Reigning in Charities: Using an Intermediate Penalty to Enforce the Campaigning Prohibition

Abstract:     
Congress has prohibited public charities from campaigning for or against any candidate for office continuously since 1854. However, the IRS routinely fails to penalize public charities that accidentally violate or deliberately flout the prohibition. And the IRS’s reluctance is understandable: the penalty for violating the campaigning prohibition is loss of the public charity’s tax-exempt status, a death-knell for many public charities.

This Article argues that the IRS’s underenforcement of the prohibition is predictable. The prohibition has provoked firestorms of debate among academics, policymakers, and directors of public charities themselves. Where the penalty for violating controversial laws is a hard shove, those tasked with enforcing the law are likely to balk at their enforcement responsibilities. The Article argues that Congress should provide the IRS with an intermediate sanction, designed to gently nudge public charities toward compliance. With this intermediate sanction, the IRS will begin to actually enforce the prohibition, and public charities will begin to internalize and comply with the prohibition.

Number of Pages in PDF File: 47

Keywords: Federal income tax, 501(c)(3), tax-exempt, public charity, tax policy, charitable donation, prohibition on campaigning, no substantial part, subsidy

JEL Classification: H2, H20, K34

Accepted Paper Series