knowing violation of law.3 In fact, such a finding would be directly contradicted by the findings in the Statement of Alleged Violation itself. The Statement of Alleged Violation notes that tax counsel retained by the Investigative Subcommittee and tax counsel retained by Respondent disagree regarding whether the activities at issue constitute a violation of the tax-exempt organizations' section 501(c)(3) status. The only clear conclusion from the findings and the testimony before the Investigative Subcommittee is that there is no clear answer. In the absence of a clear answer, there could be no knowing violation of law. Although there appears to be no precedent for it, the issue then becomes whether there is a violation when a Member is actually aware that the law is unsettled, but nonetheless proceeds with the activity with knowledge that a public controversy may ensue, resulting in discredit to the House of Representatives. In this case, the hindsight conclusions of the tax counsel who appeared before the Investigative Subcommittee are that any counsel presented with the facts alleged in the Statement of Alleged Violation "would have advised that it not be conducted under the auspices of an organization exempt from taxation under section 501(c)(3) of the Internal Revenue Code." (S.A.V., 15, 40). After two years of public controversy driven largely by interests totally unrelated to the tax-exempt status of the organizations, the tax attorney's position is a relatively obvious conclusion for attorneys operating with the benefit of hindsight. Respondent's conduct must, however, be 3 In fact, qualified tax experts in the field have concluded that there has been no violation of federal tax law. Highly regarded 501(c)(3) expert William J. Lehrfeld concluded there is no violation of federal tax laws. See, Exhibit E. James P. Holden of the law firm of Steptoe & Johnson reached the same conclusion. See, Appendix C. 4 See, infra p. 35-43. evaluated in the real world, real time context of what was the generally accepted practice in 1993 when the course was established. The Use of Charitable Funds in Support of Nonpartisan Political Education First, the Respondent's activities were not inconsistent with clear federal tax law in the opinion of all tax practitioners at the relevant time. The practice in the real world at the time was that the conduct engaged in by Respondent was in accord with the conduct of many well-advised contemporary charitable educational entities, the comment of legal scholars, and the practice of other Members of Congress. Nonprofit organizations, to qualify for tax exempt status, must satisfy the basic criteria established by section 501(c)(3) of the Internal Revenue Code ("IRC" or "the Code"), regulations promulgated thereunder, judicial interpretation of the law and its regulations, Internal Revenue Service ("IRS") Revenue Rulings, IRS Letter Rulings, tax notices, and the various other means such as IRS press releases and announcements by which citizens can attempt to anticipate IRS interpretation of their conduct under the law. Section 501(c)(3) and the Regulations Promulgated Thereunder In essence, section 501(c)(3) of the Internal Revenue Code provides that entities must satisfy several basic criteria to qualify for exempt status. First, the entity must be “organized and operated exclusively for" one or more of several enumerated charitable, religious or educational purposes;❜ IRC section 501(c)(3) identifies these qualifying entities as: "[c]orporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention second, "no part" of the net earnings of the entity may inure to the benefit of any private shareholder or individual; third, "no substantial part of the activities" of that entity may be "carrying on propaganda, or otherwise attempting to influence legislation"; and fourth, the entity must not "participate in, or intervene in..., any political campaign on behalf of (or in opposition to) any candidate for public office." IRC § 501(c)(3). The legislative history of the campaign intervention rule reflects the difficulties practitioners have encountered in applying these provisions. This provision of the Code was added to the federal tax law when then-Senator Lyndon B. Johnson offered the provision by way of a floor amendment to the Revenue Act of 1954 without congressional hearings out of concern that funds provided by a charitable foundation had been used to finance the campaign of a primary opponent. B. Hopkins, The Law of Tax-Exempt Organizations, p. 327 (6th ed. 1992); Lobbying and Political Activities of Tax-Exempt Organizations: Hearings before the Subcommittee on Oversight of the House Committee on Ways and Means, 100th Cong., 1 Sess. 19-20, 423 (1987) (Statements of Bruce Hopkins, Baker & Hostetler and the United States Catholic Conference). In offering the amendment, Senator Johnson stated that the purpose of the amendment was to "den[y] tax exempt status to not only those people who influence legislation but also to those who intervene in any public campaign on behalf of any candidate for any public office." 