Letter to the IRS from OMB Watch in regards to internet use and exempt organizations. February 13, 2001 Judith Kindell Internal Revenue Service 1111 Constitution Avenue NW Washington, DC 20224 RE: Announcement 2000-84: Request for Comments Regarding the Need for Guidance Clarifying Application of the Internal Revenue Code to Use of the Internet by Exempt Organizations Dear Ms. Kindell, OMB Watch, a 501(c)(3) organization, welcomes this opportunity to comment on questions the IRS has raised regarding use of the Internet by exempt organizations. Our comments focus on general issues and questions relating to lobbying and political activities by nonprofits. We encourage the IRS to only take action that is consistent with current rules, especially the 1976 lobbying law that was intended to encourage charity participation in public policy matters. Accordingly, we do not encourage the IRS to generate new regulations in this area. However, guidance may be useful. Because we make extensive use of the Internet in carrying out our mission, these comments describe our activities in some detail, in order to illustrate the wide variety of applications of Internet technology that are available to exempt organizations. Our answers to specific questions posed by the IRS are preceded by a discussion of the constitutional, legal and policy framework that must be applied to any guidance. They are based on reactions to principles and practices we circulated to thousands of nonprofits across the country, as well as our own experience. Some of the questions posed by the IRS go beyond issues covered in current tax law, raising concern that the IRS could impose a more intrusive and burdensome level of regulation on Internet communications than exists for communications in the print world. This result would be very problematic, inhibiting continued development of the Internet and stifling protected nonprofit speech. To avoid these problems we encourage the IRS to adopt a least restrictive, incremental approach in applying tax laws to exempt organization use of the Internet. Current code provisions, regulations and Revenue Rulings that apply to non-Internet based activity should be applied to the Internet wherever possible. Where the nature of the Internet makes this impossible, IRS guidance should allow nonprofits the flexibility needed to reasonably comply with the law, without unduly burdening or restricting their Internet activities. In no case should use of the Internet trigger regulatory requirements that do not have parallels in the print world. OMB Watch and Use of the Internet OMB Watch was formed in 1983 to lift the veil of secrecy shrouding the White House Office of Management and Budget (OMB). By explaining government process and monitoring OMB, OMB Watch helped bring sunshine to this powerful agency. As the years have progressed, we have dedicated our work to explaining complex government processes in understandable terms and encouraging greater public policy participation. As a result, our activities have expanded to include five main areas:

• Budget and government performance issues;
• Regulatory and government accountability;
• Information for democracy and community;
• Nonprofit advocacy and civic engagement; and
• Nonprofit policy and technology.

Our activities in these areas include working closely with state and local nonprofits and other national organizations. We provide them with information and resources through a variety of means, including publication of research and analysis reports, a biweekly online newsletter, educational materials, training and technical assistance. We also assist groups with common interests in networking activities, and coordinate several coalitions. We actively promote policies that would help achieve our goals in federal agencies, the White House and the Congress. In addition we provide access to government and government information through a variety a activities, but primarily through our website. For example, through RTK NET, a Right To Know network, OMB Watch has been providing environmental, census, housing and bank loan data online since 1989. We work hand-in-hand with thousands of small community groups to teach them how to use online and Internet technologies and put RTK NET data to use in their communities. Our Community Education Center, which focuses on nonprofit advocacy and civic engagement, works with more than 2,500 nonprofit across the country to link them with federal issues, such as those raised by this Request for Comments, and bring their concerns to the attention of federal policy makers. The Internet has proved to be a rich low cost resource in helping us carry out this work. We are not alone. Recent research we have conducted jointly with Tufts University found that 90% of charities use e-mail and 84% use the web. Although only 63% use e-mail and 44% use the web for public policy purposes, the Internet makes it possible for us to reach more state and local groups with more information in a very timely manner. Our uses of the Internet include:

• Public Education We use e-mail, listservs and the web to inform the public about our activities, explain federal laws, regulations and policies, provide technical assistance. In particular, we use listservs to provide interested nonprofit staff and volunteers an opportunity to network, brainstorm, share information and plan action.
• Research We have conducted online surveys using the Web. We also scour the Web and online databases for information and news;
• Outreach We use e-mail and the web to raise public awareness around issues, and to engage potential supporters in our organization's activities;
• Communications We use e-mail to communicate with members and partner organizations. We also use e-mail and Web to receive information requests and inquiries from the public.
• Information Dissemination We use e-mail and the web to send information in a time, efficient, and targeted manner in ways that are not possible with traditional mail. We can send information as soon as it is produced to users who specifically elect to receive it;
• Data Sharing We use web pages to provide analysis and data. In many instances this data that is not provided to, or easily accessible by, the public. We use online databases to store and hold that data and information, which are available for users here and abroad;
• Advocacy E-mail and the web are used to get information promoting our goals to policy makers and the public.
• Administration We use e-mail internally to collaborate on documents and reports. It provides an easily archived record of deliberations and edits that can be reviewed and incorporated into work without retyping.
• Networking We operate a number of listservs that enable nonprofits working together on projects to share information, data and ideas.
• Technical Assistance We use e-mail and the web to provide specific information to individual organizations that have requested assistance.
• Online Meetings We use Internet software that allows us to conduct long distance meetings, sharing documents, holding discussions and strategy session, planning action and sharing information.

