http://www.techlawjournal.com/agencies/irs/internet/20001016.asp

Internal Revenue Service Document.
Re: Regulation of Speech on the Internet.
Date: October 16, 2000.
Source: Office of Rep. Dick Armey (R-TX).

Editor's Notes:
 . Tech Law Journal obtained this document via e-mail from the Office of the
House Majority Leader (Rep. Armey). Tech Law Journal could not find
publication of it in the Federal Register, or the IRS web site.
 . The IRS has not returned many phone calls from Tech Law Journal.
 . See also, Tech Law Journal story of October 26, 2000.


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Internal Revenue Service
Announcement 2000-84
October 16, 2000

The Internal Revenue Service is considering the necessity of issuing
guidance that would clarify the application of the Internal Revenue Code to
use of the Internet by exempt organizations. Accordingly, the Service is
soliciting public comment concerning the application of Code provisions
governing exempt organizations to activities they conduct on the Internet.
The Service has made no final decision concerning the need for additional
guidance of general applicability and may conclude no further action is
necessary.

BACKGROUND

Exempt organizations, like other organizations, are increasingly turning to
the Internet to carry on their activities. By publishing a webpage on the
Internet, an exempt organization can provide the general public with
information about the organization, its activities, and issues of concern to
the organization, as well as immediate access to websites of other
organizations. An exempt organization can provide information to subscribers
about issues of concern to the organization as well as enable people with
common interests to share information via the Internet through a variety of
methods (such as mailing lists, news groups, listserves, chat rooms, and
forums).

GENERAL ISSUES

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. The questions include the following:

Does a website constitute a single publication or communication? If not, how
should it be separated into distinct publications or communications?
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)?
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?
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? Does attribution vary depending on the level of participation of
the exempt organization in maintaining the forum (e.g., if the organization
moderates discussion, acts as editor, etc.)?
POLITICAL AND LOBBYING ACTIVITIES

Charitable organizations described in section 501(c)(3) may not intervene in
political campaigns and may only attempt to influence legislation as an
insubstantial part of their activities. If the charitable organization makes
an election under section 501(h), an expenditure test is applied in
determining whether the organization has engaged in substantial lobbying
activities, with different limits applicable for direct and grassroots
lobbying.

When a charitable organization engages in advocacy on the Internet,
questions arise as to whether it is conducting political or lobbying
activity, and if so, to what extent. This situation is further complicated
by the affiliation of charitable organizations with other organizations
engaging in political or lobbying activities on the Internet. The ease with
which different websites may be linked electronically (through a
"hyperlink") raises a concern about whether the message of a linked website
is attributable to the charitable organization. The Service is considering
whether clarification is needed on how to apply the prohibition on political
campaign intervention and substantial lobbying activity for charitable
organizations engaging in activities on the Internet. Questions include the
following:

What facts and circumstances are relevant in determining whether information
on a charitable organization's website about candidates for public office
constitutes intervention in a political campaign by the charitable
organization or is permissible charitable activity consistent with the
principles set forth in Rev. Rul. 78-248, 1978-1 C.B. 154, and Rev. Rul.
86-95, 1986-2 C.B. 73 (dealing with voter guides and candidate debates)?
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? What facts and circumstances are
relevant in determining whether the hyperlink constitutes a political
campaign intervention by the charitable organization?
For charitable organizations that have not made the election under section
501(h), what facts and circumstances are relevant in determining whether
lobbying communications made on the Internet are a substantial part of the
organization's activities? For example, are location of the communication on
the website (main page or subsidiary page) or number of hits relevant?
Does providing a hyperlink to the website of another organization that
engages in lobbying activity constitute lobbying by a charitable
organization? What facts and circumstances are relevant in determining
whether the charitable organization has engaged in lobbying activity (for
example, does it make a difference if lobbying activity is on the specific
webpage to which the charitable organization provides the hyperlink rather
than elsewhere on the other organization's website)?
To determine whether a charitable organization that has made the election
under section 501(h) has engaged in grass roots lobbying on the Internet,
what facts and circumstances are relevant regarding whether the organization
made a "call to action"?
Does publication of a webpage on the Internet by a charitable organization
that has made an election under section 501(h) constitute an appearance in
the mass media? Does an email or listserv communication by the organization
constitute an appearance in mass media if it is sent to more than 100,000
people and fewer than half of those people are members of the organization?
What facts and circumstances are relevant in determining whether an Internet
communication (either a limited access website or a listserv or email
communication) is a communication directly to or primarily with members of
the organization for a charitable organization that has made an election
under section 501(h)?
ADVERTISING AND OTHER BUSINESS ACTIVITIES

Many exempt organizations receive payment from companies to display
advertising messages on the organization's website. Some exempt
organizations have banners on their websites containing information about
and a link to other organizations in exchange for a similar banner on the
other organizations' website.