100 Cong. Rec. 9604 (1954). Section 1.501(c)(3)-1 of the Income Tax Regulations ("the Regulations") marked a retreat from the "exclusively for" language of section 501(c)(3) by providing that “[a]n organization will be regarded as 'operated exclusively' for one or more exempt purposes only if it engages primarily of cruelty to children or animals, . . ." IRC § 501(c)(3). in activities which accomplish one or more of such exempt purposes specified in section 501 (c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose." 26 C.F.R. 1.501(c)(3)-1(c)(1). Thus, contrary to the language of section 501(c)(3), the IRS has indicated that conduct not consistent with articulated exempt purposes will not jeopardize exempt status as long as such conduct constitutes only an "insubstantial part" of its overall activities. Id. The Regulations further provide that an entity will not be regarded as being operated exclusively for exempt purposes if it satisfies the IRS' definition of an “action” organization. 26 C.F.R. 1.501(c)(3)-1(c)(3). An “action" organization is defined as one that devotes “a substantial part of its activities [to] attempting to influence legislation by propaganda or otherwise." 26 C.F.R. 1.501(c)(3)-1(c)(3)(ii). Likewise, “[a]n organization is an 'action' organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office." 26 C.F.R. 1.501(c)(3)-1(c)(3)(iii). Application of Revenue Rulings Applying 501(c)(3) and its Regulations In 1978, the IRS issued a Revenue Ruling revoking a prior such ruling to hold that "[c]ertain 'voter education' activities conducted in a nonpartisan manner by an organization recognized as exempt under section 501(c)(3) of the Code will not constitute prohibited political activity disqualifying the organization from exemption.” Rev. Rul. 78-248, 1978-1 C.B. 154. According to the IRS ruling, the determination of whether an organization is participating or intervening in a political campaign as proscribed by regulation 1.501(c)(3)-1(c)(3)(iii) “depends upon all of the facts and circumstances of each case." Id. Revenue Ruling 78-248 then sets forth four hypothetical “situations" describing activities which the IRS deemed to be either permitted or prohibited under 37-264 97-6 501(c)(3). Ultimately, the factual analysis provided by the IRS with respect to each situation was whether, under the specific facts of the hypothetical, the activities "evidenced a bias or preference" with respect to the views of the entity towards issues, a candidate or a group of candidates. Id. Two years later, the IRS applied Revenue Ruling 78-248 to conclude that an entity's publication of a newsletter reporting Congressional voting records did not violate the entity's tax exempt status. Rev. Rul. 80-282, 1980-2 C.B. 178. The IRS so held, notwithstanding its conclusion, that "the format and content of the publication are not neutral, since the organization reports each incumbent's votes and its own views on selected legislative issues and its own views on selected legislative issues and indicates whether the incumbent supported or opposed the organization's view." Id. The IRS based its ruling on a factual conclusion that "the organization will not widely distribute its compilation of incumbents' voting records... [and that n]o attempt will be made to target the publication toward particular areas in which elections are occurring nor to time the date of publication to coincide with an election campaign." Id. Accordingly, the IRS opined, the issues presented in Revenue Ruling 80-282 presented sufficient factual distinctions from the hypothetical prohibited situations set forth in Revenue Ruling 78-248 to permit the IRS to conclude that this entity's proposed activities, “in the manner described above, will not constitute participation or intervention in any political campaign within the meaning of section 501(c)(3).” Id. Effect of the IRS' Fact-Based Analysis on Public Behavior As a consequence of the IRS' indications that it would apply fluid, fact-specific analysis to charitable efforts to educate the public on political matters, the late 80's and early 90's marked a period of wide-ranging opinion among tax practitioners as to the extent that political education by charitable entities would be permitted by the IRS. Specifically, this period marked an era when tax |