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Imagine that you manage a tax-exempt, nonprofit organization, the mission of which is to educate the public about environmental issues.  Now imagine that, thankfully, one of your volunteers is computer savvy and offers to create a web site for your organization.  The web site will enable your organization to further its mission of educating the general public by publishing environmental information to a global audience at little or no cost.  Furthermore, you can easily enable web viewers to connect from your web page to additional environmental web pages via Internet hyperlinks.

As a manger of a tax-exempt organization, you must be aware of the potentially drastic negative consequences of creating such links.  For example, if you hyperlink to other organizations that post partisan political viewpoints on their web sites, your organization could lose its tax-exempt status.  That's right, you didn't misread the last sentence; by hyperlinking your organization's web site to another organizations' web site, your organization could lose its tax-exempt status.  Therefore, as a well-informed tax-exempt organization manager, you would be wise to consider the legal implications involved in linking to other organizations' web sites.

 Interesting legal questions arise when tax-exempt organizations create an Internet presence.  This paper focuses on the statutory prohibition of tax-exempt organizations participating in partisan political activity and its implications for Internet hyperlinks.

This paper originated in the wake of I.R.S. Announcement 2000-84.1  In that Announcement, the Service released a set of questions to the public in order to elicit public comment regarding partisan political activity by tax-exempt organizations on the Internet.

According to the Internal Revenue Code, tax-exempt ("501(c)(3)") organizations are, by definition, statutorily prohibited from partisan political activity.2  Historically, the I.R.S. has applied a facts and circumstances test to decide whether the 501(c)(3) has engaged in such prohibited conduct.3

This paper reviews the traditional I.R.S. facts and circumstances political prohibition test and then reviews analogous case law in Private Benefit and Contributory Copyright Infringement theories.  All of these legal theories are then applied to a hypothetical tax-exempt organization under four different hypothetical scenarios.  The paper then summarizes the future of the political prohibition as applied to hyperlinking tax-exempt organizations.  Finally, important safeguards are proposed, which a tax-exempt organization should consider when hyperlinking beyond its own web site.

In 1934, Congress added a proposed statute section into the Internal Revenue Code which, if enacted, would have restricted the political activity as well as the lobbying activity of a 501(c)(3) organization.4  However, the proposed 1934 legislation was later withdrawn as "overly broad."5

Before 1954, there was no absolute prohibition of electioneering activity by 501(c)(3) organizations or their precursors.6  In 1954, then Senate Minority Leader Lyndon Johnson added a floor amendment which stated that 501(c)(3) organizations could not participate or intervene in any political campaign.  Johnson stated that, "[t]his amendment seeks to extend the provisions of Section 501 of the House bill, denying tax-exempt status to not only those people who influence legislation but also to those who intervene in any political campaign on behalf of any candidate for public office."7  The amendment was accepted without debate or discussion.

The current law, 26 U.S.C. § 501(c)(3) (2003), states that an organization shall be tax-exempt if it is "organized and operated for religious, charitable. . .or educational purposes,. . .[and] does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office."8
The Lyndon Johnson quote above seems to indicate that the political prohibition extends only to activities amounting to substantial political intervention similar to the lobbying context, rather than a complete prohibition.  However, in 1981, the Seventh Circuit Court of Appeals stated: "It should be noted that tax-exemption is lost. . .by participation in any political campaign on behalf of any candidate for public office.  It need not form a substantial part of the organization's activities."9  As a matter of statutory interpretation, this outcome seems appropriate.  Section 501(c)(3) mandates that tax-exempt organizations need to be organized and operated for a tax-exempt purpose and may "not participate in or intervene in" any political campaign.10

In a U.S. Supreme Court case analyzing the application of the absolute prohibition of political intervention activity to a bar association that rated judicial candidates, the Court affirmed the absolute prohibition.11  The Court reasoned that the statutory prohibition on political intervention was not at all similar to the lobbying rule.  The Court stated that, "[t]he short answer [to this argument] is that Congress did not write the statute that way."12

What political activity is allowed and what political activity is not allowed?  In other words, what factors differentiate benign political activity from prohibited political intervention?  The Service states that the answer depends on "all of the facts and circumstances of each case."13  The facts and circumstances test is the keystone of the I.R.S.'s political intervention analysis.  Important facts and circumstances are highlighted below in several I.R.S. Revenue Rulings, Private Letter Rulings, and Tax Court cases.

Revenue Ruling 78-248, provides instructive hypotheticals, wherein the Service addresses allowable voter education activities.14  Such activity must be "conducted in a nonpartisan manner by an organization recognized as tax-exempt under Section 501(c)(3) of the Code [in order to] not constitute prohibited political activity disqualifying the organization from tax-exemption."15  The Service lists four hypothetical examples to illustrate the difference between a prohibited political activity and acceptable nonpartisan voter education activity.

In the first example, an organization annually prepares an annual voting record compilation of all members of Congress on a wide range of subjects.16  The Service says this activity is not prohibited under Section 501(c)(3).  The important facts and circumstances are that the organization does not, directly or indirectly, support or oppose candidates.  The publication covers all candidates rather than a select few, and covers a wide range of subjects, not just subjects important to that particular organization.

In the second example, during election years the organization solicits every candidate's positions on a wide array of issues and then widely publishes the positions in an unbiased fashion.17  This activity is also not prohibited.  The facts and circumstances indicate that all candidates are included, a wide array of issues are covered, and the publication seems unbiased in its presentation of candidates.

The third example builds on the organization in the second example in which the organization solicits candidate's positions and then publishes them.18  However, in this example, the organization distributes the candidates' answers during a campaign in the form of voter guides where the questions evidence bias on certain issues.  This third organization has acted contrary to the 501(c)(3) prohibition.  The timing of the publication correlates with a campaign so that the publication will likely impact voting behavior.  The publication is biased toward issues important to the organization.  Both factors evidence a political, rather than educational, voter impact.

