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Web rules eyed – Scrutiny of tax-exempt status

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Some nonprofits fear they could undergo Internal Revenue Service audits and even lose their tax-exempt status because of their online activities, The New York Times reported Feb. 12.

Charities have raised concerns in response to an IRS request for public comment about online fundraising, a move that could lead to the agency issuing formal guidelines on applying tax laws to the Internet, the Times said.

A key issue addressed during the public comment period, which ends Feb. 13, is whether nonprofits’ Web activities could break federal rules barring politicking and sheltering business income.

The law gives charities a limited right to try to influence law-making but prohibits them from endorsing candidates, Judith E. Kindell, a tax law specialist in the exempt organizations division of the IRS, told the Times.

Charities, however, aren’t clear whether linking to the Web sites of political campaigns could be considered to be endorsements.

Charities also aren’t sure whether Web activities could push them past legal limits on how much money they can spend on lobbying.

The IRS also questions whether income that charities receive through sales resulting from referring visitors to commercial Web sites should be taxable, the Times said.

“They write rules that make life miserable for the small person,” Putnam Barber, president of the Evergreen State Society, a one-person nonprofit in Seattle that works on state nonprofit policies, told the Times.

Complicated rules could keep charities from online activities if they can’t afford lawyers, he said, suggesting that the IRS issue simple guidelines on Internet activities.

Kindell of the IRS told the Times that the agency aims to find ways to apply existing laws, not to create new regulations.

For full story, go to The New York Times.

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