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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.

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!

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.

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.

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.

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.

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.

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.

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.

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.