In the fourth example, during an election campaign, an organization primarily concerned with land conservation publishes a voter guide consisting of incumbents' voting records on selected environmental issues.19  It does not support or oppose any candidate.  The Service concludes that facts and circumstances including the narrow issue focus, wide distribution, and timing during an election campaign, indicate that the guide is partisan and therefore constitutes prohibited political intervention.

In Revenue Ruling 80-282, the Service ruled regarding the publication of a Congressional session voting summary that listed incumbents' votes along with the organization's views on selected legislative issues.20  The Service highlights the facts and circumstances which make this a non-prohibited political activity:

[t]he voting records of all incumbents will be presented, candidates for reelection will not be identified, no comment will be made on an individual's qualifications for public office, no statements expressly or impliedly endorsing or rejecting any incumbent as a candidate will be offered, no comparison of incumbents with other candidates will be made, and the organization will point out the inherent limitations of judging the qualifications of an incumbent on the basis of certain selected votes by stating the need to consider such unrecorded matters as performance on subcommittees and constituent service.21

In Revenue Ruling 86-95, the Service presents a classic example of a nonpartisan candidate forum.22  The tax-exempt organization proposes several educational candidate forums in certain congressional districts during congressional elections.  Every candidate will be invited to attend and a broad range of topics will be covered.  There will be a nonpartisan, independent panel administering the forum, the function of which is to assure that the ground rules are followed.  Thus, each candidate has an equal opportunity to express views on each issue.

The moderators will not focus on issues considered important to the organizations' membership, instead they will cover a wide range of issues.  Further, "at both the beginning and end of each forum, the moderator will state that the views expressed are those of the candidates and not those of the organization and that the [organization's] sponsorship of the forum is not intended as an endorsement of any candidate."23  The Service cites facts and circumstances--such as the wide range of issues, the independent moderator, and the statement that the organization does not endorse any candidate--as important to deciding the political forum will not be prohibited political intervention.

The Service gives weight to organization's alignment of interests with the political activities at issue.  For example, the Service ruled that a university was not participating in the political activity of its students when the university allowed students two weeks to participate in a political campaign as an educational exercise.24  It was important to the Service that the interests of the students were independent of the university.  The university had no oversight of the substantive political activities of its students, only of the general structure of the students' two weeks of volunteering.

Likewise, where a university provided faculty advisors and facilities for a student-run campus newspaper (which expressed political views) the Service ruled that the university was not electioneering.25  The students' political activity, because of an assumed disalignment of interests between students and the university, was not imputed to the tax-exempt university.
In contrast, in Branch Ministries, the I.R.S. revoked a church's tax-exempt status due to its political activities related to a newspaper publication.26  The church, four days before a presidential election, placed a full-page ad in two nationally published newspapers with the headline "Christians Beware", and asserted that a particular presidential candidate's positions on "abortion, homosexuality, and the distribution of condoms to teenagers in schools violated Biblical precepts."27
After the I.R.S. was notified of the ad, they started an investigation of the church's political activity.  When the church refused to disclose the requested information, the I.R.S. revoked the church's tax-exempt status.  Presumably, the facts and circumstances, including the advertisement's narrow issue focus, obvious political campaign timing, and direct opposition to a candidate, were dispositive facts and circumstances in this I.R.S. revocation of tax-exempt status.

In an I.R.S. Private Letter Ruling involving disalignment of interests between a tax-exempt organization and its political activity, a large nonprofit organization that employed union members sought a ruling regarding a union request that the employer implement an employee payroll deduction plan.28  The employees could direct a portion of their wages to the union's political action committee.  The employees, not the employer, would have sole discretion with regard to the amount of the deduction.  The union political action committee would reimburse the employer for administrative expenses involved in processing the wage deductions.  The Service ruled that the discretion of the wage deduction lies with the employee and not the nonprofit employer.  Further, the union and the employer likely have different political interests.  Therefore, the nonprofit employer could operate the deduction plan without jeopardizing its tax-exempt status.

 It is important to note the well-established rule that 501(c)(3) organizations may operate out of the same building as other non-exempt organizations, but may not commingle accounting for resources between organizations.29   For example, 501(c)(3) organizations are often closely affiliated with 501(c)(6) organizations.  In fact, the two types of organizations may be, and often are, housed in the same office space.  However, they must each keep separate bookkeeping records to ensure that the 501(c)(3) organization is not subsidizing the efforts of the 501(c)(6) organization with tax-exempt dollars, thereby jeopardizing the tax-exempt status of the 501(c)(3) organization.

For example, in a Private Letter Ruling, the I.R.S. ruled that if effective separate booking was used, a 501(c)(3) organization, which was closely affiliated with a 501(c)(6) Business League, would not loose its tax-exempt status if the 501(c)(6) organization created a Political Action Committee ("PAC").30  The I.R.S. ruling states that although the 501(c)(3) organization has an identical board of directors as the 501(c)(6) organization, there would be no common managing officers between the 501(c)(6) organization and the 501(c)(6)'s PAC.  Further, the PAC would solicit funds at different times than the 501(c)(3) and 501(c)(6) annual dues solicitation and that the PAC will not receive any direct or indirect services or benefits from the 501(c)(3).  Therefore, facts and circumstances including operating separate accounting of assets, different donation solicitation times, and different management effectively insulated the Political Activity of the 501(c)(6)'s PAC from imputing prohibited political activity to the tax-exempt 501(c)(3) organization.

 A tax-exempt organization may not even indirectly, through non-monetary means, act in a partisan political manner.  A Section 501(c)(3) organization that sells or rents its mailing list to other organizations must make the list equally available to all other candidates on the same terms.31  The Service states that, "[i]n determining whether the mailing list is equally available to all other candidates, it must be shown that all candidates were afforded a reasonable opportunity to acquire the list."32

Where an organization distributes fundraising letters coded with the terms "conservative" and "liberal" in a politically partisan manner, favoring one candidate over another, the fundraising letters constitute prohibited partisan political intervention.33  In one particular I.R.S. Memorandum, a tax-exempt organization's publication referred to the positive conservative progress of the last 3 1/2 years and warned readers that without their vote, liberals could reverse such progress.  Although the letter did not specifically mention President Reagan, the organization had previously indicated strong support of President Reagan and a strong dislike of Walter Mondale.  The Service advised that code-worded partisan political activity is still substantively partisan political activity, even if it arguably doesn't mention any specific candidate.

