IMPORTANT TAX ADVICE!!!                                                        29 February 2000

TO:   Archbishops, Bishops, Diocesan Attorneys and 
        State Catholic Conference Directors 
 
FROM: Mark E. Chopko, General Counsel
        (Staff: Deirdre Dessingue Halloran, Associate General Counsel)

RE:   Section 501(c)(3) Prohibition Against Political Campaign Activity

        During each Presidential election year since 1980, the Office of General Counsel has offered advice to Catholic organizations exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code ("Catholic organizations") relating to appropriate behavior during election campaigns. The attached memorandum includes our legal advice concerning the section 501(c)(3) political campaign activity prohibition in anticipation of questions that may arise during the 2000 election cycle.

        The memorandum reflects the principles of the Bishops' Faithful Citizenship Statement, which challenges voters to "examine the position of candidates on the full range of issues, as well as on their personal integrity, philosophy, and performance."¹ Faithful Citizenship does not envision "the formation of a religious voting bloc", nor the Church instructing individuals "on how they should vote by endorsing or opposing candidates." ²

        On the other hand, issue-oriented participation in the political process is entirely consistent with the section 501(c)(3) regulatory framework applicable to Church institutions. Section 501(c)(3) restricts candidate-oriented activities, not discussion and debate on the values and principles that should guide our public life.

        The attached legal memorandum is a free-standing document designed for easy dissemination. This memorandum should be distributed to those who are responsible for implementation of policies in your dioceses and archdioceses, such as pastors, diocesan social action directors, pro-life directors, education directors, newspaper editors and other interested individuals. In order to facilitate distribution of this important information, the text of the legal memorandum is also available on the USCC web site at: www.nccbuscc.org/ogc. It is the guide for activities of Catholic organizations. Many non-Catholic groups produce their own voter education materials with pre-packaged legal "advice" assuring users of its legitimacy. You should follow such advice at your peril.

        It is important that all Catholic organizations understand the range of activities permitted and prohibited under section 501(c)(3). Frequently, the line of demarcation is not clear. Although the attached document attempts to provide guidance designed to enable Catholic organizations to tell the difference, determinations regarding permitted activities are inherently fact specific. Situations that present close legal questions will invariably arise during the course of the campaign season. Catholic organizations are urged to consult diocesan legal counsel prior to engaging in any activity that does not clearly fall within the criteria set forth in the attached document.

        One situation deserves particular mention. Often, exempt organizations do not initiate situations that prove problematic from the section 501(c)(3) perspective. Rather, it is the candidate or her campaign organization that urges a Catholic organization to engage in activities with the potential of compromising exempt status. Candidates may ask for photo opportunities in Catholic institutions, to address Catholic organizations or otherwise gain access to Catholic populations, to appear with bishops or clergy at church events, and other forms of cooperation, often simply because they are Catholic. Very likely, neither the candidate nor her campaign staff is aware of the section 501(c)(3) political activity prohibition and the problematic nature of such requests for the Catholic organization. It is important that Catholic organizations not be swayed by candidate requests, notwithstanding the fact that they may provide the Catholic organization with favorable publicity. Candidates should be informed at the outset that the Catholic organization is exempt under section 501(c)(3) and is prohibited from participating in any political campaign. There is no bright line to be drawn here. Each request must be evaluated in light of the criteria set forth in the attached document, and is likely to require consultation with diocesan legal counsel.

        Finally, you should be aware that Americans United for Separation of Church And State continues to report to IRS about church activities it perceives to violate the political campaign activity prohibition, most recently concerning the Allen African Methodist Episcopal Church in New York City. We will not allow Americans United to exercise a veto over Catholic activities under any circumstances. Rather, you and diocesan legal counsel (when necessary, in consultation with our office) must make these decisions, each on its own merit or lack thereof.

        Our office is prepared to assist diocesan officials and their legal counsel in interpreting the section 501(c)(3) political campaign activity prohibition and in applying it to particular situations. If you have any questions about particular situations or about the attached document, please feel free to contact Deirdre Dessingue Halloran, Associate General Counsel, by phone at 202-541-3300, by fax at 202-541-3337, or by e-mail at dhalloran@nccbuscc.org.

1. Faithful Citizenship: Civic Responsibility for a New Millennium, A Statement on Political Responsibility by the Administrative Board of the U.S. Catholic Bishops (September 1999, USCC) p. 12.
   
2. Id.

Table of Contents

Lobbying vs. Political Activity.......................... 2
Who is a Candidate....................................... 3
Educating Candidates..................................... 4
Educating Voters......................................... 4
Incumbents' Voting Records............................... 4
Candidate Questionnaires................................. 5
Voter Registration Drives................................ 6
Public Forums, Debates, Lectures......................... 6
Candidates Speaking at Events............................ 7
Using Facilities for Civic or Political Events........... 8
Individual Political Action.............................. 8
Endorsement/Statements of Opposition..................... 9
Financial and In-Kind Support........................... 10
Mailing Lists........................................... 10
Sponsoring PACs......................................... 10
Partisan Campaign Materials............................. 12
Paid Political Advertising.............................. 12
Letters to the Editor................................... 13
News Stories............................................ 13
Opinions of Columnists.................................. 13
Internet Activities..................................... 14
Penalties for Violation................................. 14

Section 501(c)(3) of the Internal Revenue Code prohibits Catholic organizations¹ that are exempt under its provisions from participating or intervening in political campaigns on behalf of or in opposition to any candidate for public office.² Despite this prohibition on political campaign activity, there are number of educational activities in which Catholic organizations can engage during election campaigns.

