Obama campaign takes fire over church conference speech

Sen. Obama's speech at last summer's United Church of Christ conference has managed to pull an IRS investigation according to the AP. Here's some interesting analysis from two sources:

John Wilson's IRS Probe Of Obama's Church Underscores Anxieties For Nonprofits underscores the difficulty charities and other nonprofits are facing with these subjective rules... something I've blogged about before.

Over at the Nonprofit Law Prof blog, there's a a great pointer to Jack Siegel's take on the situation. Quoting their quote of him:

We do think Congress must step in and write a prohibition on political campaign activity that addresses the reality of how churches and other Section 501(c)(3) organizations interact with political candidates. In addressing this problem, we would like to see Congress take an approach akin to that taken by the intermediate sanctions in Section 4958. That is, rather than penalizing the innocent entity or the entity that can't control a speaker once the speech has begun, the sanctions should focus on the speaker's conduct, penalizing the speaker. Many will argue that this raises First Amendment issues. We recognize that possibility, but are not convinced. Obviously, the speaker has a right to speak, but the speech in question is by invitation. Consequently, this is not silencing the speaker in terms of access to the public square.

A safe harbor for the charity in case the speaker slips into campaign mode would probably face a lot less resistance compared to the flip side: penalizing the speaker. I'd be very surprised if that idea ever got off the ground.

Law schools

I got a question in my email box from a prospective law student... unfortunately the student's email bounced back on me so I couldn't respond! So, if you fit that bill... email me at tim at tim dash mooney dot com and I'll resend it to you directly.

A lot of people ask me about how to go about training to become a lawyer serving nonprofits... I think the bottom line is that law schools are - for the most part - not the place where you'll learn that craft. There are absolutely some great programs out there (Columbia and Boston College come to mind immediately) but I've always maintained that no matter what type of law you'd like to practice, you want to find a good clinical program rather than seek out the best academic program. I'm sure others may disagree, but I can honestly say I learned far more about being a lawyer in my litigation clinic than in any of my classes.

One major piece of advice I give to anyone thinking about nonprofit work in law school... take administrative law. You'll be shocked how often it's relevant to the work you do!

Candidate accused of misusing charity

A North Carolina state representative is being accused of using her charity's resources to aid in her election efforts. Rep. Mary McAllister helped found Operation Sickle Cell in 1972 and has found herself the target of a state auditor's investigation. More on this from the Fayetteville Observer.

Interesting to see that it is a state investigation... it's conceivable that the IRS could look into this as well.

Look out FEC... here comes another lawsuit

Happy Valentine's Day FEC! SpeechNow.org is filing a lawsuit against the FEC today, asking a federal court to allow it to advocate for or against federal candidates without having to comply with contribution limits. The way things have been going in these cases, the SpeechNow.org argument has a really strong chance of succeeding... it takes no corporate money and it does not coordinate with federal candidates nor make contributions to federal candidates. It's (kind of... sort of) akin to the successful arguments made decades ago in MCFL. If that rings a bell, that case opened things up for certain types of ideological 501(c)(4) organizations to make independent expenditures.

In any event, pay attention to this one if you want your nonprofit to be able to engage in more election-related advocacy. It's got a lot of election lawyers taking notice.

OC Church under IRS investigation

Memo to all 501(c)(3)s (especially churches)... yes, the head of your organization can endorse a candidate. Just be sure to not use the organization letterhead when you do it... it matters (apparently) to the IRS.

As I write this, I'm thinking about the paradox in IRS rules at times... in what I like to call the "hang a lantern on your problem" rule, the IRS has no problem when an endorsing person is listed with their organizational affiliation along with an asterisk that leads the reader to a disclaimer stating "organizational affiliation listed for identification purposes only." (IRS FS-2006-17) Contrast that with this instance where clear organizational identification (the letterhead) seems to be leading this church into an investigation even though the pastor is suggesting that the letter underscored a personal endorsement. I think you can distinguish the two endorsement scenarios, but it underscores a continuing problem for all 501(c)(3)s out there: the facts and circumstances analysis is so subjective that it's sometimes difficult to know where the line is between legal and illegal activity.

Nonprofits and elections

BoardSource has just released a new article by my former boss, John Pomeranz entitled
Staying Legal While Engaging in Election-Related Activities. It's free for BoardSource members, but you can check out a free portion of the article here.

Since it's a timely subject, be sure to check out the latest in the Nonprofit Law Podcast's Beyond the Podcast series... Nonprofits and Elections: Balancing Personal Versus Organizational Activity. It's an on-demand video you can get through the NLP site here.