Likewise, in Christian Echoes National Ministry, a church's activities included radio and television broadcasts and wide-scale publications and distribution of pamphlets.34  The Service ruled that the church violated the prohibition on political intervention when it endorsed specific candidates and, more generally, attacked candidates and incumbents, "who it considered were too liberal."35  The facts and circumstances don't necessarily need to indicate bias for or against a specific candidates.  Rather, an implied attack on a grouping of like-minded candidates through popular terminology, such as liberal or conservative, factors into the facts and circumstance analysis.

It is safe to say that a majority of sources, both through I.R.S. publications and legal commentators' publications, endorse the view that subjective intent is immaterial.36  One group of commentators states that including subjective intent in political interventional analysis, "is not the law, never was the law, should not be the law, and could not be the law."37  The same commentators cite a 1993 I.R.S. Continuing Professional Education ("CPE") publication where the following question is posed to the Service,  "Does the motivation of an organization determine whether the political campaign contribution prohibition has been violated?"38  The CPE text answers, "No, the motivation of an organization is irrelevant when determining whether the political campaign prohibition has been violated."39  The same commentators further cite I.R.S. Technical Advice Memorandum 9635003, which involves a fundraising letter that supported some candidates and attacked others with the sole intent to fundraise for charitable purposes.40  There, the Service states, "the motivation of an organization is irrelevant when determining whether the political campaign prohibition has been violated."41

In Association of the Bar of New York, the Second Circuit Court of Appeals declined to take subjective intent into account when deciding whether the Bar Association had acted in a prohibited political manner.42  The Bar Association rated judicial candidates based on qualifications such as professional ability, experience, character and temperament in order to secure election of "qualified" candidates and prevent the election of unqualified candidates according to N.Y. Code of Professional Responsibility Ethical Consideration ("EC") 8-6.43  EC 8-6 states in part, that lawyers have a duty to aid in nominating and electing "qualified" judicial candidates, while preventing political considerations from playing an overweighted role in the election of judicial candidates.  However, the court notes that whatever the nonpolitical intentions of the Bar Association, a judicial candidate receiving "a 'not qualified' rating will derive little comfort from the fact that the rating may have been made in a nonpartisan manner."44

At least one commentator has written that objective, rather than subjective, intent should be incorporated into the political prohibition analysis.45  Gregory Colving, referencing earlier articles by other commentators, argues that the same tax-exempt organization, doing the same activities, should not be treated differently based simply on the motivation of the director, manager or founder.  Colving states that "[o]bjective manifestations of political purpose, not mere intimations of subjective intent, should violate and do violate Section 501(c)(3)."46

It seems apparent from the arguments of these various commentators that, at the very least, subjective intent would be very difficult to identify and enforce.  Further, without objective manifestations, who would (or could!) enforce the prohibition against subjective political intent?  At the end of the day, the I.R.S. and the majority of legal commentators have stated that subjective intent is irrelevant to determining prohibited political activity.  Tax-exempt organizations are wise to ensure that even if their subjective intent is political, their objective manifestations of intent must not be.

 As indicated earlier, the I.R.S. may revoke a 501(c)(3) organization's tax-exemption where the organization is not operated exclusively for a charitable purpose or where the organization's actions constitute political intervention.  However, more recently, Congress expanded the Services available responses to political intervention by adding less severe penalty options, in place of or in combination with, complete revocation of an organizations tax-exemption.  In an Election Year Issues publication, the I.R.S. stated:

Congress enacted I.R.C. 4955 [a new penalty tax] because it believed that the absence of any stricture other than revocation for violation of the prohibition on political campaign activity created two problems.  One was that the penalty of revocation was disproportionate to the violation in cases where the [political] expenditure was small, the violation was unintentional, and the organization subsequently had adopted procedures to assure that similar expenditures would not be made in the future.  The other was that, in some cases, revocation would be an ineffective remedy, particularly if the 501(c)(3) organization ceased operations after it diverted all of its assets to improper [political] purposes.  Therefore, I.R.C. 4955 applies to 501(c)(3) organizations whether or not their tax-exempt status is revoked.47

Section 4955 also includes taxes in addition to the initial tax structure already mentioned above.  The additional tax begins when the organization fails to correct a political expenditure within the taxable period.  Then, the additional tax equals 100% of the amount of the political expenditure.

The additional tax also effects management.  If, in any case of an additional tax on the organization, a manager refuses to agree to the correction of the political expenditure, the I.R.S. imposes a tax on that manager equal to 50% of the amount of the political expenditure.

The structure of Section 4955 seems to be targeted towards expenditures on traditional media such as radio, newspapers, magazines, and television, where cost correlates with media exposure.  The more the newspaper or radio advertisement costs, presumably the larger the audience and the larger the impact of the political expenditure.

However, in the Internet context, expenditures and results are not so proportionate.  In the context of the Internet, a tax-exempt organization with a web site can influence the political views of a large audience for little or no cost.  The Section 4955 tax would not effectively deter the offending organization's management from participating in prohibited political activity.  A small web page expenditure can make a big political impact, with little or no tax exposure for the organization's management.

It is important to note that the I.R.S. may revoke the tax-exempt status of the entire organization for flagrant violation of the political prohibition.  Unfortunately, in the Internet hyperlink context the manager that advised or consented to the political hyperlinks will not be penalized much, as mentioned above, while the organization may make the ultimate sacrifice in losing its tax-exempt status.

