Resource Center: IRS Rules on Election Activities of Charities
The Ban on Election Intervention:
What Charities Should Know
Since the 2004 election, the Internal Revenue Service (IRS) has increased enforcement of the ban on partisan electoral activity by charities and religious organizations. With stepped up enforcement, the IRS has provided new and helpful guidance to nonprofits on what is and is not campaign intervention. Unfortunately, increased enforcement has also resulted in controversial audits, questions about the standards and procedures used by the IRS, and greater concern and confusion among nonprofits.
This article provides information on the prohibition and IRS enforcement, as well as links to more information.
- Basics of the ban
- Political Activities Compliance Initiative (PACI)
- Current status
- Questions and concerns
- Examples of previous and ongoing investigations
Charities, educational institutions and religious organizations, including churches, are among tax-exempt organizations described in section 501(c)(3) of the Internal Revenue Code. They are prohibited from participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office.
These organizations cannot endorse any candidates, make donations to their campaigns, engage in fund raising, distribute statements, or become involved in any other activities that, directly or indirectly, may be beneficial or detrimental to any particular candidate. Activities that encourage people to vote for or against a particular candidate on the basis of nonpartisan criteria also violate the political campaign prohibition of section 501(c)(3).
In 2004, the IRS created new procedures to review and fast-track enforcement action on allegations of improper political activities by 501(c)(3)s. This program is now referred to as the Political Activities Compliance Initiative (PACI).
On Feb. 24, 2006 the IRS released its first assessment of PACI. The report found that nearly 75 percent of organizations investigated had violated the ban.
The same day the IRS released Fact Sheet 2006-17, which summarizes the IRS interpretation of the ban on intervention in elections in a variety of fact situations, covering voter mobilization and education, individual activity by leaders, candidate appearances, issue advocacy vs. political campaign intervention, voter guides, websites, business activity, and multiple or combined activities.
The IRS also announced that it would step up enforcement for the 2006 election cycle, releasing new procedures for expedited handling of referrals alleging violations, in an effort to end any ongoing violations.
On June 8, 2007 the IRS released a report on the initial results of its 2006 enforcement program. The results of the 2006 enforcement program show a low level of violations among the nonprofit community. While only 40 of the 100 cases selected for examination have been closed, the report provides a useful picture of the PACI program, 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. See our Initial Findings on 2006 IRS Political Activities Enforcement Efforts Released and IRS Reports on 2006 Political Activities Enforcement Program, Releases Guidance.
On the same day that the IRS released the report describe above, the agency also issued Revenue Ruling 2007-41. The revenue ruling provides guidance in the form of 21 example situations of nonprofits engaging in election activities. For each example, the IRS comments on whether the activities represent a violation of the ban on partisan intervention. The revenue ruling is a helpful step toward providing clearer definitions of allowable and unallowable activities, but does not establish any safe harbors or bright line rules. For more information, see our Summary and Analysis of Revenue Ruling 2007-41.
Although the Treasury Inspector General for Tax Administration (TIGTA) has published a report on the IRS' process for reviewing referrals alleging political campaign intervention by charities, it did not address a number of issues of concern to charities. The report did not address the following issues:
- Whether the IRS has the authority to "fast track" investigations, absent a flagrant violation of the prohibition
- Why the IRS currently lacks a clear set of rules defining prohibited intervention in elections, instead relying on the "facts and circumstances" of each individual case
- Whether a charity's right to criticize elected officials — which is at the core of our free speech rights — is suspended because an election is taking place
- How the IRS distinguishes between partisan interference and legitimate issue advocacy
For more information on the issues charities face as a result of IRS enforcement of the ban, see OMB Watch Report: The IRS Political Activities Enforcement Program for Nonprofits: Questions and Concerns.
IRS investigations, audits, and resolutions are secret — by law, the IRS cannot publicly comment on specific cases. Therefore, we have little details about the current examinations resulting from PACI. The organizations under investigation may and, sometimes do, publicly disclose their audits. Below are examples of investigations as made public by the organizations.
Friendship Missionary Baptist Church
Outcome: Investigation concluded in January 2006 when IRS cleared church of wrongdoing
Synopsis: In Feb. 2005, the IRS informed Friendship Missionary that the church was under investigation for engaging in political activity. The investigation stemmed from an Oct. 2004 appearance at a service by Democratic presidential candidate Sen. John Kerry. The church defended its actions by explaining services are open to all, regardless of religious or partisan affiliation. More information on the Friendship Missionary case
Outcome : In August 2006, NAACP announced that the IRS had found no violation
Synopsis: In Oct. 2004, the NAACP received notice that an IRS audit was underway. According to the IRS, the NAACP's tax exempt status was being challenged because NAACP Chairman of the Board Julian Bond allegedly made politically partisan remarks while speaking at the NAACP National Convention in July 2006. The NAACP publicly announced that it was under investigation by the IRS and questioned the timing of the IRS action, calling it a politically motivated attempt to silence the organization and discourage blacks from voting. More information on the NAACP IRS Audit
All Saints Episcopal Church
Outcome: In September 2007, IRS concluded violation was one-time occurrence and All Saints faced no penalties.
Synopsis: In Nov. 2004, the IRS initiated an audit into an anti-war sermon delivered during at the All Saints Episcopal Church two days before the 2004 general election. The IRS characterized the sermon as "a searing indictment of the Bush administration's policies in Iraq." The IRS offered to drop the investigation if All Saints would admit wrongdoing and agree not to hold similar sermons in the future. All Saints rejected the offer. In September 2007, the IRS sent a letter to All Saints saying; "We note this appears to be a one-time occurrence and that you have policies in place to ensure that the Church complies with the prohibition against intervention in campaigns for public office." More information on the All Saints case
Outcome : IRS dismissed complaints about two incidents.
Synopsis : Complaints led to an IRS investigation after Rev. Jerry Falwell's nonprofit published an endorsement of President George W. Bush in his July 2004 newsletter, the Falwell Confidential. It appears the complaint was dismissed because the communication was paid for out of their 501(c)(4) nonprofit fund. Another complaint was filed in Aug. 2004 against Falwell for endorsing President Bush during a speech at the Southwestern Baptist Theological Seminary. In dismissing the complaint, the IRS seems to have given latitude for speakers at organizational events in which they are expressing personal opinions.