Hmm: IRS May Revoke Tax-Exempt Status for Political Nonprofits

Kate Hicks

6/8/2012 8:34:00 AM - Kate Hicks

A recent Internal Revenue Service decision has politically-affiliated nonprofit organizations worried that their donor rolls are about to shrink. Last month, the IRS revoked tax-exempt status for Emerge America, a nonprofit that trained Democratic women as candidates for office -- and now, major organizations on both sides of the aisle fear they're next.

The recent IRS decision sends a signal that it may turn its attention after November’s election to major nonprofits involved in this year’s election, said Marcus Owens, a lawyer and former IRS director who oversaw nonprofits.

“The message is groups like Crossroads [GPS] need to be prepared to explain to the IRS why they’re entitled to tax-exempt status,” said Owens.

The IRS decision released last month involved a so-called campaign school in which a partisan group trained candidates.

“You are not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole,” said the IRS letter telling the group it was losing its exempt status.

Now, tax-exempt status leads to a higher rate of donations, as organizations are not required to disclose the names of contributors. Losing this status would make public their donor rolls, thereby discouraging contributions from anyone who would prefer to remain anonymous, for whatever reason. And the less money a nonprofit has, the less it's able to do.

The reasoning behind the IRS' decision to revoke Emerge America's tax-exempt status is interesting, though: the IRS claims that it's not "helping the community as a whole," but rather it only exists to benefit a political party. And while this particular nonprofit is left-leaning, and many of us disagree with their mission inherently, they do what they do because they believe that the community as a whole will benefit from having Democratic leaders in office.

We on the right may think they're wrong about that, but don't we look at conservative nonprofits from the same angle? The fact is, these groups exist because they do think they're helping the community at large, by empowering leaders who will help create a better society for us all.

Besides that, it seems like a slippery slope -- what about organizations that don't fund specific political parties, but do support one party's agenda? Say, an environmental nonprofit? Or a Tea Party group? This seems like it's opening up a door to picking and choosing which groups may retain tax-exempt status based on an arbitrary and vague assignment of political proclivity. Certainly something to keep an eye on as it develops.