Web pages are created in Hypertext Markup Language ("HTML") Files.49  HTML allows a web page creator to edit a document in much the same way a person can edit a Microsoft Word document.  Within an HTML file resides the textual content of the web page.  The file also contains any of the page's hyperlinks in the form of unique addresses called Uniform Resource Locators or URLs, which are usually highlighted or underlined.  In this way, a person reading a web site knows that a link exists and may click on it, bringing the reader directly to the linked-to web page.
Arguably, hyperlinks are what make the Web as useful as it is today.  Certainly, without links, the Web could not be as interconnected and functional.  Without hyperlinks, a web user would need to physically type the destination URL into the address box at the top of the web browser.  Obviously, this scenario is much less functional and accessible than current hyperlink technology.

A person who clicks on a link may not know "where" the linked-to page is located.  Thus, the computer user who clicks on a link may not know if she is being sent to the URL within the same organization's web site or to another organization's web site.  To show the user the hyperlink destination, the organization producing the originating web site would have to directly state to the user that the hyperlink connects to an outside organization.  Otherwise, without other visual clues such as color or graphical design changes, the web user may not know the linked-to organization is different from the originating web site.
The characterization of hyperlinks is much debated because they are unique to the Internet and because such characterization has significant legal implications for those organizations who provide hyperlinks on their web page.  Hyperlinks can be characterized as a simple mailing address or phone number of a linked-to web page or more of an active and direct portal to other web pages and the organizations that create them.  This difference becomes more than academic when the I.R.S. imputes the political content of linked-to web pages to a tax-exempt organization.  The cases below show the importance of the hyperlink in the context of hyperlinking liability.

In a Federal Election Commission ("FEC") Advisory Opinion, the F.E.C. addressed a tax-exempt organization ("DNet") hosting a web site with a wide-scale political campaign education focus, including extensive hyperlinks.50  DNet's web site would provide hyperlinks to editorials, news services, and candidates' web sites.  DNet indicated that when they link to newspaper web sites, they would "make every effort, on a nonpartisan basis, to list a representative assemblage of local newspapers that have made endorsements in the relevant race, or, in the case of national candidates, to list a representative assemblage of large papers across the nation."51

In their analysis, the F.E.C. noted that DNet would not rate or score candidates on its web site or through its hyperlinks.  Nor would DNet endorse or expressly advocate for a candidate or a political party.  The F.E.C. states, "DNet will function in such a way that none of the statements made by candidates. . .can be imputed to DNet."52  Further, DNet's web site will be available to the general public and will not be marketed in a way that would encourage voting by a particular subsection of voters.  Therefore, the F.E.C. decided that such an interactive web site, containing nonpartisan political information and links to diverse political information, in a way that will not impute partisanship to the tax-exempt organization, would not violate the prohibition on contribution or expenditure in a federal political campaign.

 In 1998, according to the publication Tax Notes Today, a tax-exempt organization named Freedom Alliance lost its tax-exempt status for political intervention through Internet hyperlinking.53  In 1999 the I.R.S. reinstated the organization's tax-exempt status, as the report states, "based in part on your representation that you have taken steps to remove, from the Internet, the web site formerly maintained by you that among other things contains a link to a politically partisan organization."54  The report does not contain any further information as to whether other activities, in addition to the link, were important in the I.R.S.'s decision to initially revoke or subsequently reinstate tax-exempt status.

In this section, the analogy between Contributory Copyright Infringement and hyperlinking to political content is proposed and explained.  The resulting legal theory is newly proposed in this paper as Contributory Partisan Political Activity.  First let's discuss Contributory Copyright Infringement:  Contributory copyright infringement occurs when one organization knew or should have known that a second organization was directly infringing on a copyright and the first organization causes or materially contributes to the infringement of the second organization.55

In one copyright infringement case, the defendant was ordered by a court to remove infringing material ("Handbook") from their web site.56  The defendants removed the infringing material, but then subsequently posted hyperlinks to the Handbook, which was located on other web sites.  Further, the defendants then posted messages on their web site, which encouraged web viewers to click on the hyperlinks to view copies of the Handbook on the other web sites.  The court found that the linking site actively encouraged the infringement of plaintiff's copyright, constituting contributory infringement.  It was unimportant to the court that there was no direct relationship between defendants' enjoined web site containing the links and the linked-to sites containing the infringing material.

The law of contributory infringement is well developed outside of the Internet context.  In a music performance case a performance promotion association denied oversight of local theater performances.57  However, it promoted local performances through marketing and thereby helped create an audience for the performances.  Therefore, the promotion association was liable for contributory and vicarious infringement.  It was important to the court that the promotion agency, because it produced advertising and other brochures, was in a position to police the conduct of the infringing musicians.  An important distinction to make is that in vicarious copyright infringement, knowledge is unimportant.  Rather, because vicarious liability flows from the legal theory of respondeat superior, the performance promoters' ability to police, control, and benefit from the activity are the key factors before the court.

In the same music promotion case, however, the court held that the association was also a contributory infringer of the copyrighted work.  The court held the performance promotion association was liable for contributory copyright infringement because the Association knew, or should have known, of the infringing nature of the musical compositions.  Further, the court stated that one who knows or should have known of the primary infringement and "induces, causes or materially contributes to the infringing conduct of another, may be held liable as a 'contributory' infringer."58

Apparently, liability for contributory infringement through Internet hyperlinks does not reach beyond the first linked web site.59  In a U.S. District court case brought by the photographer and copyright holder of Elizabeth Taylor photographs, the photographer sought to hold J.C. Penny liable for contributory copyright infringement based on "multiple linking" from the companies' web site.  The defendant, J.C. Penny, promoted an Elizabeth Taylor line of perfume on the JC Penny web site, which was hyperlinked to the web site of Movie Database.  Movie Database was hyperlinked to the web site of the Swedish University Network ("SUNET").  The SUNET web site contained two of plaintiff photographer's copyrighted Elizabeth Taylor photographs.  The plaintiff photographer claimed that J.C. Penny was contributorily infringing on his copyrighted photographs by multiple linking with other sites.  Without elaboration or comment, the District Court granted defendant company's motion to dismiss for failure to state a claim.

