Adversity.Net filed this protest (appeal) on Feb. 23, 2001. IRS's Mr. Will Chapman had granted us a 30 day extension for filing this protest (appeal), and we submitted within that timeframe.
802 Argyle Road
Silver Spring, MD 20901
Contact: Tim Fay
Phone: (301) 588-0778
Fax: (301) 589-0324
Internal Revenue Service, T:EO:RA:T:2
1111 Constitution Avenue, N.W.
Washington, DC 20224
Contact: Mr. Will Chapman
ID Number 50-12804
Phone: (202) 283-8912
Fax: (202) 283-8937
Date: Feb. 21, 2001
Subject: Protest and Request for Conference
Your office sent a letter dated Dec. 21, 2000 in which IRS rejected Adversity.Nets application for 501(c)(3) status. (Copy attached.)
The letter states in part "...You have a right to protest this ruling ... must be submitted within 30 days from the date of this letter."
In a telephone conversation on the morning of January 18, 2001, between myself and Mr. Will Chapman, Mr. Chapman gave Adversity.Net verbal assurance that he could and would grant Adversity.Net a 30 day extension for filing our protest, resulting in a new filing deadline of Feb. 21, 2001. We are assuming the extension is in effect and that our current filing is timely.
Previously we had sent an "interim, contingent" protest on 1/21/01 and, pending acceptance of this current filing, our filing of 1/21/01 is declared null and void and this Feb. 21, 2001 filing takes precedence.
Protest Statement and Request for Conference:
Adversity.Net, Inc. hereby officially protests IRSs 12/21/00 determination that we do not qualify for exemption as an organization described in Section 501(c)(3) of the Code. We also hereby exercise our right to request a conference.
IRSs 12/21/00 rejection of our 501(c)(3) application has limited our ability to seek funding from non-profit foundations and from individuals which would make it possible for us to retain and pay legal counsel to represent us in this matter. Therefore, we are forced to file this protest, and our legal rationale, without the benefit of expert legal counsel. As a result, there may well be legal errors in our rationale.
Rationale for Adversity.Net Protest:
Adversity.Net disagrees with IRSs assertion that Adversity.Net is an "action organization" as set forth in Section 1.501(c)(3)-1(c)(3)(iii). IRS presented selected quotations from our web site and argued that the quotations constitute evidence that we are an "action organization" and that we intervened in a political campaign.
Rev. Rul. 80-282, 1980-2 C.B. 154 states that the facts and circumstances of each case determine whether an organization is intervening in a political campaign. Rev. Rul. 80-282, 1980-2 C.B. 178 also states that "other factors must be examined to determine whether in the final analysis the organization is participating in or intervening in a political campaign."
The list below summarizes the other factors and considerations which we believe IRS should consider in its consideration of our exempt application.
Adversity.Net believes that when all the facts and circumstances are fully evaluated IRS will determine that our organization is engaged in permissible exempt activities.
In summary, we base our protest upon the following:
- IRS has incorrectly applied various tests to determine if we are an "action organization".
- The selected quotes do not constitute intervention in a political campaign.
- The selected quotes do not constitute a statistically significant portion of our activities.
- The selected quotes are more than balanced by other statements appearing throughout the web site.
- Neither the selected quotes presented by IRS, nor our web site taken as a whole, have benefited any candidate for elected office nor have they resulted in demonstrable, private benefit to any individual, group, political party, or candidate.
- The distribution of the material on our web site has not been timed to coincide with an election.
- The distribution of the material on our web site has not been limited to, nor targeted toward, any geographic area or political district.
- Other portions of our web site, in particular the Message Board, offer an unmoderated, unrestricted forum for the discussion of all points of view without injecting our point of view.
- IRSs summary rejection of our application constitutes a sanction far out of proportion to our alleged transgression. During the 12+ months which IRS spent evaluating our application we have repeatedly acted in good faith, and have demonstrated a great deal of flexibility and accommodation in answering IRSs concerns with our application. In September of 2000 we rapidly responded to IRSs Will Chapmans concerns with our bylaws and enacted several significant changes thereto. IRS therefore had ample reason to believe that we would have been similarly flexible and accommodating had IRS called to our attention their concern with our web site content cited in their 12/21/00 rejection letter.
