Paul L. Caron

Saturday, September 26, 2009

Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?

Gina M. Lavarda (J.D. 2010, Iowa) has published Note, Nonprofits: Are You at Risk of Losing Your Tax-Exempt Status?, 94 Iowa L. Rev. 1473 (2009).  Here is the abstract:

In 2004, the IRS studied 110 § 501(c)(3) organizations and found that seventy-five percent of them had violated federal tax law by engaging in political-campaign activities during the 2004 campaign period. The IRS learned that many of these organizations did not understand the broad scope of the political-campaign prohibition and that organizations’ leaders mistakenly spoke on behalf of their organizations rather than in their personal capacities separate from their organizations. Following the study, the IRS stated that any § 501(c)(3) organization that did not comply with federal tax law’s statutory requirements and restrictions risked losing its tax-exempt status.

As the 2008 campaign was in full swing, the IRS promised to step up its enforcement of § 501(c)(3) requirements. As a result, courts likely will face increased litigation related to § 501(c)(3) organization violations. This Note reviews the requirements and restrictions that are placed on § 501(c)(3) organizations, including the political-campaign prohibition. In addition, this Note proposes a test to assist courts, § 501(c)(3) organizations, and leaders of § 501(c)(3) organizations in determining when organizations’ leaders are acting or speaking on behalf of their organizations and when they are speaking in their personal capacities, exercising their First Amendment free-speech rights.

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I'd be very curious in hearing from anyone who practices in this area and who is actually representing a 501(c)(3) that the IRS is examining for alleged political campaign intervention in 2008. In unscientific sampling of attorneys who specialize in this area at recent ABA Tax Section meetings, none are willing to acknowledge representing such a group. However, IRS representatives assert that the level of complaints handled in the 2008 PACI project is not significantly different from previous efforts. (We still await the report on that effort that was scheduled for release last March.)

John Pomeranz
Harmon, Curran, Spielberg & Eisenberg, LLP

Posted by: John Pomeranz | Sep 27, 2009 1:34:23 PM