The IRS and the internet: New issues for tax-exempt organizations

Healthcare Financial Management, Jan, 2002 by Gerald M. Griffith

Tax-exempt healthcare organizations increasingly are using the internet to provide an inexpensive easily accessible forum for information exchange organization publicity and community-relations programs. A tax-exempt organization that engages in certain activities on its Web site however, risks losing its tax-exempt status. Such activities may include political messages and lobbying, substantial advertising and other revenue-generating programs, and inappropriate solicitation of charitable contributions Therefore providers should carefully monitor all information on their Web sites including hyperlinks to other Web sites chat room and bulletin-board content and advertisements to make certain they comply with IRS rules.

The increasing business use of the Internet by tax-exempt healthcare organizations has drawn the interest of the IRS. The IRS's concerns center on political and lobbying activities, advertising and other business activities, and solicitation of charitable contributions. (a) Tax-exempt providers that do not take these concerns into account when expanding their Internet activities may jeopardize their tax-exempt status.

POLITICAL AND LOBBYING ACTIVITIES

The political and lobbying activities of tax-exempt organizations long have been a focus of the IRS. Political campaign activity by a Section 501(c)(3) tax-exempt organization is inconsistent with its exempt status. Lobbying activities, including any direct or indirect attempt to influence legislation, also are subject to a substantiality limit--that is, they cannot constitute a substantial portion of the Section 501(c) (3) organization's activities. The IRS scrutinizes activities such as campaigning on behalf of or in opposition to a candidate, making campaign contributions, and offering an official endorsement to a particular candidate or issue. Recently, the IRS has begun considering the application of traditional tax rules in determining whether a tax-exempt organization has engaged in political or lobbying activity over the Internet.

Hyperlinks, chat rooms, and bulletin boards accessed through a Web site may provide new forums for political statements. For example, the use of hyperlinks is of particular concern to the IRS due to the ease with which users are transported to another site--one that may contain outright political statements. Because the two linked sites may appear related, the IRS could hold the linking site responsible for any political or lobbying statements posted on the other site. From the IRS's perspective, the hyperlink may be equivalent to either expressing agreement with the contents of the linked site or, in a non-Internet context, distributing literature that includes political statements.

Tax-exempt healthcare organizations should watch closely the content of their Web sites for any political bias. A provider that engages in either political campaigning or substantial lobbying activities, whether in print or on the Internet, can lose its tax-exempt status. (b)

Although the IRS has not yet issued Internet-specific guidelines, there are several options currently open to tax-exempt healthcare organizations to minimize the risk of violating limits on political and lobbying activities. The unbiased dissemination of educational voter guides and sponsorship of open forums for debate by all candidates for an office generally would not constitute prohibited political activity. (c) Direct political statements supporting or opposing any candidate, however, should be avoided on the Internet, just as in other communications.

If the Web site includes a bulletin board or chat room for users, there should be specific conditions of use that participants must accept (commonly using a click-through option) before gaining access to those areas. These conditions should include a prohibition on using the bulletin board or chat room for any political campaigning or lobbying activity and a disclaimer indicating that the views expressed on the bulletin board or chat room are not necessarily those of the organization. If the organization links its site to sites of unrelated persons or entities, it should obtain a written agreement or letter of representation indicating that the target site does not engage in political campaign intervention.

Similar representations on lobbying activity also would be helpful but may be more difficult to obtain, as many organizations may do at least some lobbying via the Internet. Lobbying via the Internet may take the form of notices posted to encourage organization members and the Web-surfing public to ask legislators to pass a particular bill of interest to the organization; such notices may be protected as insubstantial grass-roots lobbying. By contrast, encouraging people to vote against legislators who fail to support that same bill likely would be considered political campaigning.

With or without these representations, any linkage agreement should include a termination clause to allow termination of the link in the event that the linked site posts information having potentially adverse tax consequences for the tax-exempt organization. Periodic monitoring of linked sites should help avoid tax problems. Healthcare organizations also should maintain detailed records of the cost of Web-site design and maintenance, as the amount of expenditures on lobbying activities can be relevant to tax-exempt status or certain excise taxes.(d)