Comments on IRS Announcement 2000-84 on the Need for Guidance
Clarifying the Application of Internal Revenue Code Provisions
to Use of the Internet by Exempt Organizations
February 2001 Contents | I | II | III | IV | V | VI III. General Issues - Does a website constitute a single publication or communication? If not, how should it be separated into distinct publications or communications?
The Need for Guidance We believe this question falls into Category Three (3). Some guidance would be helpful, but definitive guidance is not currently possible or advisable given the rapidly changing technology and uses of the Internet. Scope of the Question This question involves both "communications" and "publications." The term "communication" appears in the tax law in the context of lobbying and political activities. E.g., Treasury Regulation Section 56.4911-2(a)(2) defines "direct lobbying communication" and "grass roots lobbying communication." The question regarding "publications" may be relevant in the UBIT context. Whether a website constitutes a single or multiple publications may bear on the allocation of expenses and calculation of net unrelated business income, and on the analysis under the Section 513(i) corporate sponsorship rules. The issue may also affect expense allocation between entities (e.g., in the case of related organizations sharing a website). Current Authority We know of no existing legal precedent that one might apply to the question of whether a website constitutes one or more communications publications. Recommendations With respect to communications, we believe that a website may encompass multiple communications, and have addressed this issue below in the context of political and lobbying activities. See in particular the analysis regarding a "call to action" in the context of grass roots lobbying, at IV.E. With respect to publications, a website may comprise multiple publications, depending on the facts and circumstances. We recommend that the IRS publish a list of factors that bear on this determination. No single factor should be dispositive, and the list should be subject to change as circumstances and technology change. Factors might include: the overall feel and flow of the website; whether a website or a portion of the site is intended to represent the electronic version of one or more existing publications printed on paper; whether a portion of a site has a separate editorial staff; whether a portion of a site has the look and feel of a separate publication; whether a portion is updated separately from the rest of the website; whether portions of the site are produced by different sets of individuals with little or no cooperation (e.g., a university’s biology department page and its athletics department page on the same site); whether a portion of the site has limited access, e.g ., to members or subscribers only; the substantive nature of different portions of a website (related or unrelated); and the overall size of the website. An organization should be able to determine in good faith whether its website constitutes one or multiple publications. Some organizations may have considered this question for reasons other than tax purposes, for example, when making staffing decisions or when determining standards for style and content on different parts of a website. Therefore, we suggest that the IRS adopt and state a position that it will generally respect an organization’s good-faith determination on this question. - When allocating expenses for a website, what methodology is appropriate? For example, should allocations be based on webpages (which, unlike print publications, may not be of equal size)?
The Need for Guidance We believe that this question falls into Category Four (4). The use of the Internet is incidental to larger substantive issues, the substantive issues are themselves in need of administrative interpretation, and the specific circumstances of the use of the Internet should be addressed only as part of more comprehensive guidance on the underlying substantive issues. As discussed below, we believe that the only guidance appropriate at this time is an acknowledgment that expenses should be allocated on a reasonable basis. Scope of IRS Question Exempt organizations have various reasons for needing to allocate expenses relating to the creation and maintenance of a website, just as they do other expenses. In addition to calculating UBIT, these reasons might include situations where related organizations share staff who create and maintain their sites, as well as organizations that have made the Section 501(h) election and are dividing website content into lobbying and non-lobbying materials. They might also include non-tax reasons, e.g., the need to allocate expenses to different internal project accounts. Existing Authority There is little existing