Discussion Two Business People

Due to recent controversy between nonprofit organizations and the IRS, nonprofits should defend the free speech of all groups, even when their goals and mission don’t align.


Free Speech for Targeted Nonprofits Should Be Defended By All

  • 8/29/2014

Free speech does not need protection when the views being expressed are looked upon with favor by the government and the majority of the public. It is the expression of unpopular views that requires vigilant protection. Nonprofit organizations should vigorously defend the rights of all nonprofits, even when the goals and mission of those groups may not align with their own.

In response to the ongoing controversy regarding the IRS’s alleged targeting of certain applicants for tax-exempt status, conservative nonprofit groups have become increasingly convinced that their due process and equal protection rights are at risk. Emails have surfaced from Lois Lerner, former director of the IRS Exempt Organizations Division, that appear to confirm a political bias against such groups.

Public disclosure of donor names

Some conservative organizations are considering whether to continue to provide the names and addresses of their donors on Form 990 Schedule B. Although not open to public disclosure, nonprofits are required to provide this information to the IRS. However, the Campaign for Liberty, a 501(c)(4) organization, and others have refused to turn over their donor lists. Citing privacy and freedom of association considerations, these organizations claim that through such disclosure their donors become targets of an IRS that is openly hostile to their political and social missions.

Tax-exempt organizations also fear that their donor lists will be leaked to the media or to their political opponents. In 2008, the IRS provided a copy of the National Organization for Marriage’s (NOM) Form 990 Schedule B (including the names and addresses of donors who contributed more than $5,000 to the group working against same-sex marriage), to the lesbian, gay, bisexual, and transgender civil rights group, Human Rights Campaign (HRC). In 2012, HRC posted those names and addresses on its website, and then forwarded the list to the Huffington Post and other news sites. Although it is a felony to disclose confidential tax information, the list was used by the president’s campaign to criticize Mitt Romney’s supporters. In June 2014, the IRS agreed to pay $50,000 in damages to NOM.

Congress has attempted to address the issue, but has been hampered by its own deep political divisions. On July 16, the House Financial Services Subcommittee voted to fund the IRS at a level that is $1.4 billion below the amount requested by President Obama for fiscal year 2015. Chairman Andre Crenshaw (R-Fla.) stated, “This committee remains troubled by their activities, including the inappropriate singling out of certain tax-exempt groups based on their political beliefs, wasteful spending on conferences and videos, and providing bonuses to staff without evaluating their conduct or tax compliance.” The provision appears to have almost no chance of passing the Senate.

However, the media attention around the issue may have caused the IRS to relax its scrutiny of politically active nonprofits — even if an investigation is warranted.

A recent investigation conducted by the Center for Public Integrity concluded that the IRS has “all but quit regulating politically active nonprofits in any consistent, demonstrable way.” Noting that the Exempt Organizations Division has lost 14 percent of its staff while seeing a 40 percent increase in nonprofit organizations over the last 20 years, the investigation concludes that IRS employees are now afraid to deny or revoke the exempt status of social welfare organizations even when there is evidence of excessive political activity. Applications were historically denied at a rate of about 4 percent; by 2013 that rate had fallen to less than 0.25 percent.

Attempts to streamline the application process

On July 30, a bill was introduced to the Joint Economic Committee to allow 501(c)(4) social welfare applicants that have not had their exemption application processed within nine months to ask the U.S. Tax Court for approval through declaratory judgment. 501(c)(3) charitable organizations already have this right. Currently, a 501(c)(4) applicant must wait to have its application denied and begin paying federal income tax before taking the IRS to court.

“This legislation will provide a much-needed avenue of relief for nonprofits whose applications for tax-exempt status are languishing at the IRS,” said Senator Dan Coats (R-Ind.). “With the IRS approval times of up to three years or more … this bill would give groups the same tools as charities while applying for tax-exempt status.”  

Advice for moving forward

Nonprofit organizations should monitor these developments closely. If the IRS becomes powerless to deny or revoke the exempt status of truly bad actors, then the reputation of the entire nonprofit sector will suffer. However, nonprofit organizations should stand together against politically motivated abuses regardless of whether they agree with the political and social goals of the abused. They should also support responsible efforts to regulate and oversee the sector in a balanced, nonpolitical way.