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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 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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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…

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.

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).

The podcast got a nice mention by Texas Nonprofits in an article on their site… check it out here.

This is all just in time for the latest Nonprofit Law Podcast… in number 25 we take a look at end of the year recordkeeping tips for nonprofits.

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That’s a shudder you hear from every person who would be responsible for handling an audit of a nonprofit. Reuters has the scoop here.

Steven Miller, IRS Director of Tax Exempt and Government Entities, gave a speech recently on nonprofits. As the Nonprofit Law Prof blog reports, the most provocative part of the speech:

Please understand that I am not saying that no valid differences exist between the non-profit and for-profit sectors. I am asking something more nuanced: to what degree has the non-profit sector drifted toward the commercial sector, and to what extent should it be taxed like the for-profit sector? And even where the exempt sector acknowledges unrelated commercial activity, why are so many organizations declaring losses on these endeavors? It seems as if the IRS needs to police this Drift Line.

Newcomers to the nonprofit world are often surprised to the extent nonprofits (particularly 501(c)(3)s) are able to engage in commercial-like activities. Will the IRS start taking a harder line?

… of articles on shady nonprofits. Check out MSNBC. It’s also the season of calls for more nonprofit regulation… the question is whether or not the few bad apples should put more burdens on the good nonprofits? Balance is key.

The Washington Post reports on the importance of nonprofits in the 2008 election cycle. be sure to check out the response to the article by AFJ and Chronicle of Philanthropy as well.