This document is designed to assist Catholic organizations in distinguishing activities that are permitted during election campaigns from activities that are prohibited. The line between what is permitted and what is prohibited is not always clear. Certain activities are fact specific or present close questions that will require the advice of legal counsel. Catholic organizations are urged to consult diocesan legal counsel, as appropriate, prior to engaging in any activity about which there are questions.

Because of the manner in which the political campaign activity prohibition was added to the Code³, there is no legislative history to clarify its meaning. The regulations merely recite that "action organizations", defined as organizations that participate or intervene, directly or indirectly, in any political campaign on behalf of, or in opposition to, any candidate for public office, are not operated exclusively for exempt purposes and cannot qualify for exemption under section 501(c)(3). [Treas. Reg. § 1.501 (c)(3) 1 (c)(3)(iii)].

On occasion, Catholic organizations may seek to seek to rely upon the regulations and case law interpreting the Federal Election Campaign Act ("FECA") [2 U.S.C.A. 431 et seq.] to determine whether an activity is permitted under section 501(c)(3). Such reliance is unwise, since the section 501(c)(3) prohibition is far more sweeping in scope than the restrictions imposed under FECA. Activities that pass muster under FECA may nonetheless constitute violations of the section 501(c)(3) political activity prohibition.⁴

Distinguishing Lobbying and Political Campaign Activity. Section 501 (c)(3) of the Internal Revenue Code curtails both lobbying and political activities by Catholic organizations. However, it is important to understand that whereas lobbying is merely limited, political campaign activity is strictly prohibited. There is no de minimis rule applicable to political campaign activity by section 501(c)(3) organizations. [See Exempt Organizations Handbook (IRM 7751) § 3(10)1(1)].

Lobbying includes both contacting (direct lobbying) and urging the public to contact (grassroots lobbying) members of a legislative body, whether federal, state, or local, for the purpose of proposing, supporting, or opposing legislation or advocating the adoption or rejection of legislation. [Treas. Reg. § 1.501(c)(3)1 (c)(3)(ii)]. Legislation is defined to include any action: (1) by Congress, a state or local legislative body; or (2) by the public in a referendum, initiative, constitutional amendment or similar procedure. [Treas. Reg. § 1.501(c)(3)-1(c)(3)(iii)]. The section 501(c)(3) lobbying limitation applies both to lobbying that is germane to an organization's tax-exempt purposes and to lobbying that is not. [See Rev. Rul. 67-293, 1967-2 C.B. 185].

Under section 501(c)(3), Catholic organizations may engage in lobbying activities only if they do not constitute a substantial part of their total activities. Neither the Code nor the regulations define what is "substantial" in this context.⁵ In 1976, Congress enacted section 501(h) of the Code, which is an elective provision that established a sliding scale of permissible lobbying expenditures based on an exempt organization's total budget. However, at their own request, churches, conventions or associations of churches, and integrated auxiliaries of churches were made ineligible to elect treatment under section 501(h). [See I.R.C. §§ 501(h)(5) and 4911(f)(2)]. Thus, most Catholic organizations remain subject to the general "substantiality" test, i.e. only an insubstantial amount of their activities can be devoted to lobbying.

Ballot measures, including referenda, initiatives, constitutional amendments, and bond measures, which have become increasingly popular, particularly in the Western states, are considered legislative proposals. Thus, involvement by Catholic organizations in ballot measures, etc., is limited, not prohibited. Catholic organizations may support or oppose ballot measures, etc., in furtherance of their exempt purposes, subject to the relevant lobbying limitation, without jeopardizing exempt status.

Who is a Candidate? The term "candidate" refers to an individual who offers himself or is proposed by others as a contestant for an elective public office, whether national, state or local. Therefore, the political campaign activity prohibition does not prevent exempt organizations from engaging in political activity with respect to candidates for non-elective public office, e.g., an appointive judicial position. However, if the appointment is made or confirmed by a legislative body, IRS will treat activities in support of or in opposition to such appointments as lobbying activities subject to the relevant lobbying limitation. [See G.C.M. 39694 (January 21, 1988)]. In addition, the organization may be liable for tax under section 527. Elective positions in a political party, e.g., for precinct committee, may be considered "public office" if they (1) are created by statute; (2) are continuing; (3) are not occasional or contractual; (4) possess fixed terms of office; and (5) require an oath of office [G.C.M. 39811 (June30, 1989)].

When an individual "offers himself, or is proposed by others", and thus becomes a candidate for elective public office, must be determined on the basis of all relevant facts and circumstances. Clearly, an individual who has announced his intention to seek election to public office is a candidate. However, even an individual who has not announced an intention to seek election (and indeed never becomes a candidate) can be considered a candidate [TAM 9130008 (April 16, 1991)]. In addition, others may propose an individual as a candidate and take steps to urge his election, The fact that an individual is a prominent political figure alone is insufficient to make him a candidate. "Some action must be taken to make one a candidate, but the action need not be taken by the candidate or require his consent." [1992 IRS Exempt Organizations Continuing Professional Education Technical Instruction Program, p. 408 (hereinafter "1992 CPE Text")].

Permitted Activities

The following activities will not jeopardize the tax-exempt status of Catholic organizations, provided they are conducted in accordance with the standards outlined below.

Educating Candidates on Issues. During election campaigns, Catholic organizations may educate candidates about the issues and attempt to change candidates' positions on these issues. If a candidate is an incumbent legislator, whether federal, state, or local, such activity could constitute lobbying activity subject to the general substantiality limits of section 501(c)(3) or, if applicable, the limits of sections 501(h) and 4911.

