Paul L. Caron
Dean



Thursday, May 12, 2016

The IRS Scandal, Day 1099

IRS Logo 2Paul C. Barton (Tax Notes), Should Political Nonprofits Disclose More Frequently?:

Not only do many politically active nonprofits operate with dark money from undisclosed donors, but they carry out their work behind another shield, some say: the time lag before having to report their spending to the IRS.

Long before the IRS receives a politically oriented nonprofit's Form 990, "Report of Organization Exempt From Income Tax," the election involved will have come and gone. With easily available extensions, a nonprofit exempt under section 501(c)(4) can have up to 10-1/2 months after the end of its fiscal year before filing its return.

In an ideal world, say advocates of campaign finance reform, there would be more frequent and thorough disclosure of nonprofits' political spending. But, they say, that would require a Republican Congress, one already hostile to policing these groups, to change either the tax code, federal election law, or both. Meanwhile, there are some reports they have to file in a more timely fashion. For instance, they must report to the Federal Election Commission, sometimes in as little as 24 hours, after they pay for an ad that advocates the election or defeat of a candidate for federal office. A 24-hour disclosure rule also applies to some television or radio ads purchased within 30 days of a primary election or 60 days of a general election that mention specific candidates in the context of an issue but don't expressly advocate their election or defeat. These are called "electioneering communications."

Within a two-year federal election cycle, however, there could be spending on issue ads that fall outside those time windows, or on other ads easily construed as political, that are not included under political spending on Form 990. John Pomeranz of Harmon, Curran, Spielberg & Eisenberg LLP gave the example of ads that might feature Republican senators up for reelection this fall and that mention their refusal to consider the nomination of D.C. Circuit Chief Judge Merrick B. Garland to the Supreme Court.

As a result, Form 990 totals can fall far short of telling the whole story, complicating the all-important evaluation of whether nonprofits are spending less than half their budget on politics, the requirement for keeping their exempt status."There are things that almost anyone would acknowledge as having a possible impact on an election that the IRS might well agree are not reportable as political activity on the [Form] 990," Pomeranz told Tax Analysts.

Added Notre Dame law professor Lloyd Hitoshi Mayer: "I agree that the annual tax filing system is a poor fit with the frantic pace of electoral activities. By the time the IRS or the public receives the information, the relevant election is long past."

But Cleta Mitchell of Foley & Lardner LLP, who represents several conservative 501(c)(4) organizations, says the reporting on issue ads is done even if the communications are not election related. "These morons on the left act like" that rule has never been implemented, she said. ...

Mayer said neither the IRS nor Treasury is going to stick its neck out to change the system. "Even if in theory Treasury has the necessary authority, it would be subject to withering criticism from Congress and elsewhere if it tried to unilaterally impose additional filing requirements on politically active exempt organizations," he said.

But it's clear that the current system "makes it very hard for the IRS to identify any improper spending until after the election," said Lawrence M. Noble, general counsel for the Campaign Legal Center. ...

But Ellen Aprill, professor at Loyola Law School, cautions in a new article for the Pittsburgh Tax Review that Congress has so intertwined sections 527 and 501(c)(4) that any stepped-up regulation of the latter is going to require looking at the former [The Section 527 Obstacle to Meaningful Section 501(c)(4) Regulation, 13 Pitt. Tax Rev. 43 (2015)]. Many activities that are tax exempt for section 527 groups are limited for noncharitable 501(c)s and forbidden for 501(c)(3)s, she writes, adding, "Reconciling political campaign intervention under current law is fraught and difficult."

https://taxprof.typepad.com/taxprof_blog/2016/05/the-irs-scandal-day-1098.html

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Comments

Wouldn't eliminating special tax treatment for all nonprofit organizations solve this? No more arguments between the IRS and Scientology either!

Posted by: AMTbuff | May 12, 2016 7:19:05 AM

I agree with the other commentator: Eliminate special tax treatment. But since that's unlikely to happen, we need to reset the argument. The problem with this whole thing isn't that exempt organizations are politically active during election cycles. It is that the job of the IRS is not to police speech--election season or not. The job of the IRS is to collect taxes that it is due, by law. So if an exempt organization files an annual tax return that shows that it has spent too much on politics, then the IRS can change its status, fine it, and tax it. This idea that more frequent reporting will help is insane. Let's say the organization spends 95% of its time/money on politics from January through June. Then none for the rest of the year. An annual return would say they abided by the rules. Interum returns, say in July, would show the opposite. It would be a fiasco. The bottom line is getting the IRS out of the censorship business.

Posted by: Bailey Yankee | May 12, 2016 8:17:46 AM

Thank you so very much for being the steady sentry on this, watching and reporting the important info. You can also be described as a pit bull with a piece of meat, never letting go. Either way, you're a patriot and I thank you.

Posted by: Dave | May 13, 2016 8:06:28 AM