 When a tax-exempt organization links to politically partisan material, the organization is acting analagously to a contributory copyright infringer.  Just like the contributory infringer who is held liable by materially contributing to copyright infringement through a hyperlink, a tax-exempt organization should be held accountable if they knew or should have known of partisan political content, which a web visitor reached via a hyperlink from the tax-exempt organization's web site.

 The Private Benefit legal theory was developed before the Internet, but the I.R.S. could easily apply this theory in the context of the Internet and hyperlinks.  In American Campaign Academy, the United States Tax Court held that the Academy, by operating as a school to train political campaign workers who then worked exclusively for Republican candidates, conferred a substantial secondary private benefit on the Republican Party and therefore was not operating for exclusively charitable purposes.60   According to the Court, "when an organization permits its net earnings to inure to the benefit of a private shareholder or individual, it transgresses the private inurement prohibition and therefore operates for a nonexempt private purpose."61

In that case, the Academy was developed by an association of Republican members of the United States House of Representatives and funded exclusively by the National Republican Congressional Trust.  The Academy "does not require that its admissions panel members be affiliated with a particular political party, but [the Academy] believes that a substantial number of the panel members are affiliated with the Republican party."62  There is no required political affiliation of students, but the court notes that the requirement of two political references on its student application effectively allows the admissions panel to deduce the party affiliations of prospective students.

The Academy argues that it has absolutely no control of where its students work after graduation and therefore lacks the ability to control "the conferral of secondary [private, non-charitable] benefits attributable to such employment."63  The tax court dismissed the Academy's lack-of-control argument, stating that the Academy "cites no compelling authority in support of its contention that non-incidental benefits must be controllable by the organization."64  Further, the court states, "[s]econdary benefits which advance a substantial [nonexempt] purpose cannot be construed as incidental to the organization's tax-exempt educational purpose" and therefore the organization is not operating exclusively for charitable purposes.65

For Illustration, let's return to the hypothetical tax-exempt organization ("Organization") at the beginning of this paper.  The Organization promotes awareness of environmental issues through environmental education of the public.  The Organization wishes to publish a web site, containing general environmental educational information available to the public via the Internet.  Further, the Organization's web page will contain hyperlinks to other environmental education web sites.  The following situations further describe the Organization's activities.  These four scenarios will highlight the legal implications of hyperlinks on the tax-exempt Organization's web site.

Scenario 1:  Hyperlinked Candidate List

The Organization wishes to educate visitors to its web site during a political campaign by providing a hyperlink to the web site of each political candidate.  The Organization lists the hyperlinks in alphabetical order by the candidate's last name.  The Organization adds a disclaimer above the hyperlinks stating that the Organization does not endorse any candidate and is providing the links only for the educational benefit of its web visitors.

With any tax-exempt organization political activity, apply the I.R.S. facts and circumstances test.  The facts and circumstances in this scenario, although based in the new context of the Internet, are very similar Revenue Ruling 86-95.  There, the Service held that a tax-exempt organization would not violate the political prohibition by hosting a nonpartisan political forum.  The organization proposed to hold candidate forums in congressional districts during congressional elections.  Every candidate would be invited and allowed equal opportunity to speak.  The moderators would not show bias in questions and would cover a broad range of topics.  The organization would state at the beginning and end of the forum that the organization's hosting of the forum does not constitute endorsement of any candidate.

Similarly, in Scenario 1, the Service would likely hold that the Organization would not violate the political prohibition.  The links could be characterized as equally representing the political candidates.  The presentation of the hyperlinks on the Organization's web site would be impartial to each candidate by listing the hyperlinks alphabetically and allowing every candidate's web page one hyperlink.

Importantly, each candidate would have control over her web page content, which would ensure a separation between the alignment of every candidate's position and the position of the tax-exempt Organization.  This is similar to the alignment of interest argument addressed in several other contexts, including a college newspaper publication.  In Revenue Ruling 72-513, the Service held that where a university provided faculty advisors and facilities for a student-run campus-newspaper, which expressed political views, the university was not participating in the partisan political activity because of the disalignment of interests between the university and the student writers.

It is important that the Organization would not be using its assets for the benefit of any one candidate or party.  In this case, the Organization's asset is the web page and hyperlinks.  Also, the Organization's web page has created an asset in the form of a viewing audience.  This Internet audience is analagous to an I.R.S. publication example, which commented on tax-exempt organizations and mailing lists.66  There, the Service stated that an organization will not violate the political prohibition by selling or renting its mailing list if it makes the list available to all candidates on equal terms.  Similarly, in this scenario, the Organization would allow each candidate equal access to its web page viewers by displaying each hyperlink in an equal, unbiased fashion.

One could argue that the web site of an environmental organization could not be as unbiased in presentation compared to an in-person forum hosted by an independent moderator.  However, in Revenue Ruling 80-282, the Service held that even though an organization listed its views along with the candidates voting record on selected issues, the organization did not breach the political prohibition.  It was important to the Service that the organization did not compare voting records or qualifications for office and did not expressly support or oppose any politician as a candidate.  Therefore, in Scenario 1, the Organization should be wary of conveying any indication of candidate bias.

The facts and circumstances test applies well to this Scenario, even though the Organization's activity takes place in the newer context of the Internet hyperlink.  In Scenario 1, the Organization wisely chose to make it clear to the web viewers that the hyperlinks do not indicate support or opposition to any candidate, but rather an equal opportunity for each candidate to express themselves to web viewers.

Scenario 2:  (Biased) Hyperlink Candidate List

Similar to Scenario 1, in Scenario 2 the Organization wishes to educate visitors to its web site during a political campaign by providing a hyperlink to the web site of each political candidate.  However, in Scenario 2, the Organization does not list the candidate hyperlinks in alphabetical order.  Rather, the Organization lists the candidates' hyperlinks according to a ranking system. As a result of the Organization's ranking system, candidates who have the same views as the Organization are listed at the top of the list.  Candidates whose environmental views are contrary to the Organization's environmental views are listed further down the list. The hyperlinks are accompanied by a written description of how the Organization regards the environmental stances of the particular candidate, including the environmental voting record of incumbent candidates.
Again, the I.R.S. facts and circumstances test is the starting point of political intervention analysis.  The fourth example in Revenue Ruling 78-248 is similar to the facts and circumstances in Scenario 2.  In that Revenue Ruling, the Service stated that where a tax-exempt organization widely distributed compilation of incumbents' voting records during a political campaign on selected environmental issues important to the tax-exempt organization, the organization has acted in a prohibited political manner.

