Not all nonprofits are the same, but many U.S. charities fear they will be caught up in the controversy surrounding the IRS’s targeting of some of their nonprofit cousins, applicants for advocacy status.
Charitable nonprofits, those with 501(c)(3) status, worry that investigations now revving up in Washington over allegations the IRS targeted conservative groups for extra scrutiny will further delay applications for tax-exempt status and impede their activities.
Tim Delaney, head of the National Council of Nonprofits, in a statement said he and his colleagues were concerned that the scandal was causing “collateral damage to the work of innocent charitable nonprofits” by lumping together all nonprofits and failing to draw distinctions among different types.
He urged policymakers and the news media “to strengthen public respect for, and not exacerbate ignorance of, the laws governing and distinguishing the nonpartisan work of charitable nonprofits in communities across the country.”
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The Tax Code exempts 501(c)(3) status “charitable nonprofit” organizations from taxation, but prohibits them from engaging in partisan political electioneering activities. They can conduct “insubstantial” lobbying activities.
Such charitable groups are not the focus of the swirling scandal. That dubious distinction goes to “social welfare” organizations, some of which were reported to have been given special scrutiny by the IRS.
These are tax exempt under the Tax Code’s section 501(c)(4), and are allowed to engage in some political activities: nonpartisan issue and legislative advocacy, lobbying and endorsement of specific legislation. They cannot, however, overtly support or oppose political candidates. Contributions received from businesses or individuals for lobbying or political activity are not tax deductible.
Delaney told The Chronicle of Philanthropy that many thousands of charities seeking tax-exempt status approval may now face delays as investigators on Capitol Hill look into how the IRS handled applications from advocacy groups.
According to The Chronicle, the IRS manages 60,000 applications for tax-exempt status each year. In 2012, only 3,500 applications came from advocacy groups.