James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comKey Contacts
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One of the many controversies in Washington, D.C. is the dispute arising out of the Internal Revenue Service’s extensive review of applications of exempt organizations using the names with words such as “Tea Party,” “Patriots” and “We The People.” I spent some time explaining to a client how the review process between the IRS and the Tea Party organizations are conducted. More importantly, I explained why the review is important.
An organization is taxable for federal income tax purposes unless it qualifies under a particular subsection of section (“§”) 501 of the Internal Revenue Code. The organization submits an Application For Recognition of Exemption Under Section 501( c)(3) of the Internal Revenue Code on Form 1023. Organizations that serve charitable and educational purposes are eligible for exempt status. Political organizations are treated differently and are governed by different rules. The operative word in this analysis is “educational” because educating the public on an issue could also be construed as being political or attempting to influence voters and elections.
The regulations in this area provide guidance to what is acceptable as “educational.” It states:
An organization may be educational even though it advocates a particular position or viewpoint so long as it presents a sufficiently full and fair exposition of the pertinent facts in order to permit individuals or the public to form an independent opinion or conclusion.
When is an organization educational under §501 (c)(3) and what are there limits on what an organization may advocate on issues involving public policy? I posed this question to a client who became uneasy with the prospect of charities acting as political organizations and influencing elections. This is the issue that appears lost in D.C. political theater.
There are controversial public policy issues such as gay and lesbian rights, prayer in schools, contraception and church medical plans. There are no shortage of cases where religious organizations clashed with the government lost tax exempt status. Bob Jones University, Synanon Church and the Church of Scientology are among the most notable.
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