Our analysis suggests that the applicable regulations and case law pertaining to Adversity.Nets application for status as a 501(c)(3) tax exempt organization are oriented toward two types of organization: (a) Non-profit organizations who distribute printed material; and/or (b) Non-profit, publicly supported television and radio licensees.
While Adversity.Net does not precisely fit into either of the above categories, our activities in cyberspace share some significant, relevant characteristics with both types of organization. When the applicable regulations and case law for both print-oriented non-profits and for non-profit broadcasters are properly interpreted and applied to Adversity.Net it will become clear that (a) We have not attempted to intervene in a political campaign; (b) Any such evidence of intervention offered by IRS in its letter is more than offset by other facts and circumstances which will prove that such activity is an insubstantial activity and thus constitutes a permissible exempt activity; and (c) We are properly organized and operated exclusively for exempt purposes when all the facts and circumstances are properly evaluated.
Rev. Rul. 80-282, 1980-2 C.B. 178
In it's rejection of Adversity.Net's application, IRS cites Rev. Rul. 80-282, 1980-2 C.B. 178 as follows: "a 501(c)(3) organization did not intervene in a political campaign where it distributed in its monthly newsletter a summary of the voting records of congressional incumbents on selected issues important to the organization and an expression of the organization's position on those issues, under the following circumstances. The newsletter was distributed only to the usual subscribers who together numbered only a few thousand nationwide, and was not targeted toward particular areas in which elections were occurring. The voting record summary was distributed as soon as practical after the close of each congressional session, and its distribution was not geared to the timing of any federal election. The newsletter was politically non-partisan, did not mention any political campaigns, elections, or candidates, and did not contain any express or implied endorsements or rejections of any incumbent as a candidate. No mention was made of an individual's overall qualification for public office. The voting records of all incumbents were presented and candidates for re-election were not identified. The newsletter pointed out the limitations of judging the qualifications of an incumbent on the basis of a few selected votes and noted the need to consider such unrecorded matters as performance on subcommittees and constituent service."
Analysis and Rebuttal:
"The newsletter was distributed only to the usual subscribers who together numbered only a few thousand nationwide." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: Adversity.Net certainly meets the requirements of this test.
Overall, the Adversity.Net pages containing the selected quotes cited by IRS were requested (downloaded) a grand total of 11,478 times by readers during the period Jan. 1, 2000 to Dec. 31, 2000. (See Table A: Readership of "Objectionable Quotes".)
The total of all Adversity.Net pages downloaded (specifically requested) by readers during this period was 649,254 pages. Thus, the selected quotes cited by IRS represent a mere 1.8% of our total readership during the period which we argue represents an insubstantial proportion of our activities and is therefore a permitted exempt activity.
"...and [the newsletter] was not targeted toward particular areas in which elections were occurring." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: Adversity.Net meets the requirements of this test.
(a) Our web pages are freely available to any Internet user anywhere in the world, notwithstanding any restrictions which may be imposed by third parties such as employers, local governments, schools, libraries, Internet Service Providers, filtering software, and/or foreign governments.
(b) In order to read any of our web pages, Internet users must take the initiative to seek out our web site, based upon their voluntary interest in the subject matter.
(c) Adversity.Net does not "distribute" its web pages in any traditional sense; we have no subscribers; we do not maintain a list of readers; and for the most part we do not know who our readers are. They come to us, not the other way around.
(d) We do not restrict access to our web pages based upon any factor such as geography, the location and timing of any election, demographics, political affiliation, or any other criterion.
"The voting record summary was distributed as soon as practical after the close of each congressional session, and its distribution was not geared to the timing of any federal election." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: The distribution of the selected quotes was not geared to the timing of any federal election. Of the 12 selected quotes cited by IRS in its letter, 1 was published on our web site in 1997; 1 was published on our web site in 1998; 8 were published on our web site in 1999 (spanning Jan. through Nov. of that year); and 2 were published on our web site in 2000.
