President and CEO, Donors Forum
As the hub of Illinois' diverse philanthropic and nonprofit community, Donors Forum
has been following with great interest the story of how the IRS processed the tax-exempt applications of various Tea Party affiliated groups.
As usual, much of the media coverage out of Washington has focused on the partisan nature of the scandal. But what's missing in a great deal of the coverage is clear explanation about the different types of organizations that qualify as tax exempt, what they do to earn that status, and the failures in the current tax code to provide clear explanation of allowable activities.
All tax-exempt organizations have the right to fair treatment by the IRS, free from ideology and perceived political pressure. The role of the IRS is to carefully vet applications for tax-exempt status according to compliance with the law, not to determine the worthiness of each organization. And it should do so swiftly and impartially.
This incident has made it very clear that the rules defining allowable political work for select tax-exempt organizations need to be rewritten and clarified -- not merely to help organizations stay on the right side of compliance, but to provide bright line guidance for IRS staff to enable speedy, efficient and fair decision-making. We urge the House and Senate tax-writing committees to address tax reform this year and to provide much-needed clarity when addressing the rules for exempt organizations.
Further, it is critical that people understand that not all tax-exempt groups are alike and many, including charitable organizations, do not engage in any political activity.
The groups at the center of the scandal are those that applied for tax-exempt status under the 501(c)(4)
classification, which is reserved for civic leagues and social welfare organizations. These groups are allowed to engage in some political activities, as long as it is not the majority of what they do.
This differs from the tax-exempt category reserved for charitable nonprofits, 501(c)(3)
. Organizations entitled to this tax-exempt status include human service providers, cultural institutions, education providers and private foundations. They cannot engage in any partisan political activities or work for the election or defeat of candidates. But charitable nonprofits do have the right to engage in public discourse and advocate for effective public policy on issues that impact their clients and their communities.