Similarly, in Scenario 2, the Organization is posting opinions on each candidate's stances on a narrow set of select environmental issues.  The narrow scope of the Organization's voting record compilation indicates that the Organization may influence the electorate in a prohibited biased fashion on those environmental issues.

The Organization has listed the hyperlinks in a way that indicates and alignment of interests between selected candidates and the Organization.  In other alignment of interest fact patterns, the Service has ruled that where there is a separation between the alignment of interests, there is no political intervention.  Recall, for example, the case where a university allowed its students to work on political campaigns for two weeks.  The Service ruled that the university was not acting in a prohibited fashion because the alignment of interests was likely different between the students and the university.  However, recall that in Branch Ministries, the I.R.S. revoked the tax-exempt status of a church after the church published a full-page ad in two nationally circulated newspapers four days before a presidential election.

Scenario 2 is like the Branch Ministries case, because the Organization is aligning its interests with a narrow set of issues, in a widely distributed format, on the Internet, and timed to correlate with a political campaign.

Rating candidates is not allowed, even if done in an arguably nonpolitical fashion.  Recall, in Bar of the City of New York, the Bar Association rated judicial candidates based on nonpolitical factors such as professional experience and ability.  The court for the Second Circuit noted that a candidate receiving a "not qualified" rating will "derive little comfort from the fact that the rating may have been made in a nonpartisan manner."67  In ranking situations, it matters that candidates are favored by any criteria.  Therefore, in Scenario 2, where the Organization is both ranking and commenting on candidates' environmental views, it is clear that the Second Circuit would prohibit such activity.

How could the Organization have changed its hyperlinking activity to eliminate prohibited political intervention?  The Organization should consider the example set forth in Revenue Ruling 86-95, where an organization proposed several candidate forums in congressional voting districts during a congressional campaign.  The Organization should cover a wide range of topics, not just the issues important to the organization.  Also, the Organization should ensure that each hyperlink is presented in an unbiased fashion.

 Anything posted on the Web is available to everyone with an Internet connection.  Therefore, without password-protection, Web publications should be considered wide-scale distribution.  In Revenue Ruling 80-282, the Service held that a publication with a narrow issue focus combined with incumbent's voting records did not violate the political prohibition.  Important to the Service's analysis was the fact that the publication was only distributed to a few thousand, scattered readers, while the political election was local.  Therefore, the impact of the publication was negligible.  In Scenario 2 however, the Internet hyperlinks will reach an unidentifiable large audience across the globe.  It is uncertain how the Service would characterize the web audience in Scenario 2.

Scenario 3: Private Benefit Through Hyperlinks

The Organization is funded by several wealthy democrats.  In order to please their contributors and ensure future funding, the Organization only hires staff who are registered democrats.  Political affiliation is requested as part of the Organization's employment and volunteer application questionnaires.  The Organization's major activity is to update an organizational web site that educates the public about environmental issues.  The web site often contains links to sites containing politically partisan phrases such as "Democrats care for the environment" and "Conservatives love oil spills".  During elections, the Organization sets up a whole page of hyperlinks to partisan organizations biased toward democratic candidates.
In Scenario 3, application of the facts and circumstances test seems to show prohibited political intervention.  However, it may be more appropriate to apply Private Benefit theory to this fact pattern.

Again, first apply the facts and circumstances analysis.  In Scenario 3, the hyperlinks connect to political content both year-round and then increase quantitatively during political campaigns.  The facts and circumstances analysis suggests that the Organization is leaning toward political intervention more severely during political campaign times.  The fact that the organization links to partisan political organizations year-round should not mitigate the impact of the campaign-time hyperlinks.  In fact, the year-round hyperlinking to some partisan political content seems to indicate a definite year-round political bias.

 The Internet is a unique form of political information distribution because, unlike traditional media which often have a selectively focused distribution towards a city or geographic area, the Internet is available to everyone simultaneously.  One possible comparison to a traditional publication is to compare a web page to a national newspaper.  It may be important that the web site, unlike a national newspaper, is probably only viewed by like-minded web visitors.  Therefore, in effect, the Organization is likely focusing the hyperlink's political content not on the public generally but rather on a specific group of environmentalists who visit the Organization's web site.

It could be argued that hyperlinks are different because, as in this case, the partisan content is not controlled by the Organization.  Rather, the content is controlled by other, possibly totally unrelated, organizations.  However, this situation has similar characteristics when compared to the American Academy, a private benefit theory case.  Recall in that case, the tax-exempt organization was a political campaign management academy.  The school's funding was all from Republican sources, the school's instructors were all Republicans and the students worked for exclusively Republican candidates.  These facts showed that the purpose of the organization was private rather than public.  The Academy operated for the benefit of a private interest, the Republican party, instead of a charitable purpose.

In Scenario 3, likewise, all of the Organization's funding comes from Democratic sources.  All of the workers and volunteers are Democrats, as indicated on the their employment and volunteer questionnaires.  Further, many of the Organizations' web site hyperlinks connect to partisan political information.  These facts indicate that the purpose of the organization is not charitable, but rather political.  Therefore, similar to American Academy, the Organization is not operated exclusively for charitable purposes as required in Section 501(c)(3) and its tax-exempt status will likely be revoked.

Scenario 4:   Contributory Political Intervention Through Hyperlinks.

The Organization has only been in existence for a few months.  There is a presidential election in 9 months. In order to quickly create an informational web site for the public, the Organization hastily posted a document that contained partisan political content.  The document informed readers that anyone who considers themselves an environmentalist should not vote for a Republican in the upcoming election.  The document was widely distributed by web visitors and brought to the attention of the I.R.S.

