In response to an Internal Revenue Service (IRS) request for input on its 2008-09 guidance priorities, OMB Watch submitted comments that stated the top IRS priority should be the creation of a bright-line definition of prohibited political intervention for charities and religious organizations exempt under Section 501(c)(3) of the Internal Revenue Code (IRC). The IRS is continuing its public education efforts to inform groups about the prohibition on partisan election activities and will soon release two field directives for IRS agents to guide them in enforcing the rules. Each year, the IRS seeks public input on it Guidance Priority List "to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance." The OMB Watch comments said that clearly defining "what is and is not allowed for issue advocacy and voter education efforts by 501(c)(3) organizations is critically needed to guarantee basic constitutional rights of free speech and association. It is also necessary to remove the chilling effect of the current vague facts and circumstances test so that 501(c)(3) organizations can become fully engaged in activities that support election reform and the goals of the Help America Vote Act."

OMB Watch recommends that the IRS consider the U.S. Supreme Court's 2007 decision in Federal Election Commission v. Wisconsin Right to Life in developing a bright-line standard. That decision exempted genuine issue advocacy broadcasts from the "electioneering communications" ban on corporate-funded broadcasts that refer to federal candidates within 60 days of a general election or 30 days of a primary. The IRS could adopt guidelines similar to what the FEC approved as permissible issue advocacy. According to the FEC rules, if the focus is on a legislative issue, and an officeholder is urged to support that position, or the public is called to support a position and contact an officeholder to urge him or her to do so, it is not an electioneering communication.

The OMB Watch comments included an attachment of a draft bright-line approach proposed by attorney Gregory Colvin of Adler and Colvin in San Francisco that can be used as the foundation for drafting bright-line guidance. Colvin's document distinguishes genuine issue advocacy from partisan political intervention. Colvin's safe harbor proposal considers that if the activity does not take a position on any candidate's character or fitness for office, it would not be considered partisan politicking by the IRS.

Meanwhile, during a May 28 District of Columbia Bar Section on Taxation luncheon, Judith Kindell, an IRS senior technical adviser in the exempt organizations area, announced two forthcoming field directives for exempt organizations agents that will guide them in enforcing the rules on prohibited political activity. One directive will discuss the issue of Web links and the other issue advocacy. In determining whether a 501(c)(3) organization engaged in partisan politicking, "issue advocacy is not just the statement, but the context of the distribution of the statement that we look to." Kindell said that for this election season, the IRS will not pursue cases where a website a 501(c)(3) organization is linking to is its related 501(c)(4) social welfare organization.

Another speaker on the same panel, Marcus Owens, an attorney with Caplin & Drysdale, said the IRS should issue bright-line regulations because of "differing interpretations of the facts-and-circumstances standard that IRS applies" and because "there are too many gray areas." He said some IRS offices have a more liberal interpretation where only allegations of explicit statements of campaign intervention lead to investigations, while other offices are more willing to look at allegations of implicit or indirect campaign intervention. Owens also discussed "inferential" intervention, which he described as "inferences derived from discussions of candidate's positions on an issue ... but somewhere else in the organization, another Web site or something off a Web site could carry with it a flavor of the organization's position on the same issue, and IRS could conflate those two and come to the conclusion that there was inferential intervention."

In addition, on May 27, the IRS posted the transcript of an interview with Steve Miller, commissioner of the Tax Exempt and Government Entities Division, discussing tax-exempt organizations and their involvement in elections. In describing enforcement of the ban on election activity, Miller said the IRS "read[s] the newspapers about possible problems that have occurred. When we get that information, a team of folks takes a look and determines actually whether they think there's enough for us to go out and actually do an investigation." If the IRS determines that an entity acted illegally, "action can be as minimal as a letter to the charity explaining the rules or, in some cases, possibly an excise tax. In other cases, we could revoke the tax-exempt status." Use of such second-hand sources for enforcement purposes calls attention to the need for a bright-line rule that clearly defines prohibited political intervention activities for charities and religious organizations.

In an OMB Watch press release, Kay Guinane, Director of Nonprofit Speech Rights, said, "By protecting the ability of the nation's only nonpartisan sector to speak out on the issues of the day, on any day, on any issue, no matter how controversial, the IRS can ensure debate on public policy issues is informed by the expertise and public interest perspective of 501(c)(3) organizations."