Educating Voters. During election campaigns, Catholic organizations may educate voters about the issues. In addition, they may educate voters about candidates' positions on the issues, through such activities as sponsorship of candidate forums, and distribution of voter education materials, including incumbents' voting records and the results of candidate polls or questionnaires. Such activities, if unbiased in content, structure, format, and context, will not violate the political campaign activity prohibition.

Bias. Although the Code does not define "bias", as a general rule, activities or publications will be considered biased if they indicate or imply (1) that a candidate agrees or disagrees with a Catholic organization's position, or (2) that a Catholic organization agrees or disagrees with a candidate's position. Whether an activity or publication is biased depends upon all relevant facts and circumstances, including context, format, content, and manner of conduct or publication. All voter education publications and activities should include a statement of their educational purpose and a disclaimer of any intent to endorse or oppose any candidate or political party.

Caveat: Be wary of outside groups seeking to distribute their "voter education" materials through Catholic organizations. This includes materials that are accompanied by legal opinions provided to the outside group. Outside voter education materials should be approached with extreme caution. Among other things, the issues covered in these materials usually will not illustrate the wide range of issues of importance to the Church, but rather be of importance only to the preparing group. In addition, their content, format and presentation may not satisfy the requirements of section 501 (c)(3) applicable to Catholic organizations. The organizations preparing these voter education materials may not be section 501 (c)(3) organizations, and thus may not be subject to the political activity prohibition. The fact that it may be permissible for the preparing organization to distribute a voter guide does not make it appropriate for a Catholic organization to do so. Dioceses should consider adopting policies against distribution of any voter education materials that have not been approved or made available by the diocese or state Catholic conference. Be sure to consult with diocesan legal counsel before agreeing to distribute any materials prepared by outside organizations.

Incumbents' Voting Records. Whether the publication and distribution of incumbents' voting records violates the political activity prohibition depends on an evaluation of all the relevant facts and circumstances, including: (1) whether incumbents are identified as candidates; (2) whether incumbents' positions are compared to the positions of other candidates; (3) whether incumbents' positions are compared to the organization's positions; (4) the timing, extent, and manner of distribution; and (5) the breadth or narrowness of the issues presented in the voting record [1992 CPE Text, pp. 419-20]. IRS has concluded that a section 501 (c)(3) organization that published and distributed, during an election campaign, the voting records of all members of Congress on a wide range of subjects, did not violate the political activity prohibition. The organization conducted this activity annually, whether there was an election or not. The voting records contained no editorial opinions and did not indicate approval or disapproval of incumbents' votes [Rev. Rul. 78-248, 19781 C.B. 154, Situation 1].

On the other hand, IRS has concluded that the distribution during an election campaign of a biased voting record, i.e. one that indicated the organization's position and whether the legislator voted in accordance with that position, could avoid violating the political campaign activity prohibition only in extremely limited circumstances. The criteria established by IRS are: (1) the voting record must not identify candidates for re-election; (2) its distribution must not be timed to coincide with any election, but rather must be one of a series of regularly distributed voting records; (3) distribution must not be targeted to areas where elections are occurring; and (4) the voting record must not be broadly disseminated to the electorate, but rather disseminated only to a limited group, e.g., members of the organization or subscribers to its publication [Rev. Rul. 80-282, 1980-2 C.B. 178]. Organizations frequently rely upon this ruling to justify wide dissemination of biased voter guides among the electorate. Such reliance is misplaced. In addition, IRS has taken the position that broad distribution of voting records or other voter education materials that do not cover a wide variety of issues violates the political campaign activity prohibition, even in the absence of overt bias [Rev. Rul. 78-248, 1978-1 C.B. 154, Situation 4].

Candidate Questionnaires. Polling or submitting to candidates questionnaires designed to elicit their positions on various issues is a neutral activity, assuming that the questions themselves do not exhibit bias. It is only when the results are disseminated during an election campaign that the political campaign activity prohibition becomes a potential issue. IRS has identified the following criteria for determining whether publication of questionnaire results violates the political campaign activity prohibition: (1) whether the questionnaire is sent to all candidates; (2) whether all responses are published; (3) whether the questions indicate bias toward the organization's preferred answer; (4) whether the responses are compared to the organization's positions on the issues; (5) whether the responses are published as received, without editing by the organization; and (6) whether a wide range of issues is covered [1992 CPE Text, p. 421; Rev. Rul. 78-248, 1978-1 C.B. 154, Situation 4].

IRS has concluded that an organization that published the positions of all candidates in a particular race on a wide variety of issues selected solely on the basis of their importance to the electorate as a whole did not violate the political campaign activity prohibition, where neither the questionnaire nor the voter guide evidenced bias or preference in content or structure [Rev. Rul. 78-248, 1978-1 C.B. 154, Situation 2]. Conversely, publication of responses to a candidate questionnaire that evidenced bias on certain issues did violate the political campaign activity prohibition [Rev. Rul. 78248, 1978-1 C.B. 154, Situation 3].

Questionnaires should be distributed to all candidates, and all candidates should be encouraged to respond. No other coordination, cooperation, or consultation with candidates, their committees, etc. should take place.⁶ Failure of all candidates to respond, may, in certain circumstances, require re-evaluation of the appropriateness of disseminating questionnaire responses. If only one candidate in a particular race responds, the questionnaire responses may not be useable⁷. Catholic organizations should not in any circumstances attempt to develop position statements for candidates that fail to respond. Consult diocesan legal counsel for further analysis of particular fact situations involving candidate questionnaires.

