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L. Neil Smith's THE LIBERTARIAN ENTERPRISE Number 186, August 12, 2002 DOING THE RIGHT THING?
Stepping Over the Boundaries
Special to TLE Too many of our laws are being selectively enforced, a classic example being violations of the tax-exempt status of charitable organizations. The Internal Revenue Service allows a tax exemption for certain "charitable and non-profit organizations" if they do not engage in "political activities". Unfortunately, the IRS's description of "political activities", specifically in section 501(c)(3), is a little fuzzy but it does expressly prohibit "activities that encourage people to vote for or against a particular candidate, even on the basis of non-partisan criteria." This ban was successfully enforced against the Church at Pierce Creek in Binghamton, N.Y. when, in 1992, it placed ads in USA Today and The Washington Times opposing Bill Clinton's election. The Church maintained that Clinton's positions on certain issues including abortion, homosexuality and the distribution of condoms in public schools were contrary to Christian ideology. Within weeks of the ad's appearance, the IRS revoked the Church's tax-exempt status. The Church appealed and its lawyers argued that it was simply exercising its First Amendment rights. But after lengthy legal proceedings, the court ruled in favor of the IRS. But the IRS looks the other way in similar political activity by other religious bodies. This arbitrary enforcement by the IRS came up in an interview in the April 2002 issue of Crisis Magazine, a periodical espousing Catholic traditions. Robert Destro, an expert on church- state relations was asked: " We all know about the famous African- American churches, for example in New York City, that seem to hold out-and-out political rallies, and they have political candidates standing in the pulpit and giving sermons. Aren't these examples of an institution stepping over the boundaries in the tax code?" Destro responded: "Yes, there's no question that they're stepping over the boundaries. In fact, when you actually have a political candidate in your pulpit and you're passing the hat for the candidate, you're not stepping over the boundaries; you're obliterating them. This is why one can say that the IRS isn't evenhanded when it enforces the rules. The political outcry would be outrageous if they decided to crack down on those churches." One of the most brazen abusers of the restrictions on tax-exempt organizations is the NAACP. This organization is, in effect, an arm of the Democratic Party and it is thumbing its nose at the IRS when it shamelessly engages in taboo political activity. During the last presidential election, the NAACP pulled all the stops out in its attempt to discourage votes for George Bush and to promote the candidacy of Al Gore. It placed television ads attempting to link George Bush to the lynching of a black male in Jasper, Texas. Some of its ads showed Bush's face superimposed on a Confederate flag. And, across the nation, NAACP officials, using church pulpits and other forums, frequently accused Bush and Republicans of having a secret agenda to emasculate civil-rights legislation. Unlike political action committees, the NAACP does not have to reveal the identity of its contributors and it refuses to do so. Some corporations and foundations have, on their own, acknowleged contributing to the organization but the full list of donors remains a secret. I think we should question why the NAACP doesn't want the identity of its contributors known. A listing of respected companies, prominent families, prestigious foundations and even Hollywood and other celebrities would certainly provide favorable PR for the organization. As it stands we are left to wonder if it receives money from Libya, Iraq or Communist China. We don't know and it is disconcerting to think that funds from other nations might be used to influence our country's political decisions. It is apparent from its actions that the NAACP doesn't believe the IRS will dare jeopardize its tax-exempt status. However, it has become a little more cautious and is now employing more subtle ways to circumvent the rules. For political activities that are too apparent to obfuscate, the NAACP recently created two affiliated organizations; "The National Voter Fund" and "Americans for Equality." These organizations take advantage of loopholes allowed by the IRS under sections 501(c) (4) and 527. Although these organizations are supposed to be completely independent of the NAACP, its President, Kweisi Mfume, is also chairman of the board of The National Voter Fund. Section 527 is truly a piece of work by our lawmakers. It provides a tax-exempt status to non-profit organizations whose purpose is to influence legislation and elections. They are also allowed to receive unlimited contributions without having to disclose the identity of donors. Incredibly, while contributions to political parties and political action committees may not be used as tax deductions, contributions to 527 organizations are fully deductible. To qualify for the exemption, these organizations simply file a statement with the IRS stating that their purpose is to influence legislation and elections. However, to avoid regulation by the Federal Election Campaign Act, these same organizations file a statement with the FEC stating that their activities will not involve attempts to influence legislation and elections. How does the government feel about agencies that make one claim to the IRS and the exact opposite claim to the FEC? No problem. When Congress engaged in its recent posturing over campaign finance reform it vigorously debated the convoluted and evasive mechanisms of section 527 but, needless to say, the loophole is still there, wide open. However, donations received by the NAACP, a non-political charitable organization, cannot be used to finance purely political organizations. So the $10 million in seed money needed to create these new organizations had to be raised separately. As a result of a lucky coincidence, a single donor, who doesn't have to be identified, contributed $7 million. Other unnamed donors provided the rest of the seed money directly to the newly created organizations. Of course, a cynical person might think that the NAACP surreptitiously used some of its tax-exempt contributions to create these two political organizations and disingenuously claimed that the money was from unnamed donors. But, because the IRS refuses to audit the NAACP's financial activities, we will never know.
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