 The I.R.S. asked the Organization to remove the partisan content and the Organization quickly removed the document.  Subsequently, the Organization posted a hyperlink on their web site along with a statement that the partisan document was now available at a second organizations' web site via the hyperlink.  The Organization had no connection with the second organization other than the hyperlink.  In fact, the second organization was not aware of the Organization's hyperlink to their web site.

The facts and circumstances test doesn't seem very effective in Scenario 4.  Even though the Organization would fit squarely into prohibited conduct before they removed the document from their web site, after removing the document and posting the hyperlink, things become more analytically challenging.  In fact, one could argue that after the Organization removed the partisan document, they were not politically partisan at all.  The Organization's web visitors, if anyone, were the ones clicking on the link to the partisan document.  Therefore, the Organization could argue, it was not acting in a politically partisan manner.  Fundamental to this argument is the idea of separating the Organization by one step from the partisan political content in order to prevent I.R.S. detection and the chance of losing tax-exempt status.

It is important to note that even though the Organization is not directly posting the prohibited political content, the political effect is not much different when the document is accessed via a hyperlink.  For this reason, the legal theory of contributory copyright infringement is applicable to Scenario 4.  In contributory copyright infringement, an organization knows or should have known of another's infringement and yet the organization contributes to or materially aids the infringement.
In Scenario 4, the Organization knew that the partisan document was prohibited.  However, the Organization arguably should have known that the document was prohibited political intervention even from the start, but the Organization definitely knew the document was prohibited after being contacted by the I.R.S.  By asking the Organization to take the document off of their web site, the Organization was explicitly put on notice that the document contained prohibited political content.  Then, by posting a hyperlink to the document and encouraging viewers to visit the linked-to site, the Organization was materially contributing to partisan political intervention.  Therefore, the Organization meets the criteria for liability under this author's proposed legal theory of Contributory Partisan Political Activity.  Under this proposed analysis, an organization that knowingly, materially contributes to partisan political content will still analytically fall within the 501(C)(3) prohibition of partisan political activity through hyperlinking.

Looking towards the future, there are competing interests at stake.  The letter and spirit of the political prohibition of 501(c)(3) organizations needs to be respected and enforced, but balanced with the limited resources available for the I.R.S. to monitor wide-scale web activity.  Further, tax-exempt organizations that are often stretching their resources, will be hard-pressed to diligently monitor the content of each hyperlink on their organization's web site.

 One future possibility is that irregular I.R.S. enforcement of the political prohibition on hyperlinks will lead to some organizations gaming the system.68  Some tax-exempt managers may take more risks by creating many politically partisan links on their organizations' web sites.  These managers are risk takers and are willing to risk the remote possibility that the I.R.S. will find out about the partisan political content of their hyperlinks.  Other, more risk-averse managers, who are understandably concerned about losing their organizations' tax-exempt status, will avoid hyperlinks altogether.

Each of these two extremes present policy problems.  The risk-taking organization may well be in violation of the partisan political prohibition, but who's looking?  The I.R.S. would have a very difficult administrative burden in monitoring the constantly changing online environment, consisting of millions of web sites and hyperlinks.  The Internet obviously changes much more quickly and easily than traditional newspaper and pamphlet publications.  Therefore, even if the I.R.S. did closely monitor the Internet to search for links to prohibited political content, the content may change before anything could be done about it.

It is important, when looking towards the future of political prohibition enforcement, to consider the application of current deterrents to political activity with respect to the context of the hyperlink.  One problem with the current Section 4955 statutory penalty formula is that it's directly related to the amount spent on political partisan publication.  This tax formula seems destined to be ineffective in deterring tax-exempt organizations and their managers because the cost of linking on a web page are miniscule.  Therefore, this tax formula has no bite and will not effectively deter politically partisan activity.  One possible solution would be to create a new remedy, beyond Section 4955, that could flexibly punish managers proportionately to their political activity without denying an entire organization its tax-exempt status.

Every tax-exempt organization with hyperlinks on their web site should institute a policy of hyperlink awareness.69  Such a policy would control the creation of hyperlinks on the organization's web site.  Under this policy, before a hyperlink is created, the organization's management would evaluate the linked-to page for current and potential political content.  In this process, the organization should document the content of what visitors will see when they click on hyperlinks and what the likelihood is that political content may be posted on the linked-to site in the future.  Further, the organizations' management would evaluate and document any political bias in the overall presentation of the organizations' hyperlinks.  The nonprofit organization should retain this documentation of linked site content and evaluation procedure for future use as a defense to accusations of politically partisan activity.

 In order to aid tax-exempt organizations' compliance with the political prohibition, the I.R.S. should publish more examples of acceptable and prohibited activity in the Internet, and specifically the hyperlink, context.  To this author's knowledge, the I.R.S. has not published any guidance in the area of political intervention through Internet hyperlinks.  Three years after I.R.S. Announcement 2000-84, the I.R.S. would do well to publish some guidance for the benefit of the tax-exempt community.

Obviously, the facts and circumstances test will continue to be a mainstay of the political prohibition analysis.  However, since the context of the Internet hyperlinks presents such new and different analytical problems, the I.R.S. may wish to consider other analytical frameworks in the hyperlink context, including the Private Benefit analysis and the Contributory Partisan Political Activity analysis, suggested in this paper.
Further, although the I.R.S. facts and circumstances test does not currently contain a safe harbor provision, it may be useful to create one in the hyperlink context.  Since there is an important public policy argument for helping nonprofit organizations educate the public about charitable and political issues, it is important that future I.R.S. enforcement of the political prohibition does not stop risk-averse organizations from posting educational hyperlinks from fear of losing their tax-exempt status.

