Thursday, July 27, 2006

IRS Warns Churches to Stay Neutral on Politics

Opponents of the policy say that by threatening groups' tax-exempt status, the government is interfering with their 1st Amendment rights.

By Stephen Clark, Times Staff Writer
July 18, 2006

The Internal Revenue Service is warning churches and nonprofits that improper campaigning in the upcoming political season could endanger their tax-exempt status.

The agency also launched a program to expedite investigations into claims of improper campaigning, prompting an advocacy group to charge this month that the program could restrict the free speech of nonprofit groups and churches.

Such investigations came to light last year when the IRS warned All Saints Church in Pasadena that it was reviewing the Episcopal church's tax-exempt status because a priest criticized the Iraq war shortly before the 2004 presidential election. Church leaders say they have no intention of scaling back their criticism of the war.

The IRS' new enforcement program — the Political Activity Compliance Initiative — was first announced in February and again in June through news releases and notices to more than 15,000 tax-exempt organizations, numerous church denominations and tax preparers.

Under the program, the IRS will no longer wait for an annual tax return to be filed or the tax year to end before investigating allegations of wrongful campaigning. A three-member committee will make an initial review of complaints and then vote on whether to pursue the investigation in detail.

"While the vast majority of charities and churches do not engage in politicking, an increasing number did take part in prohibited activities in the 2004 election cycle," IRS Commissioner Mark W. Everson said in a statement. "The rule against political campaign intervention by charities and churches is long established. We are stepping up our efforts to enforce it."

The IRS has investigated more than 200 organizations nationwide since 2004. Of the 62 cases with violations, three lost their nonprofit status (none were churches) and 59 received warning letters. Some of those that were warned also were ordered to pay an excise tax.

Federal law prohibits the IRS from releasing the names of those under investigation, but the agency said it has more than 100 cases pending — 40 of them churches.

An advocacy group's report criticizing the IRS enforcement program predicts a chilling effect on free speech and accuses the agency of using vague standards and lacking deadlines to complete inquiries.

"I don't think this is a case of bad faith," said Kay Guinane, author of the report. "I just think it's a poorly structured program."

The report was prepared by OMB Watch, a Washington-based nonprofit government watchdog group. Among the recommendations: The IRS should develop complaint standards and create clear rules defining partisan activities.

The report predicts that the program could prompt a flood of retaliatory and harassment complaints during the 2006 election year unless the IRS develops clear guidelines.

All Saints still awaits a resolution. Two days before the 2004 presidential election, the Rev. George F. Regas, the church's former rector, delivered a guest sermon that pictured Jesus in a debate with then-candidates George W. Bush and John Kerry.

Although Regas didn't endorse a candidate, he said Jesus would have told Bush that his preemptive war policy "has led to disaster."

The IRS sent the church a letter June 9, 2005, stating that "a reasonable belief exists that you may not be tax-exempt as a church."

A month later, the church drew national attention when the Rev. Ed Bacon, rector of All Saints, disclosed the investigation during a Sunday sermon.

Despite leaving voicemail messages and sending letters seeking an update, church leaders have not heard from the IRS since October, when the agency told them that they were in violation and that it was taking the investigation to a higher level, Regas said. The IRS won't confirm or deny whether the investigation is still open.

Marcus Owens, a former head of tax-exempt organizations at the IRS and now an attorney representing All Saints, called the agency's silence "deafening and extraordinary."

Asked why the agency is not responding, Owens said, "The IRS is uncertain how to proceed — maybe confused, maybe wishes everything would just go away."

Owens also represents — in what is possibly the most prominent case — the NAACP, which drew the IRS' attention in July 2004 after the organization's chairman, Julian Bond, criticized the Bush administration's policies on civil rights. The NAACP also has not heard from the IRS about its investigation.

Owens says the IRS' actions have had a chilling effect on the National Assn. for the Advancement of Colored People. The speech from Bond was removed from the organization's website shortly before the election.

All Saints, though, has not fallen silent. There is a long history of social activism at the church, one of Southern California's largest and most liberal. Since the 1940s, the church has championed civil rights, women's rights, gay rights and, most recently, has launched an interfaith coalition against the war in Iraq.

"We support the IRS regulations and have always seen ourselves as being on the correct side of the line that they draw," said Robert Long, senior warden for All Saints. The investigation "was not a cause to scale back our advocacy for justice issues but rather to continue what we've always done."

IRS officials would not discuss the All Saints case or others, but did refer to the tax code.

The code bans nonprofits from "participating or intervening" for "any candidate for public office." That includes endorsements, donations and fundraising. But nonprofits are allowed to speak out on issues of public interest as long as "a substantial part of the organization's activities is not intended to influence legislation."

In December, Rep. Adam B. Schiff (D-Burbank) and two Republican colleagues called for the federal Government Accountability Office to investigate the IRS, expressing concern about the 1st Amendment rights of clergy. The GAO turned down their request, citing confidentiality of IRS investigations, Schiff said.

The OMB Watch report, Schiff said, has motivated him to again seek a response from the IRS and the Treasury Department. He wants the report's recommendations to be adopted.

"I think the guidelines are so ambiguous and unclear, anyone standing behind the pulpit has to be wondering what they can say on the most important issues of the day," he said.

Lois G. Lerner, director of the IRS' exempt organizations division, counters that the agency is only enforcing the law.

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