law on this topic. The Treasury Regulations on UBIT offer limited guidance. Treasury Regulation Section 1.512(a)-1(c) provides that in the case of the dual use of facilities or personnel, expenses shall be allocated between the two uses "on a reasonable basis." One example in the regulations makes clear that a reasonable basis would include allocations based on an approximation of time spent on a given activity. Treas. Reg. § 1.512(a)-1(c). See also Rensselaer Polytechnic Institute v. Commissioner, 732 F.2d 1058 (2d Cir. 1984) (allocation based on time is acceptable). Note, however, that another example given in the Treasury Regulations glosses over what method might be used to allocate salaries of personnel who carry on both exempt and non-exempt activities: "Such deductions (against unrelated taxable income) include the costs of…the salaries of personnel used full-time in the unrelated business activity and an allocable portion of the salaries of personnel used both to carry on exempt activities and to conduct the unrelated business activity." Treas. Reg. § 1.512(a)-1(e) (emphasis supplied). Recommendations We suggest that the IRS explicitly acknowledge that the "reasonable basis" rule of Treasury Regulation Section 1.512(a)-1(c) applies to the allocation of expenses between exempt and non-exempt Internet activities. Accordingly, costs could be allocated based on staff time, on webpages, or on any other method that is reasonable in a particular situation. It should be up to the organization to determine in good faith whether a method is reasonable in a particular instance. For example, as the IRS notes in posing this question, webpages may not always be the same length. There may also be great variations in the amounts of time, effort and expense devoted by the exempt organization to particular webpages. If the difference in the lengths or content of webpages for a specific website renders unreasonable the use of webpages as the basis for cost allocation, then another method should be used. For allocation of expenses for purposes other than dividing exempt from non-exempt activities, we suggest that the IRS take no action at this time, as there is not sufficient guidance for such allocation of non-Internet-related activities. - Unlike other publications of an exempt organization, a website may be modified on a daily basis. To what extent and by what means should an exempt organization maintain the information from prior versions of the organization’s website?
The Need for Guidance This question falls into Category One (1). Existing guidance under current law can be applied in the Internet context. Existing Authority Section 6001 requires taxpayers to keep such records as Treasury may prescribe. The Treasury Regulations at Section 1.6001-1(c) require organizations that are exempt from tax under Section 501(a) to keep books and records sufficient to show the organization’s items of gross income, receipts and disbursements, and to substantiate the information required for the organization’s Form 990 or 990PF. An organization must also keep books and records sufficient to establish the amount of gross income, deductions, credits, and other items necessary to calculate UBIT on Form 990T. No specific form is required for the records. Recommendation We recommend that the IRS not impose any requirement that exempt organizations maintain either electronic or paper versions of their websites. Particularly in the Internet context, any specific rules regarding records retention would be unrealistic and unduly burdensome on exempt organizations, which generally do not retain copies of all versions of all website pages. We believe, in fact, that the nature of a website provides a built-in incentive for an organization to comply with applicable rules and regulations, whether related to lobbying, political activity, commercial activities or the carrying out of exempt function activities. An organization has no way to monitor closely who is accessing its site on a regular basis and no way to know who is downloading and storing website content, or email or other Internet communications for future reference, and therefore has an interest in maintaining such records itself. Many organizations do retain outdated versions of portions of their websites for archival purposes, and doing so may constitute good business practice. Organizations should not be specifically required to do so, however, beyond what is currently required under the existing regulations. - To what extent are statements made by subscribers to a forum, such as a list serve or news group, attributable to an exempt organization that maintains the forum? Does attribution vary depending on a level of participation of the exempt organization in maintaining the forum (e.g., if the organization moderates discussion, acts as editor, etc.)?