 What would an I.R.S. safe harbor for hyperlinks look like?  In order to qualify for a political hyperlink safe harbor, the tax-exempt organization should be required, in their application for tax-exempt status, to agree to implement an organizational hyperlink policy.  The hyperlink policy would be enforced by management and contain provisions requiring the organization to, first, evaluate each hyperlink for political content and document that procedure, and second, evaluate and document the overall presentation of all hyperlinks to political content.  In cases where an organization's web page contains more than 100 links, the organization could be allowed to bypass evaluating each individual link and only evaluate the overall presentation of linking to political content.  Therefore, organizations that have a large number of links would not be forced into an overly detailed administrative burden.

 What would be the benefit of a safe harbor for political content?  The safe harbor provision would benefit both tax-exempt organizations and the I.R.S.  Tax-exempt organizations would have relative security in knowing that they would not lose their tax-exempt status because of hyperlinks to political content from their web site.  The I.R.S. would benefit because the safe harbor would lessen its administrative burden.  Cases involving less severe political intervention would not need to be prosecuted if they were covered by the safe harbor, making hyperlinking to political content cases less administratively burdensome.

1. 2000 IRB LEXIS 314; Announcement 2000-84.

2. 26 USCS § 501(c)(3) (2003)

3. Rev. Rul. 78-248.

4. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at http://www.irs.gov/pub/irs-tege/topici02.pdf.

5. Id. at 336.

6. Id. at 336-337.

7. Id.

8. 26 USCS § 501(c)(3) (2003)

9. United States v. Dykema, 666 F.2d 1096, 1101 (7th Cir. 1981).

10. 26 USCS § 501(c)(3) (2003)

11. United States v. Naftalin, 441 U.S. 768 (1979).

12. Id. at 773.

13. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 339, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

14. Id. at 339.

15. Rev. Rul. 78-248, at 1.

16. Id.

17. Id. at 1-2.

18. Id. at 2.

19. Id.

20. Rev. Rul. 80-282.

21. Id. at 2.

22. Rev. Rul. 86-95.

23. Id. at 1.

24. Rev. Rul. 72-512.

25. Rev. Rul. 72-513.

26. Branch Ministries v. Commissioner, Internal Revenue Service, 341 U.S. App. D.C. 166; 211 F.3d 137 (2000).

27. Id. at 140.

28. PLR 200151060.

29. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 367, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

30. PLR 200103084.

31. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 383-384, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

32. Id. at 383.

33. TAM 9117001.

34. Christian Echoes National Ministry, Inc., v. United States, 470 F.2d 849 (1972).

35. Id. at 856.

36. Motivation and prohibited political activity: Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 350, at http://www.irs.gov/pub/irs-tege/topici02.pdf; Frances R. Hill, "The Role of Intent in Distinguishing Between Education and Politics," see also 9 Journal of Taxation of Exempt Organizations 9 (July/Aug. 1997) ("the Service and the courts continue to rely on intent as a core element of tax jurisprudence in determining whether particular activities violate the political prohibition").

37. Jeffery L. Yablon and Edward D. Coleman, Intent is Not Relevant in Distinguishing Between Education and Politics, 9 Journal of Taxation of Exempt Organizations 156, at 156 (Jan/Feb 1998).

38. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 350, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

39. Id.

40. TAM 9635003.

41. Id. at 10.

42. The Association of the Bar of the City of New York v. Commissioner of Internal Revenue, 858 F.2d 876; 1988 U.S. App. LEXIS 13171.

43. N.Y. Code of Professional Responsibility EC 8-6, reprinted in N.Y. Jud. Law App. (McKinney 1975).

44. The Association of the Bar of the City of New York v. Commissioner of Internal Revenue, 858 F.2d 876, at 880; 1988 U.S. App. LEXIS 13171.

45. Gregory L. Colvin, Can a Section 501(c)(3) Organization Have a Political Purpose?, 10 Journal of Taxation of Exempt Organizations 40 (July/Aug. 1998).

46. Id. at 40.

47. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 338, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

48. Id. at 355.

49. Madeleine Schachter, Law of Internet Speech, 19 (2nd edition, Carolina Academic Press)(2002).

50. Advisory Opn. 1999-25, 1999 TNT 218-53 (FEC Rules Web Site Doesn't Violate Federal Election Campaign Act).

51. Id. at [6].

52. Id. at [17].

53. 1999 TNT 220-20.

54. Id.

55. Gershwin Pblishing Corporation v. Columbia Artists Management, Inc., 443 F.2d 1159; 1971 U.S. App. LEXIS 10051.

56. Intellectual Reserve, Inc. v. Utah Lighthouse Ministry, Inc, 75 F.Supp.2d 1290 (1999).

57. Gershwin Pblishing Corporation v. Columbia Artists Management, Inc., 443 F.2d 1159; 1971 U.S. App. LEXIS 10051.

58. Id. at 1162.

59. Gary Bernstein v. JC Penny, Inc., Elizabeth Arden, Inc., Parfums International, Unilever United States, Inc., Internet Movie Database, LTD., and Alcatel, 1998 U.S. Dist. LEXIS 19048.

60. American Campaign Academy v. Commissioner of Internal Revenue, 92 TC 1053 (1989).

61. Id. at 1068.

62. Id. at 1071.

63. Id. at 1078.

64. Id.

65. Id.

66. Kindell and Reilly, Election Year Issues, Exempt Organizations Continuing Professional Education Technical Instruction Program for FY 1993, (1992), at 383-384, at http://www.irs.gov/pub/irs-tege/topici02.pdf.

67. The Association of the Bar of the City of New York v. Commissioner of Internal Revenue, 858 F.2d 876, at 880; 1988 U.S. App. LEXIS 13171.

68. Richard J. Kovach, Bright Lines, Facts and Circumstances Tests, and Complexity in Federal Taxation, 46 Syracuse L. Rev. 1287 (1996); see also, Laura Brown Chisolm, Politics and Charity: A Proposal for Peaceful Coexistence, 58 Geo. Wash. L. Rev. 308 (1990).

69. Anderson and Wexler, Making Use of the Internet-Issues for Tax-Exempt Organizations, Journal of Taxation at 316 (May 2000) (Discussion of "Cyberlink vigilance").