Nonprofit Law Podcast #31: Do we have to file a 990?

Nonprofit Law Podcast #31 is live, covering whether your organization needs to file a Form 990 this year.

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When the IRS will audit your nonprofit

The IRS recently released Fact Sheet 2008-14, in which it spelled out when your nonprofit might be considered for an examination of its activities:

To determine which organizations should be targeted, experienced specialists analyze information from Forms 990 and other sources. This analysis will usually result in the selection of a group of returns for examination or compliance check. EO also reviews media reports and receives complaints from the general public and Congress about potential non-compliance by exempt organizations. After confirming the information, and when appropriate, these organizations may be selected for examination or to receive a compliance check.

This isn't terribly earth-shattering news... basically the IRS says that it looks at 990s, media reports and complaints, which most in the community already assumed. It's good to have it documented officially, however.

Nonprofit Law Podcast #30: Can a candidate use our space?

Nonprofit Law Podcast #30 dives into election waters again - can a candidate use your nonprofit's space?

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Nonprofit Law Podcast #29: Unrelated business income

Nonprofit Law Podcast #29 looks at one of the rare times nonprofits face a tax... unrelated business income.

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Breaking: Dean Zerbe to resign

Who is Dean Zerbe, you ask? He's the chief tax attorney for Sen. Charles Grassley, and to put it bluntly... not a friend to nonprofits, in my opinion. As the Chronicle of Philanthropy notes, he was a driving force behind many recent legislative efforts involving nonprofits in recent years. It will be very, very interesting to see if this impacts Sen. Grassley's efforts in the future.

Nonprofit Law Podcast #28: Nonprofit mail rates

Nonprofit Law Podcast #28 turns its attention to the USPS and nonprofit mail rates.

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Nevada church accused of illegal electioneering

Americans United filed a complaint with a top IRS official, accusing a pastor of a Nevada church of illegally endorsing Barack Obama this past Sunday. More details at the Nonprofit Law Prof blog... the complaint (PDF) is interesting... the IRS gives some leeway to pastors and other religious leaders for endorsements in their individual capacity, but not when they use church resources to do so. This pastor made the comments during a sermon.

This situation reminds me of a moment in a documentary I just watched with the late Jerry Falwell speaking before his student base at Liberty University (a 501(c)(3) as is his church)... paraphrasing: "the IRS says Liberty University can't endorse George Bush. But I can." This was followed by a long litany of reasons to vote for George Bush. The event was held in a university arena by the head of the university... there are other factors to weigh here in a facts and circumstances analysis, but I don't recall any IRS action aimed at Falwell for that event.

What does this say? There's technically illegal actions and illegal actions that receive IRS scrutiny. Since the process is ruled by "facts and circumstances" analysis, it's totally subjective and it can be difficult to rectify in one's mind why one case receives sanctions and the other does not.

Nonprofit Law Podcast #27: Reporting Changes to the IRS

The latest Nonprofit Law Podcast is on the air... in number 27 we take a look at reporting changes to the IRS.

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File your 990s

If you don't file your Form 990 - assuming you're required to (some organizations are exempt) - you may have more than the IRS to answer to. You might find yourself at the other end of a press expose. The latest example? The 50-year old civil rights organization Southern Christian Leadership Conference just had its failure to file spread across the pages of the Atlanta Journal-Constitution. This is a PR blow you don't want you or your clients to take... just a reminder, if your nonprofit follows an end of the calendar-year fiscal year, your 990 is due May 15th...

IRS reports on its problems serving nonprofits

The IRS released the National Taxpayer Advocate's 2007 Annual Report to Congress this week, and it had some very interesting revelations:

The most serious problems encountered by taxpayers

* * *
13. Exempt Organization Outreach and Education. The U.S. tax-exempt sector consists of more than 1.6 million organizations (not including most churches). These exempt organizations (EOs) are diverse in size, ranging from large hospitals and universities to small volunteer-run charities. Approximately half of all EOs have all-volunteer staffs and another third have fewer than ten employees. Smaller EOs frequently lack professional tax guidance. The IRS has increased enforcement actions against EOs and the resources dedicated thereto. However, resources devoted to EO education and outreach, which were never adequate, have continued to decline. Existing IRS outreach and education programs for EOs are beneficial. However, the National Taxpayer Advocate believes the IRS can and should do more to help EOs, particularly small organizations, comply with the complex requirements to which they are subject. The National Taxpayer Advocate urges the IRS to conduct research to assess the service needs and preferences of the spectrum of EOs and to develop a strategic plan to enhance the scope and effectiveness of its outreach to these organizations.

