Schiff, Jones Call IRS's Political Intervention Rules 'Too Vague'

We are concerned about the impact that the Internal Revenue Service's (IRS) Political Activity Compliance Initiative (PACI) has on tax-exempt organizations' First Amendment right to address matters of public policy. This issue has been of great concern to us over the last year following reports of IRS investigations into the political speech of not-for-profit organizations during the 2004 election cycle.

In one prominent case, in late October, two days before the 2004 election, a reverend delivered a sermon at the All Saints Episcopal Church in Pasadena, California on such public issues as the Iraq war, poverty and abortion. Following that sermon, the IRS contacted the church stating that the speech may have jeopardized its tax-exempt status.

Unfortunately, this example is far from unique and similar investigations of tax-exempt organizations with varied positions on matters of public policy have been conducted. Criticism of the Administration's civil rights agenda landed the National Association for the Advancement of Colored People (NAACP) an IRS investigation. Likewise, an investigation of the First Baptist Church of Springdale was initiated following a Fourth of July sermon given by the Church's pastor that noted his support for the Administration's positions on marriage and abortion.

Despite the release of additional IRS guidance on political intervention, we are unclear as to why statements that solely take an opinion on issues of the day are grounds for revocation of a tax exemption. The "facts and circumstances" test that is used to determine if a violation has occurred is far too vague to ensure that not-for-profits understand their limitations on speech. Consequently, we have serious concerns that the PACI program could infringe upon the right to free speech for tax-exempt organizations. For this reason, we request the IRS to clarify its rules on political intervention so that tax-exempt organizations know what is and is not allowed.

In February 2006, the IRS released a report about the success of its political intervention program, lauding it for its fairness and impartiality. The report noted that nearly three-quarters of the completed examinations have concluded that the tax-exempt organizations engaged in some level of prohibited political activity. The report also referenced the Treasury Inspector General for Tax Administration finding of no political bias in the selection of cases for examination.

However, earlier this month, an advocacy group, OMB Watch, released its own report that found that the earlier IRS report exaggerated the extent of noncompliance. The OMB Watch report showed that the IRS claims of violation were based only on cases not dismissed after two rounds of investigations and that no violation was found in nearly two-thirds -- 64 percent -- of all completed investigations. We request that you address the disparities in these two reports.

The actions of the IRS in this matter will have a potentially chilling impact on protected First Amendment rights. Your responsiveness to this letter will be critical in determining whether further congressional action is warranted. We look forward to your prompt response.