Background The Internet makes it possible for exempt organizations to host electronic discussions among multiple Internet users around the globe in many different forms. A list serve or newsgroup works by sending a mass email to all members of the list every time a message or update is posted. See generally Catherine E. Livingston and Amy R. Segal, "Tax-Exempt Organizations and the Internet," Part 1, The Practical Tax Lawyer, Winter 2000, at 47. Members can respond by sending an email to the entire list or by responding to another individual list participant. A chat room is an electronic exchange in real time in which users post comments intended for all others in the chat room at that time to read. Other users can respond in the same manner as if engaged in a conversation. A bulletin board allows users to post messages that can be read by other users at that time or by others reviewing the bulletin board at a later time. While list serves, newsgroups, chat rooms, and bulletin boards have many similarities to traditional public debates or forums, there are some significant differences. While a public forum lasts for a discrete period of time, an electronic discussion can take place over an extended period. In addition, unlike in the case of typical traditional public forums sponsored by an exempt organization, there may not be any moderator or editor overseeing the comments made in an on-line forum. Nevertheless, these distinctions should not result in a harsher rule regarding attribution of statements of participants being applied to Internet forums than to traditional forums. As a general rule, statements made by persons who are not authorized to speak on a tax-exempt organization’s behalf should not be attributed to the organization. The Need for Guidance We believe that this type of attribution issue falls into Category Two (2); that is, it is an area where guidance can and should be provided at this time regarding the manner in which current law applies in the Internet context. While existing guidance regarding attribution of statements arises in the context of lobbying and political activities, and those are the areas most likely to create problems for organizations in an on-line context, we believe that many of the same principles can be applied logically in determining whether any statement made as part of an on-line forum should be attributed to an exempt organization. Existing Authority The presentation of public lectures, forums, or debates is an established method of educating the public. Rev. Rul. 66-256, 1966-2 C.B. 210. The IRS has ruled in several contexts that a Section 501(c)(3) organization can host a forum or debate or permit its facilities to be used for forums or debates without having statements made by speakers using the facilities be attributed to the charity. For example, Revenue Ruling 86-95, 1986-2 C.B. 73, provides that an organization conducting public forums involving candidates for public office held for the purpose of educating and informing the voters did not engage in impermissible political intervention where the treatment of the candidates is fair and impartial, the moderator does not comment on the questions posed to the candidates or imply approval or disapproval of any of the candidates, and the moderator provides a disclaimer at the beginning and end of each forum stating that the views expressed are those of the candidates and that sponsorship of the forum is not intended as an endorsement of any candidate. Similarly, in Revenue Ruling 74-574, 1974-2 C.B. 160, the IRS ruled that statements made by political candidates would not be attributed to a broadcasting station where the station made free air time equally available to all legally qualified political candidates, provided disclaimers as part of each broadcast, and offered no endorsement of any candidate. The IRS also has ruled that a university’s provision of facilities and support to a campus newspaper that takes positions on candidates for public office or its offering of a political science course that requires students to work on political campaigns of their choice will not result in the acts of those participating in political activities being attributed to the university. See Rev. Rul. 72-512, 1972-2 C.B. 246; Rev. Rul. 72-513, 1972-2 C.B. 246. None of these rulings require the organization to engage in any form of censorship in order to avoid attribution of statements to the organization; the organizations involved are simply required to be fair and neutral in their treatment of those participating in the forum or using the organization’s facilities. With respect to attribution of statements or actions of persons other than officials of an organization, the IRS has stated informally that, "there must be real or apparent authorization by the Section 501(c)(3) organization of the actions of individuals…before the actions of those individuals will be attributed to the organization" for purposes of the political campaign prohibition. Judith E. Kindell & John F. Reilly, "Election Year Issues," 1992 Exempt Organizations Continuing Professional Education Technical Instruction Program Textbook ("1992 CPE Text"), at 436. The 1992 CPE Text further provides that "[a]cts of individuals that are not authorized by the IRC 501(c)(3) organization may be attributed to the organization if it explicitly or implicitly ratifies the actions." Id. With respect to the actions of an individual official, the 1992 CPE Text states that the determination of whether the act of an individual will be attributed to a Section 501(c)(3) organization is based on relevant facts and circumstances. Id. at 435. Recommendations A forum’s occurrence over the Internet rather than in an auditorium or through broadcast media should not affect its qualification as an educational activity if it