While this list reflects extensive use of the Internet, OMB Watch is constantly expanding and refining its use of this resource, and is opposed to any regulatory action that would impair or unduly burden this exercise of our First Amendment rights. Legal Framework for Exempt Organizations and the Internet 1. First Amendment Considerations Any action by the IRS that constrains or limits the advocacy voice of charities on the Internet will first face First Amendment hurdles. Free speech rights are a core democratic principle that provide for an active citizenry. While there is not much new law relating to speech on the Internet, the Supreme Court set constitutional standards for Internet based speech in its 1997 landmark decision Reno v. ACLU1 . In the opinion, Justice Stevens approved the lower court finding "that the Internet- as 'the most participatory form of mass speech yet developed'- …is entitled to the highest protection from government intrusion." The conclusion states, "The record demonstrates that the growth of the Internet has been and continues to be phenomenal. As a matter of constitutional tradition, in the absence of evidence to the contrary, we presume that governmental regulation of the content of speech is more likely to interfere with the free exchange of ideas than to encourage it. The interest in encouraging freedom of expression in a democratic society outweighs any theoretical but unproven benefit of censorship." The Reno case dealt with the Communications Decency Act , which attempted to curb indecent material on the Internet. The Internet based speech of exempt organizations is entitled to an even higher level of constitutional protection. Nonprofit Internet communications that advocate ideas and policy positions that advance their mission are similar to editorials. In FCC v. League of Women Voters2 the Supreme Court noted that these types of communications are "entitled to the most exacting degree of First Amendment protection." Expression of editorial opinion "lies at the heart of First Amendment protection." The court found that, while broadcast media involve a somewhat looser standard because of scarcity of the resource and high entry barriers for participants, banning editorial speech on public radio stations is unconstitutional. The Reno case made it clear that the Internet is to be distinguished from broadcast media because of its infinite capacity and low entry barriers. Consequently, advocacy and editorializing on the Internet by exempt organizations receives the highest level of First Amendment protection. Any interpretation of tax law must be made in the light of this standard, refraining from burdening or limiting such speech absent a compelling government interest. 2. Advocacy by Exempt Organizations is Recognized by Congress as a Benefit to Society Nonprofit participation in the legislative process has been recognized as a benefit to Congress, state and local legislatures and the public. In 1971 Sen. Edmund Muskie (D-ME) said, "if we are to maintain a democratic form of government in practice, and if the Congress is to reach reasoned judgments on the important issues before it, we must assure that every segment of our society is able to communicate with Congress."3 This statement recognizes the fact that nonprofit legislative lobbying activity helps level the playing field so that all sides of an issue can be heard and considered by lawmakers. Although the federal tax code limits legislative lobbying by charities to an "insubstantial part" of their activities, Congress recognized the important contribution charities make to the legislative process by unanimously passing Section 501(h) in the Tax Reform Act of 1976.4 The law defines the "insubstantial part" limitation in terms of expenditure levels, imposing reasonable spending limits on lobbying by charities.5 As a result there is no limitation on use of cost-free resources such as volunteer time and in-kind donations. During the six years of the Congressional deliberations that led to passage of the expenditure test, including three days of hearings with over 100 witnesses representing diverse interests6, the following statements were made:

• "Charities can be and should be important sources of information on legislative issues."7 Sen. Dole (R-KS)
• "The role of the charities in a pluralistic society- something we are all dedicated to- is constructive and the charities should not be muzzled."8 Rep. Conable (R-NY)
• "The present law effectively inhibits a diverse, informed and important segment of our society from presenting its views either to Congress or State and local legislative bodies, and deprives legislators of the experience and knowledge of these charities."9 "These groups have much information to contribute and a wide range of helpful experience that could greatly assist the consideration and enactment of this country's laws."10 Senator Nelson (D-WI)
• "It makes no sense to decide that these organizations operate in the public interest and grant them tax-exempt status and then silence them when they attempt to speak to those who must decide public policy."11 "These organizations can be a valuable source of information; they can broaden legislation, and they can suggest valuable legislative alternatives."12 Sen. Muskie (D-ME)