14. Determination Letter Process. Unreasonable delays in the processing of applications for exemption from federal income tax have persisted for several years. Three years after the National Taxpayer Advocate raised concerns about these delays in the 2004 Annual Report to Congress, the processing time for many organizations’ applications still exceeds the IRS’s goal. These delays can have a serious, detrimental effect on charitable organizations’ finances and activities. The IRS has employed a number of measures to fix the problem but must do more to eliminate processing delays and keep organizations informed about the status of their applications.

The determination letter process has surpassed, in my opinion, the mere annoyance stage. At what point will these applications take more than a fiscal year to process? (I'm sure there are examples already out there) Thankfully, the report includes a recommendation to extend the advance ruling periods for cases of extreme delay, but it seems Congress would have to act on that recommendation for it to become reality. More exciting for smaller nonprofits is the recommendation to create a 1023-EZ of sorts for non-private foundations that will pull in gross receipts of not more than $25,000 in a year. I know a lot of groups that would have loved that option in the last year alone...

Check out the executive summary (PDF) for more.

Bad news for advocacy nonprofits

See this article in the Chronicle of Philanthropy on fundraising trends. Most interesting to advocacy groups:

Advocacy organizations, however, reported the worst results of any type of charity in the survey. They recruited a median 21.8 percent fewer new donors in the first three quarters of last year, on top a 14.2-percent decline during the same period in 2006, while the number of total donors also dropped by a median 12 percent.

Combine that with the usual issues with giving during an election year (more competition than off years) plus the spectre of a recession... this isn't the best of news.

"Dirty tricks" against churches alleged

Time has a great piece on some letters being sent to Iowa pastors supporting Mike Huckabee... the Iowa winner suggested before the caucuses tonight that these were a part of a voter suppression gambit by the authors. As you'll see in the article, if they're vote suppressors, they probably need some grammar lessons as well...

Pastors and other religious leaders are allowed under IRS interpretation of tax law to engage in partisan activities in their personal capacity, so long as the church or religious institution is not used. Many toe right up to the line during election season, but the IRS has recently tried to push back a bit and given some additional guidance (Check out Rev. Rul. 2007-41).

Watch those trademarks!

It doesn't come up often in the nonprofit world, but every once in a while there will be a trademark dispute... Check out this story regarding a "Big Sister" issue in Boston.

Be mindful that trademark and copyright laws apply to nonprofits just as much as a for-profit corporation!

"Anti-Poverty Group Refuses to Name Donors"

A charity's nonpartisan advertisement is drawing the attention of some in the reform community. The ONE Campaign's ad is
described by the NY Sun:

At issue is a brief sequence in ONE's television ad showing simulated campaign buttons for 14 presidential hopefuls from both major parties. "Ask each presidential candidate if they're on the record fighting global poverty and disease," the ad's narrator intones. "One voice, plus yours and millions of others. They will hear."

Attorneys for the Campaign Legal Center suggest this ad falls under the disclosure provisions of BCRA, while Jim Joseph, the attorney who represents the ONE Campaign says it's purely an issue advertisement that doesn't support or oppose any candidate, and is therefore outside of the requirement's scope. When all is said and done, is this really the type of advertisement that the law was supposed to target? Is this a "sham issue ad"? It appears on its face to be precisely the type of ad that should not be regulated (and I put disclosure of donors in the "regulated" column). If the law does demand disclosure, I would suggest it's another indication of the problems with BCRA.

UPDATE... Jim Joseph on the election law listserv gave an update:

I am counsel to The ONE Campaign and certainly had my comments taken out of context in the NY Sun article. The reporter seemed to be questioning ONE about why it had not registered as a political committee, which led to my response explaining how The ONE Campaign is not a political committee and how its ads do not support or oppose any candidates. When I finally realized that what he really was talking about was filing the Form 9, I explained that ONE was filing the form within 24-hours of the FEC regulations becoming final on Dec. 26. ONE never raised funds for electioneering communications, but used general treasury funds for these ads. The regulations provide very clearly that donor names do not need to be included on Form 9 under these facts. The reporter's claim of ONE "boasting" of its ad buy was a simple press release stating that it was releasing an ad and buying $1.8 million in air time. The ads were set to end before December 26 and were paid for well before then, so there is probably an argument that the regulations that became effective on Dec. 26 did not apply, but I explained to the reporter that we wanted to file the form even if there might be argument that ONE was not required to file. We even filed before the FEC released a revised Form 9; the current form does not match up to the new regulations, that is for sure. Obviously, none of this comes out in the article. Given the "faux" issue ads that are out there, you would think the press would not be focusing on such non-issues as this.

Totally agreed on the last point!