on the differences between these two cases would be extremely helpful to the nonprofit sector, especially as we approach the 2008 elections. SUMMARY: All Saints Church & NAACP Political Intervention Investigations Compare Speaker Rev. George Regas Chairman Julian Bond Content of Speech Antiwar sermon criticizing President Bush, which Regas preceded by saying "I don't intend to tell you how to vote" Speech condemned policies of Bush administration on education, the economy, and the war in Iraq Date of speech Oct. 31, 2004 July 11, 2004 Days before election 2 114 Initial response to IRS Denied wrongdoing, Made IRS investigation public Denied wrongdoing, Made IRS investigation public Outcome of Investigation IRS closed investigation with letter to the church concluding that the sermon in question constituted intervention in the 2004 Presidential election IRS closed investigation, finding the NAACP did NOT violate the ban on political intervention Impact on tax exempt status Retains tax-exempt status Retains tax-exempt status Total length of investigation 2 years and 3 months (June 9, 2005 November 2004- September 2007) 1 years, 10 months (October 8, 2004- August 31, 2006) Attorney Marcus Owens of Caplin & Drysdale Marcus Owens of Caplin & Drysdale
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