Exempt organizations may also provide hyperlinks on their websites to
companies that sponsor their activities. Some organizations receive payments
based upon a percentage of sales for referring customers to another website,
while others receive payments based upon the number of persons who use the
hyperlink to go to the other webpage. In addition, a number of exempt
organizations use the Internet as another outlet for their own sales
activity.

Some organizations operate "virtual trade shows," an attempt to replicate
trade shows on the Internet. Some of these virtual trade shows simply
consist of hyperlinks to industry suppliers' websites, while others also
include displays with educational information.

The Service is considering whether clarification is needed regarding whether
the income received from these activities is subject to the unrelated
business income tax, and if so, how the income and expenses related to the
activity are calculated. Questions include the following:

To what extent are business activities conducted on the Internet regularly
carried on under section 512? What facts and circumstances are relevant in
determining whether these activities on the Internet are regularly carried
on?
Are there any circumstances under which the payment of a percentage of sales
from customers referred by the exempt organization to another website would
be substantially related under section 513?
Are there any circumstances under which an online "virtual trade show"
qualifies as an activity of a kind "traditionally conducted" at trade shows
under section 513(d)?
Comments concerning the application of section 513(i), which governs the
treatment of qualified sponsorship payments, to Internet activities were
requested in connection with the Notice of Proposed Rulemaking
(REG-209601-92) published in the Federal Register on March 1, 2000.

SOLICITATION OF CONTRIBUTIONS

There are numerous Code provisions regulating the solicitation and receipt
of charitable contributions. For example, exempt organizations not eligible
to receive tax-deductible charitable contributions are required under
section 6113 to disclose in certain solicitations for contributions that
such contributions are not deductible for federal income tax purposes as
charitable contributions. Charitable organizations that receive certain
"quid pro quo" contributions in excess of $75 are required under section
6115 to provide a written statement to the donor that indicates that the
charitable deduction is limited to the amount paid by the donor in excess of
the value of the goods or services provided by the organization and that
provides a good faith estimate of that value. Under section 170(f)(8),
donors making contributions of $250 or more to a charitable organization
must substantiate the contribution with a contemporaneous written
acknowledgement from the charitable organization in order for the deduction
to be allowed.

An increasing number of exempt organizations solicit contributions on the
Internet. In some instances, the organization's website merely indicates
where to send contributions to the organization. In other cases, the
organization is able to accept contributions on the Internet, either
directly or through a third party that provides a secure connection for
credit card transactions. The Service is considering the need for
clarification regarding such activities, including the following:

Are solicitations for contributions made on the Internet (either on an
organization's website or by email) in "written or printed form" for
purposes of section 6113? If so, what facts and circumstances are relevant
in determining whether a disclosure is in a "conspicuous and easily
recognizable format"?
Does an organization meet the requirements of section 6115 for "quid pro
quo" contributions with a webpage confirmation that may be printed out by
the contributor or by sending a confirmation email to the donor?
Does a donor satisfy the requirement under section 170(f)(8) for a written
acknowledgment of a contribution of $250 or more with a printed webpage
confirmation or copy of a confirmation email from the donee organization?
REQUEST FOR PUBLIC COMMENT

The Service is soliciting public comment regarding the need for additional
guidance clarifying the application of the Code to exempt organizations'
Internet activities. The Service requests comments not only on the
situations described above, but also on any other issues concerning
application of provisions of the Code in a fair and neutral manner to exempt
organizations' Internet activities. Public comments should be submitted in
writing on or before February 13, 2001. Comments should be sent to the
following address:

Internal Revenue Service
1111 Constitution Ave, NW
Washington, DC 20224
Attn: Judith E. Kindell

T:EO

Comments may also be sent electronically via the Internet to
TE/GE-Exempt-2@ir*.go*.

DRAFTING INFORMATION

The principal author of this announcement is Judith E. Kindell of Exempt
Organizations. For further information regarding this announcement contact
Judith E. Kindell at (202) 622-6494 (not a toll-free call).



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