Executive Summary

The Internal Revenue Service's (IRS) new approach to enforcing the ban on partisan activities by charities and religious organizations has raised serious questions about the agency's interpretation of the law, about evenhanded enforcement, and about the appropriateness of an approach aimed at deterring speech. The Political Activities Compliance Initiative (PACI), has resulted in unresolved audits and lingering questions about the standards used.

This report summarizes the new program, new compliance guidance from the IRS and raises issues and questions that must be addressed to ensure charities and religious organizations can continue to play their essential role in public policy debates.

There are two supplements to the report: one detailing the agency's 2004 enforcement program, and one describing known cases that are currently or have been under investigation.

Questions and Issues About the IRS Political Activities Compliance Initiative

Vagueness of the Facts and Circumstances Test and the Reasonable Belief Standard

Charities, educational institutions, and religious organizations are among tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code. They are prohibited from participating or intervening in any political campaign on behalf of, or in opposition to, any candidate for public office. But tax law lacks clear rules defining prohibited intervention in elections, instead considering the "facts and circumstances" of each case.

Is the Political Activities Compliance Initiative a Solution in Search of a Problem?

The answer is far from clear. IRS statements exaggerate the level of noncompliance by charities and religious organizations. The IRS claimed 74 percent of cases investigated involved violations, a figure based only on cases that were not dismissed after two rounds of investigation. A closer look at the IRS data reveals a very different picture. In all, no violation was found in 64 percent of all completed investigations.

Is the IRS Program Effective Enforcement or an Unconstitutional Infringement on Speech?

Several factors, when taken as a whole, raise constitutional concerns around the PACI program:

  • the vagueness of the "facts and circumstances" test
  • secrecy regarding enforcement action
  • IRS statements regarding its intent to prevent repeat violations before an election
  • the threat that an organization's tax-exempt status will be revoked
  • lack of deadlines for closing cases

Uneven Enforcement and Harassment Issues

A lack of transparency creates confusion and uncertainty about the enforcement process. Section 6103 of the tax code protects the privacy of individual charities and religious organizations. It also has prevented the IRS from adequately informing the public of the agency's interpretation of the law. Absent a bright line test, the most useful information for avoiding noncompliance comes from details of specific cases. So far what has come to light raises concern about unevenness in how the IRS treats similar fact situations.

Also, publicity around the PACI program could lead to a flood of retaliatory and harassment complaints in the 2006 election year, unless the IRS develops standards to screen out such abuses of its procedures.

Sanctions: Should the Law be Changed?

IRS staff has recommended changes in the law that would provide them with more enforcement options. But what sort of legislative modifications are anticipated? No specific proposals have been made public. Congress could devise a bright line test, add intermediate sanctions, such as advisory letters, to the IRS enforcement tool box, or both.

Conclusion and Recommendations

The IRS's new approach to enforcement could hamper nonpartisan issue advocacy and voter education and mobilization efforts. Our concerns derive mainly from the lack of a bright line rule defining what is partisan and what is not, coupled with "fast track" procedures.

Our review of the program has led us to conclude that:

  • The IRS should make clear that a charity's right to criticize elected officials is not suspended because an election is taking place.


  • There is not widespread violation of the ban on intervention in elections.


  • Concrete guidance, bright line rules defining partisan intervention, and/or safe harbors should be considered so that charities can know what is and is not allowed.


  • The IRS must ensure that charities and religious organizations and IRS agents have clear, specific guidance to promote evenhanded enforcement. It should develop complaint standards and investigate how other agencies deal with harassment situations.


  • Nonprofits should consider what types of changes in the process, including sanctions, are best for the sector and be ready to respond if Congress acts.

We hope the nonprofit sector and government officials, including the IRS and Congress, will engage in a thoughtful discussion of ways to overcome these challenges and take action accordingly.


The IRS Political Activities Enforcement Program for Charities and Religious Organizations: Questions and Concerns
Main Text without Supplements (160K)

Supplement A: Results and Procedures of the 2004 Enforcement Program (110K)

Supplement B: IRS Political Activity Investigations - Publicly Disclosed Cases (150K)

Works Cited (90K)

FULL REPORT: The IRS Political Activities Enforcement Program for Charities and Religious Organizations: Questions and Concerns (270K)

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