Nonpartisan Voter Registration/Get-0ut the-Vote Drives. Both IRS and the Federal Election Commission permit Catholic organizations to sponsor voter registration and get-out-the-vote drives, provided that no bias for or against any candidate, political party, or voting position is evidenced. Such bias would be indicated by distribution of partisan literature or materials indicating the organization's positions in connection with the voter registration or get-out-the-vote drives, by targeting registration or get-out-the-vote drives toward individuals who support the organization's positions or a particular candidate or party, by coordinating with candidates or their committees, etc. Thus, voter registration or get-out-the vote efforts should not be conducted (1 ) in cooperation with any political campaign, (2) according to the identity of the candidates, (3) based upon a candidate's or party's agreement or disagreement with the sponsoring organization's positions, or (4) in a manner targeting members of a particular party. Targeting voter registration drives at historically disadvantaged groups, whether based on economic status, race, gender or language, generally should not be objectionable⁸.

Nonpartisan Public Forums, Debates, Lectures. Catholic organizations may sponsor unbiased public forums, debates, and lectures in which candidates explain their views to the public. The sponsoring organization may not indicate its views on the issues being discussed, comment on candidates' responses, or in any other way indicate bias for or against a particular candidate, party or position [See Rev. Rul. 66-256, 1966-2 C.B. 210]. IRS has identified the following factors as important to a favorable determination on candidate forums: (1) all legally qualified candidates are invited to participate; (2) the questions are prepared and presented by an independent nonpartisan panel; (3) the topics discussed cover a broad range of issues of interest to the public; (3) each candidate has an equal opportunity to present his or her views on the issues discussed; and (5) the moderator does not comment on the questions or otherwise make comments that imply approval or disapproval of any of the candidates [See Rev. Rul. 86-95, 1 986-2 C.B. 73; 1 992 CPE Text, p. 423].

Generally, all bona fide candidates for a particular office should be invited to participate, since a policy of excluding candidates may evidence bias. However, there are circumstances in which candidates may be excluded. For example, a candidate debate during the primary election campaign may be limited to legally qualified candidates seeking the nomination of a particular political party⁹. In addition, if the field of legally qualified candidates is large, the FEC has indicated that the sponsoring organization may limit participation based upon "pre-established objective criteria". Any debate must include at least two candidates and must not promote or advance one candidate over another. In addition, for a general election, the sponsoring organization may not use nomination by a particular political party as the sole objective criterion for participation. [11 C.F.R. § 110.13(b)].

IRS has identified the following criteria for determining whether an exempt organization that fails to invite all legally qualified candidates to its debate has violated the political campaign activity prohibition: (1) whether inviting all legally qualified candidates was impractical; (2) whether the organization adopted reasonable, objective criteria for determining which candidates to invite; (3) whether the criteria were applied consistently and non-arbitrarily to all candidates; and (4) whether other relevant factors indicate the debate was conducted in a neutral, nonpartisan manner [See 1992 CPE Text, p. 424].

Candidates Speaking at Catholic Events. IRS has indicated that whether a Catholic organization may invite a candidate to speak at one of its events depends upon all the facts and circumstances surrounding the invitation and whether the candidate is invited in her capacity as a candidate or in her individual capacity.

If the individual is invited as a candidate, the criteria for public forums, debates. etc., identified above, apply. IRS has indicated that the nature of the event to which candidates are invited will be considered in determining whether candidates are given the requisite equal access. For example, if one candidate is invited to speak at an organization's national convention, and the opposing candidate is invited to speak at a breakfast attended by only a handful of people, the organization will likely be found to have violated the political campaign prohibition, even if the manner of presentation for both speakers is otherwise neutral. IRS has suggested that a similar result would obtain if a Catholic organization were to invite two opposing candidates "with the knowledge and expectation that one would not accept the invitation because of well-known opposing viewpoints." [1992 CPE Text, p. 431].

If a candidate is invited to speak in her capacity as a public figure or expert, it is unnecessary to provide equal access to other candidates. However, Catholic organizations should take the following precautions to prevent violation of the political campaign activity prohibition: (1) the candidate must speak only in her capacity as expert or public figure; (2) no mention should be made of her candidacy; (3) no campaign activity should occur in connection with the candidate's appearance; and (4) all publicity and other communications regarding the candidate's attendance should identify the capacity in which the candidate is appearing and should not mention her candidacy.

In addition, IRS has stated that if the primary purpose of the invitation is to showcase an individual's candidacy, the organization may still violate the political campaign activity prohibition even if no campaign activity occurs. If an invitation qualifies as a non-candidate invitation, payment of a customary honorarium to the speaker should not result in a violation of the political campaign activity prohibition, unless the payment is intended to support the candidate's campaign. [See 1992 CPE Text, pp. 431-32].

Caveat: Often Catholic organizations do not initiate situations that become problematic from a section 501 (c)(3) perspective. Rather, it is the candidate or her campaign organization that requests some accommodation from the Catholic organization, ranging from requests for photo opportunities in a Catholic facility or with the bishop or pastor, to appear at Catholic events, address Catholic organizations, or otherwise gain access to Catholic populations. It is difficult to know whether the candidate or her organization is even aware of the limitations that section 501(c)(3) imposes on Catholic organizations. However, Catholic organization's should inform candidates immediately of their status as section 501(c)(3) organizations and of the limitations imposed by the political campaign activity prohibition. Because of the inherently fact-specific nature of these situations, consultation with diocesan counsel should be sought immediately to evaluate any particular request.