These statements establish the clear legislative intent of Congress to encourage and maximize the ability of charities to be involved in the legislative process, including active direct and grassroots lobbying. IRS application of the tax code and regulations to Internet related lobbying by charities should reflect this intent, minimizing the burdens on speech and maximizing charities' ability to speak on legislative matters. 3. Federal Internet Policy Federal policy and law regarding Internet issues has taken a least restrictive approach, and like the Internet, is still evolving. This hands-off approach has resorted to regulation of Internet activity only where fraud, abuse or criminal activity is involved. Most legal issues relating to the Internet have involved fraud and abuse, privacy, intellectual property and licensing and contract provisions. Congress has imposed a moratorium on sales taxes in Internet based commerce, and bills already introduced in the first session of the 107th Congress reflect a desire to extend the moratorium, or even make it permanent. The purpose of the moratorium is to allow unfettered development of the Internet as a force in the economy. Privacy and security issues are also receiving a great deal of attention from all three branches of government, as the Internet becomes more central to commerce and communication within the general public. Congress acted to protect hosts of Internet based forums and publishing services from liability in the portion of the Communications Decency Act that survived Supreme Court scrutiny. It insulates Internet service providers from liability for libel contained in a document from a third party.13 The Federal Bureau of Investigation and National White Collar Crime Center have established the Internet Fraud Complaint Center (IFCC).14 Its mission is to address fraud on the Internet by providing "a convenient and easy-to-use reporting mechanisms that alerts authorities of a suspected criminal or civil violation." It keeps a central repository of complaints, tracks fraud patterns and data on trends. There are no guidelines for Internet record management for federal agencies. Different agencies manage their web sites and databases differently. The National Archives asked federal agencies to provide a snapshot of their public websites as they appeared on the last day of the Clinton administration by the end of March. Some have agencies complained about the request, citing issues of time, money and use of personnel.15 However, this is the only attempt to require federal agencies to archive their websites.16 Last year the Federal Election Commission conducted an Inquiry into application of the Federal Election Campaign Act to increasing use of the Internet in election campaigns. After hearing extensive public comments, the Commission has declined to propose new regulations and instead has proceeded on a case-by-case basis, allowing nonpartisan uses of the Internet for voter education and research purposes.17 Practical Considerations 1. Evolving Nature of the Internet and its Applications In the Reno case the Supreme Court noted that the potential of the Internet has not been fully realized, stating "Anyone with access to the Internet may take advantage of a wide variety of communication and information retrieval methods. These methods are constantly evolving and difficult to categorize." Within this changing world, exempt organizations have unique needs for and uses of Internet technology. Because exempt organizations often operate on small, tight budgets they have been slower to integrate the Internet into their operations than the commercial sector. Some nonprofits, including OMB Watch, have made it part of their mission to provide other nonprofits with information and resources about using Internet technology effectively. Others have developed "circuit rider" programs, where trainers travel across the country, showing nonprofit staff and volunteers how to set up and operate computer networks, including Internet applications. These activities will lead to accelerated expansion of exempt organizations' Internet applications. 2. Diversity of Exempt Organization Internet Uses Nonprofit use of the Internet varies widely, according to skill levels, resources and the nature of the organization's mission. These applications include public education, advocacy, fundraising, communications, accessible information and data, research and technical assistance services. OMB Watch has used the Internet to hold virtual meetings, where over two dozen people scattered throughout the country were able to converse, view documents and comment in a chat room simultaneously. Without this technology, this group would have been unable to meet, because travel costs would have been prohibitive. CompuMentor is an example of an Internet and technology assistance service provider. They are a nonprofit whose mission is "to provide technology resources to nonprofits and schools serving low-income communities."18 Their services include affordable software, technology planning, strategic consulting, mentor matching, and assistance to community technology centers (CTCs) and schools. They operate a free website, TechSoup,19 that offers assistance with using the Internet, web building, community technology centers and more. Their community technology center page provides a link to OMB Watch's website on CTCs. That site provides a host of information on CTCs and links to our Nonprofits' Policy & Technology Project, which in turn provides an online daily information bulletin on nonprofit technology issues, a discussion forum and a library of information on a wide variety of topics, including free web hosting resources to online filtering, web banner advertisements and accessibility. Many nonprofits use the Internet in much more limited ways. Most have access to e-mail and many have websites that provide information about their organization, but often websites have limited content and are out of date. Many groups do not have the capacity to set up and operate listservs, or take advantage of online databases or meeting programs. However, nonprofits are rapidly widening and improving their use of the Internet. They see that the Internet and web are fundamentally different from other forms of communication in a variety of beneficial ways. The Internet provides a means to present, edit, reuse, and repackage information from multiple sources in ways that are limited by print media. It has potential advantages for users with visual and hearing limitations, varied literacy and knowledge levels through its ability to present multiple types of content simultaneously. The Internet also allows the public to access information at its convenience, rather than rely on the mercy of timetables, and to get immediate results, rather than wait for material to mailed long distances. 3. Differences From Other Forms of Communication The Supreme Court recognized the fundamental difference between the Internet and other communication forms in the Reno case, stating "Unlike communications received by radio or television, the receipt of information on the Internet requires a series of affirmative steps more deliberate and directed than merely turning a dial." It went on to note, "unlike the conditions that prevailed when Congress first authorized regulation of the broadcast spectrum the Internet can hardly be considered a "scarce" expressive commodity." Last year Federal Elections Commissioner David M. Mason, in testimony before the Senate Committee on Rules, noted that lawmakers' past assumptions may not be valid on the Internet, saying:

"The Internet may not be more naturally beneficent than other communications technologies, but it is different…..There are three fundamental assumptions of campaign finance law which may not apply on the Internet:
• that the number of "speakers" (regulated entities) is relatively limited;
• that mass communications are relatively costly; and
• that speakers are easily categorized." 20

These remarks can also be applied to application of tax laws to exempt organizations' advocacy activities. Campaign finance law shares some fundamental characteristics with tax laws governing advocacy. Both regulate the content and extent of speech by exempt organizations, and must guard against unconstitutional infringements on free speech. Recognizing the inherent differences between Internet and other forms of communication is an important step in determining how the tax code and regulations should apply to online activities of nonprofits. Guiding Principles for IRS Guidance on Exempt Organization Internet Activities 1. The IRS Should Take a Least Restrictive Approach to Regulation of Internet Based Activities The IRS approach, especially relating to advocacy activities, should be consistent with the highest level of First Amendment protection, and reflect a general public policy that encourages free and open use of the Internet and of supporting public policy participation by charities. Where legitimate purposes are served by regulation, the IRS should use the least restrictive alternative, allowing exempt organizations maximum freedom and flexibility. 2. Existing Rules Should Be Applied When There are Similarities Between Print and Internet Communications The fact that a communication is made on the Internet should not, in and of itself, change the laws that apply to exempt organizations' voter education, legislative lobbying and other communications. Wherever possible, the IRS should allow nonprofits using the Internet to follow the concepts and processes found in existing rules. 3. Where the Unique Features of the Internet Require Additional Guidance, the IRS Should Incorporate the Following Factors:

• Simplicity Simplicity should be an essential feature of any guidance issued by the IRS. As a result, Internet communications with clear non-Internet analogies (i.e. e-mail and paper letters) should be treated in the same manner as the non-Internet items.
• Flexibility The IRS should recognize that, in the Internet world, one size will not fit all, and allow nonprofits the flexibility to develop methods of complying with tax rules that do not create artificial constraints on use of the Internet. Nonprofits should be able to differentiate between forms of communications on the Internet (websites, e-mail, discussion groups, instant messaging, chat, webcasting, etc.) and manner in which each is used.
• Allow for Future Development of Technology and Applications IRS guidance to exempt organizations and its enforcement of tax law and regulations should not constrain experimentation, improvement, innovation or expansion of the ways nonprofits can use the Internet to achieve their public interest goals.

Part 2 Endnotes 1 521 U.S. 844 (1997) 2 468 U.S. 364 (1984) 3 117 Cong. Rec. 8517 (1971) 4 PL 94-455, 26 USC 4911 5 These expenditure limits have not been adjusted since their passage in 1976. As a result inflation has gradually eroded the value of the expenditure ceilings, so that charities today are limited to lobbying budgets that are 2/3 lower than their 1976 counterparts 6 Hearings on HR 13720 Before the House Committee on Ways and Means, 92d Cong., 2d Sess. (May 3-5,1972) 7 121 Cong. Rec. 42032 (1975) 8 119 Cong. Rec. 42632 (1973) 9 119 Cong. Rec. 57546 (1973) 10 119 Cong. Rec. 5749 (1973) 11 117 Cong. Rec. 8517 (1971) 12 121 Cong. Rec. 42028 (1975) 13 47 U.S.C. 230(c)(1) 14 www.ifccfbi.gov 15 BNA 1/23/01 Agencies Directed to Archive Websites by Cheryl Bolen 16 OMB has authority under the Privacy Act of 1974 and President Clinton's 1998 Executive Order to coordinate privacy and security practices across all agencies. Section 508 lays out general guidelines for accessibility to federal websites. 17 For example, see AO 2000-16 issued August 10, 2000, to Third Millennium, allowing them to send campaign ads on the Internet as part of study on youth participation in elections. 18 www.compumentor.org 19 www.techsoup.org 20 Testimony of FEC Commissioner David M. Mason before the Senate Committee on Rules, May 3, 2000