"Americans United" Asks IRS to Investigate El Paso Church

Americans United (AU) is a watchdog group based in Washington D.C. that seeks to protect religious freedoms and educate the American people about the separation of church and state.  Yesterday AU (under the direction of its tax attorneys no doubt) wrote to the Internal Revenue Service — specifically the Director of the Exempt Organizations Division — asking for an investigation of a Catholic Church in Del Paso, TX.  AU claims that the St. Raphael Catholic Church violated the restrictions of Revenue Code section 501(c)(3) that prohibits exempt organizations from “directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”  The IRS has authority to revoke an organization’s tax exempt status, forcing them to find tax relief outside the parameters of 501(c)(3).  See the full letter here.

The alleged violation took the form of a printed church bulletin, and this is what was written:

I am asking all of you to go to the polls and be united in replacing our present president with a president that will respect the Catholic Church in this country.  Please pass this on to all of your Catholic friends.

I find it odd that whoever was responsible for including this language in the bulletin appears to have been at least somewhat up to speed on the applicable law.  I say that because the message seems purposely vague, in that it does not come out and name any names.  It appears that an attempt is being made to imply a vote for Romney without coming out and saying it directly. 

However, as we know, the law also prohibits any communications or activities that have the effect of supporting or opposing a political candidate.  Whether this is a message directly opposing Obama or indirectly supporting Romney, it doesn’t matter.  Either one would be a violation.

This church is going to have an uphill battle with this tax problem, assuming it even has a leg to stand on.  I believe the fatal error was that the statement appeared in print because (1) there is physical evidence of the violation, and (2) there is little doubt that the statement was made in some kind of official capacity on behalf of the church.

Churches: Avoid Mentioning Romney or Obama

photo via flickr.com

It is common for some churches and religious leaders to integrate current events and circumstances into their sermons.  Currently the hottest topics around the nation happen to be political, as the Republicans and Democrats work around the clock to impress voters.  However, if they care to avoid tax problems, churches have to be very careful not to come out in support of one candidate over another.  Out of an abundance of caution, churches (and those who speak on their behalf) should not mention specific candidates this election year.  In fact, they should do little more than encourage their congregations to vote, and maybe provide non-partisan voter education information.

Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity.  Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.

~ www.irs.gov

Ordinary people are going to talk about politics at church; this is not the kind of activity that is prohibited by 501(c)(3).  But if you hear anything (or read anything) coming from those with authority to speak for your church that favors one candidate over another, or has the effect of favoring one of the candidates, you can be sure that this is a violation of the Internal Revenue Code.  Consult a tax attorney for more information.


Ivy League Audits

image via educarelab.com

In this down economy the IRS is doing all it can to improve collection results, which is why it is targeting wealthy individuals, banks, corporations, . . . even universities.

Top Ivy League colleges are in the IRS crosshairs because they raise a lot of money, and not just in tuition & donations.  If you attend Harvard or if you dine there as a visitor, you probably expect more than tacos and fries, and brain food is expensive.  Harvard University Dining Services consists of 13 undergrad dining halls, a kosher kitchen, and 14 retail locations which offer an “unparalleled dining experience.”  And Harvard sports are very popular.  Wealthy Harvard alumni are often happy to pay for season tickets, whatever the price.

Even though nonprofit universities are tax-exempt, they must still pay taxes on any collateral income that is generated — any income that is unrelated to their academic objectives.  According to a recent Bloomberg article, both Cornell and Harvard Universities have been audited by the IRS to make sure they are paying taxes on revenue generated by university bookstores, restaurants, and sports arenas.  Cornell has “passed” its audit, but for Harvard, the jury is still out.



The “Common Cause” Whistleblower Case

You may have heard about the complaint filed by Common Cause against American Legislative Exchange Council (ALEC) asking the IRS to drop the organization’s tax-exempt status for engaging in lobbying activities.  What you may not know is this complaint was filed under the 145-year-old whistleblower provisions now codified in 26 USC 7623.

Has ALEC been exploiting the tax relief available to non-profits?

Common Cause is characterizing ALEC ‘s activities as an improper tax scheme and is asking the IRS to investigate and assess all taxes due.  If taxes are in fact collected from ALEC, it would seem that Dr. Robert W. Edgar, the president and CEO of Common Cause, stands to gain a large sum of money.  One of the requirements under the whistleblower statute is that the complaint be filed by an individual, and it appears to have been filed on behalf of Dr. Edgar.  Under the 2006 amendments to the whistleblower statute, the maximum award is 15% of the taxes and penalties collected (capped at $10 million).

So far ALEC has responded to the allegations by calling them a “harassment tactic.”

“[I]t’s clear to me that this is a tired campaign to abuse the legal system, distort the facts and tarnish the reputation of ideological foes….Without question, Common Cause is a partisan front group masquerading as an ethics watchdog.

~ Alan P. Dye, attorney for ALEC

IRS Drops Investigation of Big-Shot Donors

The IRS had been investigating five unnamed donors who each contributed hundreds of thousands, if not millions of dollars, to certain unnamed 501(c)(4) tax-exempt organizations. The nonprofit organizations then spent this money on political advertising. This occurred during the 2010 elections, and is expected to occur in 2012 as well. The question was whether or not these donors had to pay a 35% gift tax on their donations. But it’s not really a question any longer because the IRS decided not to pursue further examinations.  Why did the IRS drop the investigation? Because they just don’t have any rules/case-law/guidance on this issue.

As part of their statement, the IRS noted that they will “review the need for additional guidance or legislation [and] it is possible that Congress may choose to clearly articulate through legislation the applicability of the gift tax to contributions to 501(c)(4) organizations.”

It was instant tax relief for these donors.  Tax relief, tax avoidance, whatever you want to call itthey didn’t have to pay, and they didn’t have to lift a finger in their defense. Imagine that, 3.8 million words in the tax code and the IRS is still suggesting there isn’t enough.

Said the IRS:

“Questions have been raised regarding the application of gift tax to contributions to I.R.C. § 501 (c)(4) organizations. This is a difficult area with significant legal, administrative, and policy implications with respect to which we have little enforcement history. My office will be coordinating with the Office of Chief Counsel to determine whether there is a need for further guidance in this area.

Until further notice, examination resources should not be expended on this issue. It is anticipated that any future examination activity would be after the coordination described above and would be prospective only after notice to the public. Thus, the Service should not expend examination resources initiating referrals or developing audits. Accordingly, all current examinations relating to the application of gift tax to contributions to I.R.C. § 501(c)(4) organizations should be closed.”

Click here for the official July 7th IRS memo from Steven Miller, Deputy Commissioner for Services and Enforcement.

IRS Crashes Party at Fiesta Bowl

The Fiesta Bowl is scrambling to avoid needing tax relief. The Fiesta Bowl, a non-profit organization, is facing Internal Revenue Service (IRS) scrutiny for giving elected officials expensive gifts since 2002, which may not have served the Fiesta Bowl’s tax-exempt purpose. Presently, the Fiesta Bowl, because of its non-profit status, does not have to pay federal or state income taxes. However, if such gifts were not in furtherance of the Fiesta Bowl’s tax-exempt purpose, the IRS may levy a fine or may revoke the Fiesta Bowl’s non-profit status. Therefore, the Fiesta Bowl is now seeking information from gift recipients that such gifts were indeed proper, or it is seeking a monetary reimbursement for its “gifts”. Fifteen elected officials have since amended their financial disclosure reports to reflect gifts received from the bowl.