Using Facilities for Civic or Political Events. For many years, Catholic organizations, particularly schools, have permitted local election authorities to utilize auditorium and gymnasium facilities to serve as polling places on election day. Such activity is a manifestation of civic duty, is nonpartisan, and does not constitute a violation of the section 501 (c)(3) political campaign activity prohibition. The limited leafleting permitted outside polling places under local election rules should not be attributed to the Catholic organization.

From time to time, however, Catholic organizations may also be asked to make their facilities available for partisan political activities, e.g., party conventions or caucuses, candidate rallies, etc. Such requests occur more frequently in areas of the country where alternative large capacity venues are scarce. Such use of organizational facilities is not per se prohibited, but as a prudential matter should be avoided where alternative venues are available. In order to insure that any partisan activity is not attributed to the Catholic organization, appropriate policies should be developed, including the following: (1) the facility may not be provided free or at a reduced charge; (2 ) if the facility is made available only to related Catholic users, it should not be made available to the candidate; (3) if the facility is made available for outside users, the facility may be made available to the candidate on the same basis; (4) the facility should be equally available for all candidates, with no preferences for any particular candidate; (4) the Catholic organization should not advertise, promote, or provide other services in connection with an event taking place in its facility. Prudence dictates that if a Catholic organization has never rented its facility, its first rental should not be to a candidate, political party, or PAC.

Individual Political Action. The political campaign activity prohibition applies to Catholic organizations, not to actions taken by their leaders or members in their individual capacities. However, care should be taken to insure that no misunderstanding arises whether individuals are acting in their organizational or individual capacities. The 1991 IRS-approved press release announcing its settlement with Jimmy Swaggart Ministries, relating to political activity during the 1986 presidential campaign, provided clarification on the issue of when the activities of religious leaders will be attributed to their organizations¹⁰. Generally, if an endorsement or statement of opposition occurs during an official organizational function or in an organization's official publication, e.g., during a worship service or in a diocesan newspaper, the endorsement will be attributed to the organization. The political campaign activity prohibition does not prevent officials of Catholic organizations, acting in their individual capacities, from becoming involved in political activity, provided they "do not in any way utilize the organization's financial resources, facilities or personnel, and clearly and unambiguously indicate that the actions taken or statements made are those of the individuals and not of the organization."¹¹

IRS has also indicated that an organization's officers, directors, trustees or other officials, acting in their individual capacities, may identify themselves as officials of the organization "so long as they make it clear that they are acting in their individual capacity, that they are not acting on behalf of the organization, and that their association with the organization is given for identification purposes only." [1992 CPE Text, p. 435]. Otherwise, an official's actions may be attributed to his or her organization and may constitute a violation of the political campaign activity prohibition. "Actions and communications by the officials of the organization that are of the same character and method as authorized acts and communications of the organization will be attributed to the organization." This means that IRS will attribute to the organization political activity undertaken by representatives of Catholic organizations during worship services or other official events.

The actions of an organization's employees (other than organizational officials) and members may also be attributed to the organization where there is real or apparent authorization of their actions by the organization. IRS has indicated that agency principles apply in evaluating authorization issues. Actions of employees within the scope of their employment generally will be treated as having been conducted with the organization's authorization. In addition, individual actions will be attributed to an organization if the organization ratifies those actions or fails to disavow individual actions performed under the organization's apparent authority. [See 1992 CPE Text, p. 436; G.C.M. 39414 (February 29, 1984)].

Prohibited Activities

Endorsements/Statements of Opposition. Catholic organizations may not make statements, either oral or written, supporting or opposing any candidate for elective public office, any slate of candidates, political party or political action committee ("PAC"). This would include statements made in sermons, church bulletins, or editorials in Catholic newspapers or other periodicals, and distribution of filled-in sample ballots. In addition, Catholic organizations must avoid statements that indirectly support or oppose a particular candidate, e.g., labeling candidates as pro-life or anti-family, using plus (+), minus (-) or similar signs to indicate candidates' agreement (or lack thereof) with a Catholic organization's positions on particular issues.¹²

Financial and In-Kind Support. A Catholic organization may not provide financial support, including loans¹³, to any candidate, PAC, or political party. Likewise, it may not provide or solicit in-kind support, such as free or selective use of volunteers, paid staff, facilities, equipment, office supplies, mailing lists, etc. Further, a Catholic organization may not solicit financial support for or in opposition to any candidate, PAC or political party, e.g., by taking a collection or passing the basket at an organizational activity, by using the organization's letterhead to solicit contributions, or by any similar means.

Mailing Lists. Providing mailing lists to candidates, political parties, or PACs on a preferential basis or without charge, or lending such lists to candidates, political parties or PACs would violate the political campaign activity prohibition¹⁴. However, IRS has indicated that a section 501(c)(3) organization "that regularly sells or rents its mailing list to other organizations will not violate the political campaign activity prohibition if it sells or rents the list to a candidate on the same terms that the list is sold or rented to others, provided the list is equally available to all other candidates on the same terms." [1992 CPE Text p. 433]. To insure that the list is equally available to all candidates, IRS advises that the organization inform candidates of the availability of the list. Prudence dictates that if a Catholic organization has never rented its mailing list, its first rental should not be to a candidate, political party or PAC. Further, the rental of mailing lists to a non-section 501 (c)(3) organization , including a candidate, PAC, or political party, may give rise to unrelated business income tax¹⁵.

