IRS Considers Regulating Internet Speech

(October 26, 2000) The IRS released a document stating that it is considering whether to issue guidance regarding the application of the Internet Revenue Code to various types of Internet communications by tax exempt entities.

The Internal Revenue Service (IRS) released a document titled "Internal Revenue Service Announcement 2000-84" which solicits comment from the public regarding application of the Internal Revenue Code to Internet activities of tax exempt entities, such as charities and think tanks. The questions asked by the document include:

"Does providing a hyperlink on a charitable organization's website to another organization that engages in political campaign intervention result in per se prohibited political intervention?"

"To what extent are statements made by subscribers to a forum, such as a listserv or newsgroup, attributable to an exempt organization that maintains the forum?"

The IRS document states that "Exempt organizations use the Internet to carry on activities that otherwise can be conducted through other media, such as radio or television broadcasts, print publications, or direct mailings. The growing use of the Internet by exempt organizations raises questions regarding whether clarification is needed concerning the application of the Code to Internet activities."

This request for comments is very similar to a Notice of Inquiry issued by the Federal Election Commission in November 1999. In that matter, the FEC sought public comment on whether such things a hyperlinks and discussion forums on web sites brought the operators of those web sites within the regulatory purview of the FEC.

The FEC Notice of Inquiry was issued, in part, because an attorney connected to the presidential campaign of Gov. George W. Bush filed a complaint with the FEC against an individual named Zach Exley, who operated a web site that was critical of Bush. The complaint alleged that Exley violated the federal election laws by not filing periodic campaign expenditure or contribution reports with the FEC.

The FEC received over 1,000 public comments in response to its Notice of Inquiry. Almost all stated that the FEC should not regulate Internet speech. As a result of these comments, the FEC took no further action. It also issued a no action letter in the Exley matter.

The IRS document does not list any events which gave rise to its issuance. However, during the Clinton administration, as during the Nixon administration, the IRS has had a record of disproportionately auditing groups and individuals who criticize the President. Many of these groups now also operate web sites.

Rep. Dick Armey (R-TX)

House Majority Leader Dick Armey (R-TX) condemned the IRS's request for comments. "The IRS has no business getting involved in whether a think tank has links on its website, or how often a charity's site is updated. The idea of turning the tax man into a net cop would have a chilling effect on free speech on the Internet."

"I'm glad the agency has not taken any regulatory action yet," said Rep. Armey. "But let's be clear about this. We will be watching what they do, and we will not tolerate any backdoor attempt to regulate the Internet."

Rep. Armey has also recently condemned the lax privacy practices of government operated web sites. He singled out the IRS web site for collecting personal information about web site visitors.