Nonprofits May Be Able to Go Politically Wild Thanks to House Republicans

New Orleans   The “law of unintended consequences” is not one that was passed by the US House of Representatives and its far right, ideological Republican majority, but it is certainly one that they might soon learn at their peril.

One of the many hidden time bombs in their recent tax bill, now heading towards conference with the Senate, was originally a repeal of the Johnson Amendment that prohibits tax-exempt charities from political activity. Initially, their amendment was only a wet kiss to the heavy breathers in their religious base who wanted a special exemption to practice politics from the pulpit. Not to be outdone – the final version of the House bill instead opens a political floodgate for charities to go wild. Their bill says that any tax-exempt charity can boost or bust political candidates if “the preparation and presentation of such content” is “in the ordinary course of the organization’s regular and customary activities” and does not result in more than de minimis incremental expenses.” (thanks to Ellen P. Aprill a tax law professor at Loyola Law School who read and reported the language!)

So, sure, that would cover preaching, because there’s no cost in adding an endorsement into a sermon, but it would also cover a world of other things that fit fully into a nebulous “de minimis” standard like a banner across a website’s home page, constant Twitter and Facebook posts, and endless email blasts all of which have virtually no cost. Remember as well that these standards are all set and monitored by the Internal Revenue Service, which to date, since the passage of the Johnson Amendment, has never clarified the existing standard of what might be permissible political activity, leaving the matter to institutional restraint and lawyer empowering, as one outfit after another takes a stab at a number, whether less than 5% or 8% or zero. Remember also that because of that the penalties are also somewhere between nil and a hand slap. President Trump’s own foundation was caught in this mess, as you may also remember, when he used the foundation’s funds to make several political contributions at the 5-figure levels, all of which he remedied by repaying the foundation. There was never a question about whether he was going to surrender the tax exemption of his foundation and certainly no evidence that the IRS was threatening to take it away. Without the thin shield of the Johnson Amendment, there will be no practical limits to what nonprofits might be able to do.

The Republican House may think more activism from the pulpit makes it all worthwhile, but they aren’t the only nonprofits who can jump into the partisan playgrounds. Take nonprofit hospitals for example, which still make up almost 60% of hospitals. A list of the top six systems from Ascension to Kaiser in the Wall Street Journal indicated they were turning over $158.5 billion dollars annually. Hospitals were pretty united in their opposition to the Republican efforts to repeal the Affordable Care Act, and will be even more committed to any cutbacks in Medicaid or Medicare. If “de minimis” was 5%, they could spent almost $8 billion, but even dropping notices in every bill or banners on every sign-up for your medical records online now would certainly get the message out. It would also cost just the same for doctors and nurses to whisper in patients’ ears as it cost for the pastor to slip an endorsement in a prayer.

Churches are shrinking while many other parts of the nonprofit sector, like healthcare, are soaring. The Republican House might should get on their knees and offer something up to the Republican Senate to save them from this repeal before the law of unintended consequences makes them give more than they hope to receive.


IRS Mainly Targeted Nonprofits on the Left

irsLittle Rock  According to IRS documents now released to the public, the Republicans and the right have been squealing like stuck pigs about being discriminated against on their applications for a free tax ride without any good reason, because the IRS was an “equal opportunity” discriminator targeting both the left and the right for special attention.  The IRS docs seem to back up their earlier contention that they were using “key words” to root out what they suspected might be political organizations hiding behind a social welfare cover story in order to con the tax man.  They not only pulled out Tea Party but also Occupy and Progressive in their searches.  There are lessons here, but I’m not sure any of them are all that good.

            According to a report in the New York Times, this name sorting attack went on until recent weeks.  Furthermore, the slap at the left was broader and more political than the conservatives have claimed.

One such “be on the lookout” list included medical marijuana groups, organizations that were promoting President Obama’s health care law, and applications that dealt “with disputed territories in the Middle East.”

            The IRS seems to be over the top in his ham-fisted appreciation of both foreign and domestic policy.   It will be interesting to see if Congressman Issa and his investigations committee will be as lathered up now that it is clear that the main targets were liberals and not conservatives.  I’m not holding my breath.

Clearly, they were out of control, but what’s new about that?

The IRS or the Service as it calls itself often believes there are no boundaries to the questions and information that they believe is relevant in an investigation.  Years ago I had a lawyer who referred to government investigators for the IRS and DOL as always looking for “booze, broads, and Cadillac’s,” but that’s way old school now.  They operate more like a Google search with an IRS ID-badge  believing that they have license to delve into anything they might have pulled up in a search, and, god knows, if you’ve ever been on the internet, you know there’s some crazy stuff out there about virtually everything and everyone.

The IRS needs to collect what taxes are due and make sure that there are no wolves in sheep’s clothing out there, but maybe they should go back to the old school and just go through one application at a time and get it right.  In the meantime anyone applying for a tax exemption would be wise to think very carefully about what name they call their outfit.  I would recommend plain vanilla like Institute for Social Welfare or Organization for the Good or something along those lines for a quick “yes” from the IRS.