IRS Directive Broadens Scope of Prohibited Web Links on Issues

On July 28, the Internal Revenue Service (IRS) sent a memo to revenue agents that contradicts earlier guidance relating to 501(c)(3) organizations' use of web links for issue advocacy. The memo indicated that web links may be considered prohibited intervention in elections, depending on their context, the number of clicks between a site and a partisan message on the linked site, and whether an organization has a position on an issue and links to candidates' positions.

IRS guidance in Rev. Rul. 2007-41 and Rev. Rul. 2004-6 indicated that an organization's track record of ongoing advocacy on an issue is a factor that demonstrates genuine issue advocacy, as opposed to prohibited electoral intervention. However, the July directive appears to state the opposite, saying that when a 501(c)(3) organization takes a position on an issue and also posts information on candidate positions on the same issue, it is "at risk of having intervened in a political campaign. The risk arises and the case should be pursued, even if the two elements are in separate parts of the organization's Web site, or if one element is on the Web site and the other is not." (emphasis added) This seems to say that the more central an issue is to a 501(c)(3) organization's mission, the less right it has to address it publicly during election season.

The directive follows up on an April letter from IRS Exempt Organizations Director Lois Lerner that announced continuation of the Political Activities Compliance Initiative for the 2008 election cycle. In that letter, the IRS was extremely vague about treatment of web links to sites of unrelated organizations, saying only that it "will pursue the case if the facts and circumstances indicate that the 501(c)(3) organization is promoting, encouraging, recommending, or otherwise urging viewers to use the link to get information about specific candidates and their positions on specific issues." However, there are many legitimate reasons a 501(c)(3) organization might use such links, including online nonpartisan voter education guides.

The July directive addresses "whether material on a linked Web site is attributable to the section 501(c)(3) organization," saying the context and directness of links are major factors. No specific number of clicks is specified and the "context" is not defined, since "neither of these characteristics appropriately reflects the facts and circumstances in all cases."

However, the directive says the IRS will limit its investigations to cases involving links to sites of unaffiliated organizations, because of the implications of the U.S. Supreme Court case Taxation with Representation v. Regan. The decision upheld limits on the amount of lobbying 501(c)(3) organizations may engage in because they can have an affiliated 501(c)(4) entity that has no lobbying limits. This, the IRS said, "can complicate the analysis in this area."

The directive is unlikely to address criticisms in a June report by the Treasury Inspector General for Tax Administration that said IRS employees differently interpret the criteria for evaluating cases of alleged political intervention. It further points out the need for the IRS to develop bright-line rules that clearly delineate what is and is not permissible.

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