Sponsoring PACs. A PAC is a political action committee whose purpose is to influence the election of any individual to public office, whether as a separate organization or as a segregated fund of an organization. [See I.R.C. § 527].16 IRS takes the position that a section 501(c)(3) organization may not establish or support (financially or otherwise) a PAC [See Treas. Reg. § 1.527-6(g); 1992 CPE Text, p.437]. IRS has indicated that an exempt organization may establish a separate segregated fund to engage in limited "political" activities, such as supporting candidates for nonelective public office, e.g., Supreme Court justice or cabinet officer [G.C.M. 39694 (January 21, 1988)]. However, if the segregated fund were to engage in political campaign activities prohibited under section 501 (c)(3), these activities would be imputed to the organization, and its exemption would be jeopardized. In addition, a section 501(c)(3) organization that engages in activities to influence the selection or appointment of a candidate for nonelective public office may be liable for tax under section 527.¹⁷

The FEC has concluded that directors of a charitable organization, may, in their individual capacities, establish an independent PAC, unconnected with the charitable organization [FEC Advisory Opinion 1984-12 (May 31, 1984)]. Although this FEC opinion has no bearing on the exemption issues under section 501 (c)(3), IRS has indicated that the political campaign activity prohibition applies only to exempt organizations and not individuals. Whether creation of a PAC is truly an individual action independent of the section 501 (c)(3) organization is a question of fact. IRS has identified the following factors as suggestive that a PAC is not independent of the section 501(c)(3) organization: (1) similarity of name between the PAC and the section 501 (c)(3) organization; (2) excessive overlap of directors; and (3) sharing of facilities between the section (c)(3) organization and the PAC [1992 CPE Text, p. 438]. Of course, a Catholic organization may not provide financial or other support to any PAC.

Similar issues are raised when a section 501 (c)(3) organization creates a related section 501(c)(4) organization that conducts political campaign activity either directly or through a PAC. The concern in these situations is whether the section 501(c)(3) organization is attempting to achieve indirectly what it could not do directly. All facts and circumstances must be evaluated. At a minimum, the section 501(c)(3) and 501(c)(4) organizations must maintain separate books and records, and must insure that no tax-deductible 501(c)(3) contributions are used to support the political activities of the section 501(c)(4) organization or its PAC¹⁸. [See Regan v. Taxation with Representation of Washington, 461 U.S. 540 (1983)]. IRS has identified the following areas of particular concern: (1) the sharing of staff, facilities, or other expenses between the section 501(c)(3) and section 501(c)(4) organizations; (2) the conduct of joint activities requiring an allocation of income and expenses; and (3) joint fund raising utilizing the section 501 (c)(3) organization's name or goodwill [See 1992 CPE Text, pp. 439-40; Cerny article, pp. 5.38-5.44].

Partisan Campaign Materials. A Catholic organization should not distribute or authorize distribution of campaign literature, biased voter education material, etc., through member mailings, during worship services, or by other means, whether by its own employees or representatives or by the representatives of a candidate, political party or PAC. Also prohibited is the placement of political signs or placards on the property of Catholic organizations. Since organizations lack authority to control access to public property, e.g., public streets and sidewalks, third-party distribution of partisan materials on adjacent public property should not be imputed to a Catholic organization.

Parking lots deserve special attention, since automobile windshields seem to present irresistible targets for leafleting. Although certain court opinions relating to leafleting in shopping malls and their parking lots may provide some support for a contrary position¹⁹, generally the parking lots of Catholic organizations should be considered private property. They are easily distinguishable, in terms of both use and access, from community shopping centers and malls. Thus, a Catholic organization should not authorize the distribution of biased or partisan campaign materials in its parking lot.

Special Issues for Catholic Press

Paid Political Advertising. IRS has indicated that acceptance of paid political ads in newspapers, periodicals, and other publications of Catholic organizations will not necessarily constitute a violation of the political campaign prohibition, if (1) the organization accepts ads on the same basis as other non-political advertising; (2) ads are identified as paid political advertising; (3) the organization expressly states that it does not endorse any candidate; and (4) advertising is available to all candidates on an equal basis [1992 CPE Text, p. 434]. With respect to criterion #4, IRS will pay particular attention to the manner in which the political advertising is solicited. One identified negative factor is solicitation of ads from certain candidates that support an organization's view, but mere acceptance (without solicitation) of ads from other candidates. It is important to emphasize that once a Catholic organization decides to accept a paid political ad, it cannot selectively decline to accept other ads.

Catholic organizations should develop and document their political ad policies through internal memorandum, resolution or publication. Some dioceses have adopted policies to accept political ads only from candidates or their official committees, or to limit the type of candidate information that may be included in such ads. Whatever political ad policy is adopted, it should be followed consistently. All political ads should be clearly identified as paid political ads and the sponsoring organization identified. Of course, no free or reduced rate political ads should be accepted, since this would constitute an in-kind contribution to the candidate. Fees received from political ads are, like other non-related advertising, subject to unrelated business income tax²⁰.

Letters to the Editor. Many Catholic periodicals publish letters to the editor. IRS has offered no advice on the issue of letters relating to candidates, election campaigns, etc. By their very nature, letters to the editor do not reflect the opinion of the publishing periodical, but rather the opinions of that periodical's readers. However, since the periodical's editor does select letters for publication, this activity is not immune from IRS challenge. Catholic periodicals can take certain steps to lessen the likelihood that letters relating to candidates, election campaigns, and the like will be challenged as violations of the political campaign activity prohibition by: (1) selecting letters based on criteria other than whether they agree with the organization's position; (2) publishing letters reflecting opinions on both sides of an issue; (3) avoiding publication of letters from other organizations that endorse or oppose political candidates; and (4) publishing an express statement that the letters reflect the opinions of their authors and not the periodical or its sponsoring organization.

