A Muslim advocacy non-profit organization is in danger of losing its tax-exempt status this campaign season. Ben Carson has started a petition calling on the IRS to revoke the tax-exempt status of the Council on Islamic-American Relations (CAIR). Nihad Awad, the founder of CAIR, asked “Mr. Ben Carson to withdraw from the Presidential race” in response to Ben Carson’s comments that Muslims should not be president.
CAIR is a tax-exempt non-profit organization and must comply with the laws set forth in the Internal Revenue Code. Under the Code, an organization may have its tax-exempt status removed for statements made in favor of - or in opposition to - any candidate for public office. Tax-exempt organizations, such as CAIR, should be advised to refrain from statements referencing political candidates.
Tax-Exempt vs. Non-Profit Status
A common misconception is that nonprofit status is synonymous with tax-exempt status. This is incorrect. Non-profit status usually applies to state tax law. Several state tax statutes allow nonprofit organizations exemptions on state sales, property and income tax. Federal tax-exempt organizations are exempt from paying federal income tax if they meet the requirements. Federal tax exempt organizations are commonly called charitable organizations. Many non-profits are federal tax exempt organizations, but the terms are not mutually exclusive.
Benefits of Tax Exempt Status
There are many benefits to tax-exempt status under the Internal Revenue Code. Primarily, the status means that the organization is exempt from paying income tax. Obtaining tax exempt status also means that donations to the organization are tax-deductible, thus increasing the incentive to donate.
Requirements for Tax-Exempt Status
An organization can become tax-exempt if it meets the requirements set forth in section 501(c)(3) of the Internal Revenue Code. The requirements are as follows:
(1) The organization must be conducted “exclusively for exempt purposes.” The IRS lists “exempt purposes” as “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.
(2) None of the organizations earnings may benefit a private shareholder or individual.
(3) The organization may not endeavor to “influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.” The IRS has clarified that “public statements of position made on behalf of the organization in favor of or in opposition to any candidate for public office” are clear violations of this provision.
Grounds for Removal of Tax-Exempt Status
In 2015, the IRS revoked hundreds of tax exempt determinations. In general, the IRS may revoke an organizations tax-exempt status for failure to comply with the requirements. Tax-exempt organizations must carefully follow the requirements set forth above to avoid this risk. Most tax-exempt organizations must also file the annual Form 990, provided on the IRS website. If an organization fails to file the Form 990, the IRS can also revoke their tax exempt status. Churches and some religious organizations are not required to file Form 990, but must still comply with the other requirements in the Code to continue their tax-exempt status.
First Amendment Free Speech Defense
Organizations facing revocation of their tax exempt status might be tempted to argue that their First Amendment right to free speech protects them from the ramifications of making statements against candidates for political office. However, tax-exempt status is a privilege, not a right. In effect, the IRS may require organizations waive their First Amendment rights to make “public statements of position … in favor of or in opposition to any candidate for public office.”
Will the IRS Revoke CAIR’s Tax-Exempt Status?
The answer is most likely yes. The IRS has valid grounds to revoke CAIR’s tax-exempt status. Nihad Awad’s comments clearly fall under the political activities prohibitions regarding tax exemption organizations. The comments calling for Ben Carson’s withdrawal were made on Fox News in front of a backdrop featuring CAIR’s emblems. Mr. Awad’s actions were clearly made on behalf of CAIR and in opposition to Ben Carson - a candidate for political office.
During this campaign season it is likely that candidates for political office will make controversial - or even downright disrespectful-statements. However, tax-exempt organizations must be cautious in their responses or risk revocation of their status.
Authored by Robin Sheehan, LegalMatch Legal Writer