Fall 2007 issue of Horizons

INDUSTRy u

NOT-FOR-PROFIT

Political Activities - The IRS Is Watching. Are You?

Preferential treatment by permitting only certain candidates to speak at functions.

Based on the number of violations found with regard to the 2004 election, the IRS has committed to increase educational and enforcement efforts in this area of the law. The IRS has issued an informal paper (“fact sheet”) that gives a range of examples. This fact sheet is available on the IRS Web site, www.irs.gov. Violation of the rules prohibiting political activity could result in an IRS examination. The result of the examination could be penalties or loss of tax-exempt status. If there is any doubt whether a particular action is permitted, the organization may want to refrain from the activity or contact us for further information. The 2006 version of the 990 reflects a number of recent developments. • Electronic filing may be required if total assets are $10 million or more. • New filing requirements apply to Section 509 (a)(3) public charities. • Organizations will “certify” the reason for being a public charity rather than a private foundation. • Additional lines have been added for disclosure of investments that are not publicly traded securities. • Rules have been added on reporting of “other expenses.” • Instructions have been modified with regard to disclosure of relationships among board members, key employees and the highest paid independent contractors, as well as compensation paid by related entities. • Form 990T filed for unrelated business income of a section 501(c)(3) organization is subject to public disclosure. FORM 990 UPDATE

Organizations exempt under section 501(c)(3), such as religious, educational and charitable organizations, are strictly prohibited from engaging in “political” activities. In this context, “political” refers to involvement in a political party or the support of a candidate for office. Certain activities are permitted, subject to a number of restrictions, because they are not within the delineation of political. Such activities include lobbying with respect to proposed legislation and voter registration drives. Furthermore, an individual, as opposed to a tax-exempt organization, has the right to freedom of speech. However, an individual cannot appear to be speaking in an official capacity on behalf of the tax-exempt organization. In the course of the 2004 presidential election, the IRS received numerous complaints about the political activities of charities, including churches. Almost 75 percent of the completed examinations that were initiated as the result of such complaints found that violations had occurred. Examples of prohibited political interventions that occurred include the following: Distribution of printed materials encouraging readers to vote for a particular candidate.

Use of the pulpit to endorse or oppose candidates for office.

Questions? Contact Judy Murphy, CPA Partner-in-Charge, Not-for-Profit Services Group 314-290-3496 judy.muphy@rubinbrown.com

The placing of signs for a particular candidate on the property of the organization.

39 u winter 2007 issue