News Stories. Catholic periodicals frequently publish news stories that involve reporting on candidate and campaign activity. This is not per se a violation of the political campaign activity prohibition. The important distinction is between news coverage and attempts to promote or oppose a candidate through editorial policy. Analysis in this area is highly fact-sensitive. However, IRS has identified the following areas of relevant inquiry: (1) how does the publication normally cover news stories; (2) does it have a policy of only covering particular candidates; (3) does it, in fact, cover only particular candidates; and (4) is coverage slanted to show certain candidates in a favorable or unfavorable light? [See 1992 CPE Text, p. 419].

Opinions of Columnists. The opinions of various columnists appearing in Catholic periodicals present an attribution issue about which IRS has offered no guidance. However, since the Catholic periodical pays for the columns it runs, either by means of salary or syndication payment, and selects columns it desires to carry, presumably on the basis of opinions expressed, IRS could attribute the political opinions in such columns to the periodical. Syndicated columns and op/ed pieces are not analogous to unsolicited letters to the editor. Accordingly, prudence dictates that Catholic periodicals reject columns endorsing or opposing candidates, whether directly or indirectly, especially where the columnist holds a position within the Church.

Internet Activities

Since publication of our 1996 legal advice on political campaign activity, the Internet has emerged as an unexpectedly potent force for communication of ideas and information. Many Catholic organizations have come to rely on their web sites as a means of communicating their messages to members, parishioners, and the general public. With respect to the section 501(c)(3) political activity prohibition, it is important to remember that the Internal Revenue Code does apply in cyberspace. This means that the guidelines contained in this memorandum apply with equal force to a Catholic organization's web site and the content thereof. Thus, for example, the following information posted to a Catholic organization's web site would violate the political campaign activity prohibition: links to candidate, PAC or political party web sites; candidate endorsements or statements of opposition; biased voter guides or links to same; and links to other organizations that support or oppose candidates, etc.

Penalties for Violating Prohibition

The political campaign activity prohibition of section 501(c)(3) has been interpreted as absolute. Accordingly, any violation of the restriction may result in revocation of exempt status and consequent loss of deductible contributions. IRS may also impose additional penalties, as outlined below.

Section 4955 imposes a two-tier excise tax on exempt organizations and their management for political expenditures made in contravention of section 501 (c)(3). The exempt organization is subject to an initial 10% tax on each political expenditure [l.R.C. § 4955(a)(1)], which may be imposed in addition to revocation of exemption²¹. If the expenditure is not corrected, an additional tax equal to 100% of the expenditure will be imposed on the exempt organization. [I.R.C. § 4955(b)(1)]. The initial tax may be abated if the organization establishes that the political expenditure was not willful and flagrant.

In addition, a 2½% tax will be imposed on an organization manager who knowingly agrees to a political expenditure, unless such agreement is not willful or is due to reasonable cause. [I.R.C. § 4955(a)(2)]. If the manager refuses to agree to correction, an additional 50% tax is imposed. [I.R.C. § 4955(b)(2)]. For any single political expenditure, the first-tier tax on managers may not exceed $5,000 and the second-tier tax may not exceed $10,000. [I.R.C. §4955(c)(2)]. For these purposes, "manager" is defined as an officer, director or trustee, or another individual with comparable responsibilities, and includes an employee of the organization having authority or responsibility with respect to the political expenditure. [I.R.C. § 4955(f)(2)].

Further, IRS may seek immediate determination and assessment of income and excise taxes due on account of flagrant political expenditures. [I.R.C. § 6852]. IRS also may bring action in United States District Court seeking an injunction barring further political expenditures. [I.R.C. § 7409(a)(1 )]. IRS first must notify the organization of its intention to seek an injunction unless the organization immediately ceases making political expenditures, and must also conclude there has been a flagrant violation of the political activity prohibition and that injunctive relief would be appropriate to prevent further political expenditures. [I.R.C. § 7409(a)(2)].

The USCC Office of General Counsel is prepared to assist dioceses and their legal counsel in interpreting the political campaign activity prohibition and applying it in particular fact situations. If you have any questions, please contact Deirdre Dessingue Halloran, Associate General Counsel by phone at (202) 541-3300, by fax at (202) 541-3337, or by e-mail at dhaIloran@nccbuscc.org.

