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

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I. Overview

We welcome the opportunity to respond to the request for comments in IRS Announcement 2000-84, 2000-42 I.R.B. 385 (the "Announcement"), regarding the need for guidance clarifying the application of the Internal Revenue Code (the "Code") to use of the Internet by exempt organizations.

To our knowledge, the Announcement is unique in its request for comments regarding the tax law’s overall application to a particular technological medium, rather than the application of one or a few Code sections. Given the wide scope of the request, we have concluded that before addressing the specific areas in which the Internal Revenue Service ("IRS") has asked for comments, it would be helpful to identify the range of guidance levels that may be appropriate and to articulate certain broad principles that inform our approach in all areas.

With respect to the level of guidance needed, the threshold question is whether the IRS should issue any guidance at this time. In our view, there are some areas in which guidance would be helpful. The challenge of providing guidance is complicated by the fact that the technology, capabilities and range of uses of the Internet are expanding at breathtaking speed. Any guidance must recognize those dynamics. Accordingly, we have classified potential guidance topics into the following categories, identified below in the discussion of each topic:

Category One (1): areas where no guidance is necessary because guidance exists under current law that can be generally applied in the Internet context;

Category Two (2): areas where guidance can and should be provided at this time regarding the manner in which current law applies in the Internet context;

Category Three (3): areas where some guidance would be helpful, such as through the development of safe harbors, but where definitive guidance is not currently possible or advisable given the rapidly changing technology and uses of the Internet; and

Category Four (4): areas in which 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.

In particular, we recommend that the IRS consider issuing formal guidance on which organizations may rely in the areas of (1) lobbying and political activities and (2) unrelated business income tax ("UBIT") issues involving the Internet. In addition, we recommend that the IRS provide guidance regarding disclosure of nondeductible contributions and substantiation of charitable contributions through the Internet, either by means of a publication on which organizations may rely or through coordination with Treasury to amend the applicable regulations. For our specific recommendations regarding each of the IRS’s questions, please refer to the "Recommendations" sections under each topic.

The IRS has articulated informally that an exempt organization’s use of the Internet to accomplish a particular task does not change the way in which the tax laws apply to that task. That concept is helpful in contexts where an exempt organization’s activities that involve the Internet are largely indistinguishable from its activities through other media. In some contexts, however, the Internet’s singular attributes present mechanisms for accomplishing tasks that are not contemplated under existing law. In those contexts, it may be necessary to develop rules that apply uniquely to Internet use.

Contents | I | II | III | IV | V | VI