Monday, June 7, 2010
As a precondition to maintaining its tax-exempt status, a public charity cannot campaign for or against any candidate for office. This prohibition, introduced in 1954 without fanfare, debate, or legislative history, has since created uncertainty and administrative burden for public charities, and has provoked firestorms of debate among academics, policymakers, and directors of public charities themselves. The subjects of these debates have ranged from the wisdom to the constitutionality of such a prohibition on political speech.
The debates have not, however, provided any significant certainty to public charities or to policymakers. Without legislative history or debate, public charities can only guess at the purposes underlying the prohibition. The arguments used to defend the prohibition are met by equally compelling counterarguments, while the arguments for why the prohibition should be eliminated are equally countered.
As this debate occurs, the penalty for violation of the prohibition is the loss by a public charity of its tax-exempt status. In light of the draconian nature of the penalty, the IRS underenforces the prohibition, as some public charities routinely flout the prohibition and others self-censor more than is necessary in order to stay on the right side of an uncertain line. Neither reaction leads to the efficient administration of the tax law.
The problem, this Article argues, is that all of the arguments surrounding the prohibition on public charities’ political campaigning takes place in the shadow of the current language of IRC § 501(c)(3), to which commentators and policymakers must ascribe purpose. Rather than argue the benefits and deficiencies of the current regime, the discussion of the role of public charities in political campaigns needs to start anew, without taking as a given the benefits and burdens of the current system. Whatever the result of the new discussion, however, the Article argues that is necessary to provide the IRS with the option to impose intermediate penalties on public charities that violate a prohibition on campaigning.
Download the paper from SSRN at the link.