1. As used herein, the term "Catholic organizations" refers to churches and other Catholic affiliated organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code of 1986.
2. This document focuses primarily on the impact of the political campaign activity prohibition of section 501(c)(3) on the activities of Catholic organizations. Catholic organizations may also be subject to the Federal Election Campaign Act, as well as relevant state and local laws and regulations governing political activity.
3. The language was introduced by then Senator Lyndon B. Johnson during Senate Floor debate on the 1954 Internal Revenue Code, apparently in response to actions by certain tax-exempt organizations supporting Dudley Dougherty, LBJ's challenger in the primary election.
4. Generally, FECA. regulation is triggered by express advocacy of the election or defeat of a clearly identified candidate. On the other hand, section 50l(c)(3) operates on a different and more general standard: intervention or participation in a political campaign on behalf of or in opposition to any candidate, which has been interpreted by IRS to include biased voter guides. See, e g, FEC v Christian Coalition, 52 F.Supp.2d 45 (D,D.C. 1999), in which the court concluded that Christian Coalition (a non-501(c)(3) organization) voter guides did not constitute coordinated expenditures prohibited under the FECA, despite the fact that the voter guides clearly indicated which candidates were preferred by the Christian Coalition. Their FECA acceptability notwithstanding, voter guides evidencing such bias would violate section 501(c)(3), and would be barred from Catholic dioceses and parishes.
5. A few cases suggest that the line between what is substantial and what is insubstantial lies somewhere between 5% and l5% of an organization's total activities, as measured by time, effort, expenditure and other relevant factors. See Murray Seasongood v Commissioner, 227 F.2d 907 (6th Cir. 1955) [less than 5% time and effort was NOT substantial]; Haswell v. US., 500 F.2d 1133 (Ct. Cl. 1974), cert denied, 419 U.S 1107 (1975) of budget WAS substantial]. IRS does not endorse any particular percentage safe harbor, but would clearly he more comfortable at the lower end of the spectrum.
6. See also 11 C.F.R.§114.4(c)(5)(i) and (ii) for the FEC rules on candidate coordination.
7. The FEC rules on voter guides prepared by section 501(c)(3) or (c)(4) organizations require the participation of at least two candidates. 11 C.F.R.§114.4(c)(5).
8. See Cerny, M., Campaigns, Candidates and Charities: Guideposts for All Charitable Institutions, 19 N.Y.U. Conference on Tax Planning for 501(c)(3) Organizations (1991), pp. 5.13-5.17 (hereinafter "Cerny article"); PLR 9223050 (March 10, 1992) (grants for registering homeless people to vote did not constitute political activity for private foundation)
9. See Fulani v. Brady, 809 F. Supp. 1112 (1993), aff'd, Fulani v. Bentsen, 35 F.3d 49 (1994); Fulani v. League of Women Voters Education Fund, 882 F.2d 621 (2d Cir. 1989).
10. Public Statement of Jimmy Swaggart, President, Jimmy Swaggart Ministries (December 7, 1991).
11. Id. {emphasis added].
12. IRS has taken the position, which has been upheld by the courts, that even nonpartisan rating of (elective) judicial candidates as "approved", "not approved", or "approved as highly qualified", on the basis of experience, professional ability, and character, constituted prohibited political campaign activity, even though in certain cases all candidates were "endorsed" as qualified. See G.C.M. 39441 (September 28, 1985); Association of the Bar of the City of New York v. Commissioner, 858 F.2d 876 (2d Cir. 1988), cert. denied, 109 S.Ct. 1768 (1989).
13. SeeTAM9812001 (August21, 1996 - Issued March 20, 1998), in which IRS concluded that a loan can be considered a contribution jeopardizing section 501(c)(3) exempt status, even when market rate interest is charged and the loan is repaid.
14. During 1999, fifty three public radio stations were criticized for swapping donor lists with the Democratic National Committee and other political organizations. The Minnesota attorney general is seeking civil penalties against Minnesota Public Radio for state law violations resulting from improper use of donor information. It is not known whether IRS has begun examinations relating to violations of the political campaign activity prohibition. See Vol. 27, No. 2 Exempt Organizations Tax Review 237 (February 2000).
15. See I.R.C. § 513(h)(1)(B). However, in Sierra Club V. Commissioner, 86 F.3d 1526 (9th Cir. 1996), the Court of Appeals for the Ninth Circuit concluded that income from one-time rentals of mailing lists is non-taxable royalty income. IRS is currently reconsidering its position on royalties.
16. A section 501(c)(4) organization, which may engage in political campaign activity provided it is not its primary activity, is not the same as a PAC. See Rev. Rul. 8 1-95, 198 1-1 C.B. 332.
17. Section 527 of the Code imposes a tax at the highest corporate rate on the political activities of section 50 1(c) organizations. I.R.C. § 527(b). To avoid imposition of section 527 tax, an organization must form a separate segregated fund to make expenditures for political activities. It may not use its own corporate funds to do so. Based on its legislative history, section 527 has been interpreted as not applicable to section 501(c)(3) organizations. S.Rep. No. 93-1357, 1975-1 C.B. 517, 534. IRS, however, has indicated that the section 527 can apply to section 501(c)(3) organizations. The definition of political activities in section 527 is broader than in section 501(c)(3), since it extends to non-elective public office, which is not restricted by section 501(c)(3). Specifically, section 527 political activities are defined as `the function of influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any federal, state or local public office or office in a political organization." I.R.C. § 527(e)(2). Accordingly, a section 501(c)(3) organization may establish a separate segregated fund for the limited purpose of conducting political activities within the meaning of section 527 provided these activities are not political campaign activities within the meaning of section 501(c)(3). If the fund meets the requirements of section 1.527-2(b), it will be treated as a political organization subject to the provisions of section 527.
18. See PLR 9850025 (Issued June 10, 1998 - Released December 11, 1998), in which IRS approved the creation of a subsidiary section 501(c)(4) organization by a Catholic hospital system. The section 501(c)(4) organization was authorized to establish a PAC. However, no section 501(c)(3) hospital system funds were permitted to flow, directly or indirectly, to the PAC.
19. See, e.g., Robins v. Pruneyard Shopping Center, 23 Cal. 3d 899, 592 P.2d 34 1(1979), aff'd, 100 S.Ct. 2035 (1980); New Jersey Coalition Against War in Middle East v. J.M.B. Realty, 650 A.2d 757 (1994), cert. denied, Short Hills Associates v. New Jersey Coalition Against War in Middle East, 516 U.S. 812 (1995).
20. FECA also requires that the amount charged for political advertising may not exceed the amount charged for use of such space for other purposes. 2 U.S.C.A. § 441d(b).
21. There are circumstances in which IRS may decide to impose the excise tax penalty in lieu of revocation, based on all the facts and circumstances, including the nature of the political intervention and steps that have been taken to prevent a recurrence. See Final Regulations on Political Expenditures by Section 501(c)(3) Organizations, 60 Fed. Reg. 62209 (December 5, 1995).

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