otherwise qualifies as such; nor should it affect the IRS’s analysis of whether statements made by those participating in the forum should be attributed to the organization maintaining the forum. As stated above under "Broad Principles," we believe it is critical that the IRS not interpret the tax law in a manner that inhibits exempt organizations’ use of the Internet. Consequently, we recommend that the IRS issue guidance that establishes the following two principles. First, organizations should not be obligated to monitor or edit statements posted as part of an on-line forum. Second, the determination of whether the statement of a participant in an on-line forum should be attributed to the organization should be based on relevant facts and circumstances. Consistent with these principles, we suggest that, as a general safe harbor, the IRS provide that if (1) an organization provides a disclaimer that clearly states its editorial and/or monitoring policy with respect to an Internet forum and that statements made by those participating in the forum are the views of the participants and not of the organization, and (2) the organization implements consistently its stated editorial/monitoring policy, then statements made by participants generally will not be attributed to the organization. We have provided some scenarios that may be helpful in formulating guidance on this issue. Scenario 1. An organization chooses not to monitor or edit an on-line forum it established and posts a disclaimer at the beginning of the forum stating that it does not monitor or edit the forum and that all statements made by those participating in the forum are the views of the participants. Assuming this policy is followed consistently, statements made by participants will not be attributed to the organization. The IRS may want to provide examples of disclaimers that it considers appropriate in this context. Scenario 2. An organization chooses to monitor an on-line forum solely for programmatic or civility purposes (e.g ., to ensure that the discussion remains focussed or to remove obscenities, racist statements or other inappropriate content) and not for purposes of editing statements with lobbying or political content. For example, a health-care organization establishes a bulletin board devoted to exchanging information about Tuberculosis, which is monitored by a health-care professional who is familiar with issues related to Tuberculosis, but who is not qualified to determine whether a statement would constitute lobbying or political activity under Section 501(c)(3). The organization posts a disclaimer explaining its editorial policy and that statements made by participants that might constitute lobbying or political activity are strictly the views of the participant should not be attributed to the organization. Assuming that the organization follows its editorial policy in a consistent and unbiased manner, the organization should not be held responsible for lobbying or political activities statements made by participants. Scenario 3. If an organization chooses to edit or monitor its on-line forum in order to remove statements that might constitute lobbying or political activities, the organization should follow the principles established by existing guidance. Specifically, moderators or editors should be non-partisan and independent and treatment of those participating in the forum must be even-handed and neutral. If the organization fails to follow these guidelines in a reasonable and diligent manner, statements of participants could be attributed to the organization based on a facts and circumstances analysis. Organizations should be permitted to use any reasonable method to screen comments made as part of forum, although the IRS may want to provide some specific examples of screening techniques it considers to be reasonable. The Need for Guidance on a Related Issue We would like to bring to the attention of the IRS the need for guidance on an issue that is related to the attribution issue addressed above. Some Section 501(c)(3) organizations have expressed concern about the extent to which statements (particularly statements that could constitute participation or intervention in a political campaign) made by employees or others associated with the organizations (e.g., students) using Internet email accounts provided by the organization or websites that are linked to the organization’s website could be attributed to the organization. In this context, unlike in the question posed in IRS Announcement 2000-84, the statements in question do not arise as part of a forum established or maintained by the organization. Rather, the employees or others with access to the organization’s email accounts or linked websites are using the organization’s facilities in a manner that is not directly sponsored by the organization itself. While such use may be permitted generally by the organization, the organization would not authorize the specific statements that are posted or disseminated. For example, students, faculty or staff may, in a non-classroom context, use their university-provided email accounts to send messages containing statements that would constitute political activities to hundreds of people who may or may not be associated with the university. Organizations are concerned both that such statements might be attributed to the organization, and, at the same time, that their adoption of policies that would prohibit this type of use of the organizations’ Internet facilities would run afoul of the First Amendment. We recommend that the IRS issue guidance providing that there is no attribution of statements made by employees or others in this context unless there is evidence that the organization encouraged or directed the activity.
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