Adversity.Nets policy has always been to publish news and analysis as soon as possible after it has become available to us (usually from news outlets and other third-party sources) regardless of the time at which those sources make the material available. (See especially Appendix A: Readership and Distribution Pages Containing "Objectionable Quotes".)
"The newsletter was politically non-partisan, did not mention any political campaigns, elections, or candidates, and did not contain any express or implied endorsements or rejections of any incumbent as a candidate." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
Our web site, taken as a whole, does not endorse any political party. We do publish statements critical of both major parties (Republican and Democrat), and we present sufficient balancing information so that an objective observer can form his or her own conclusions. See especially Appendix B: Balancing Quotes. In Appendix B we present dozens of examples of quotations which we believe more than balance the alleged bias IRS asserts is represented by the selective quotations from our web site it presented in its 12/21/00 rejection of our application.
In Appendix B (Readership of "Balancing Quotes") we identify 36 "balancing quotes" from our web site which more than amply demonstrate that our web site is politically non-partisan and does not favor any candidate. Specifically, and in part, the "balancing quotes" include (a) statements favorable toward Maxine Waters; (b) statements critical of George W. Bush; and (c) statements favorable toward Al Gore and/or Bill Clinton.
Most of these balancing quotes have been available on our web site to any reader (including the IRS) since early to mid 1999 -- well before we submitted our application to the IRS. Of the 36 balancing quotes we present, only two were published late in the application process -- and late in the campaign season -- in October and in November, 2000.
During calendar year 2000, the pages containing these 36 balancing quotes were read (or downloaded) by readers a total of 13,268 times -- out of a total of 649,254 downloads during the period. Thus, the balancing quotes represent 2% of our total readership during the period, as compared to IRSs "objectionable quotes" which represented 1.8% of our total readership. This simple statistic clearly represents balance and lack of bias on our web site regarding our coincidental posting of news and comment on national figures who just happened to be running for office during the pendency of our application before the IRS.
Furthermore, it would be virtually impossible to discuss the controversial issue of racially discriminatory preferences without also noting the fact that a presidential campaign happened to be underway. A presidential campaign is major news, and we have presented it as such in the context of our main subject area which is racially discriminatory preferences.
We did not endorse any candidate, but we did point out, accurately, fairly, objectively, and without bias, that George W. Bush was the only viable (meaning electable) presidential candidate who had gone on record as opposing racially discriminatory preferences. This is a statement of fact, not opinion, and it does not demonstrate bias. (App. A, Quotation 8)
In the case of Maxine Waters, we did not mention that she was running for any office since her candidacy was not relevant in any way to our reportage of her positions on issues of racial preferences. While the fact that we were unaware that Ms. Waters was running for re-election may be moot under applicable IRS tests, nonetheless we assert that we were both unaware and unconcerned with the pendency of her re-election campaign. Furthermore, we note for the record that, in keeping with our long standing policy, the news about Waters views was presented as soon as possible after it became known to us. (App. A, Quotations 11 and 12)
Appendix A clearly delineates the date and timing of the selected quotes and clearly illustrates that the timing of any pending election had nothing at all to do with our postings either of the Waters quote, nor of any of the other objectionable quotes with which IRS chose to take issue.
"No mention was made of an individual's overall qualification for public office." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: The selected quotes from Adversity.Net cited by IRS do not address any candidate's overall qualifications for public office.
"The voting records of all incumbents were presented and candidates for re-election were not identified." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: The objectionable quotes cited by IRS do not contain the voting records of incumbents or candidates for any pending election.
Candidates for public office were only identified on Adversity.Net incidentally, and such identifying statements comprised a permissible, insubstantial portion of our activities. See Appendix A for an analysis of the readership (distribution) of the selected quotes.
"The newsletter pointed out the limitations of judging the qualifications of an incumbent on the basis of a few selected votes and noted the need to consider such unrecorded matters as performance on subcommittees and constituent service." (From Rev. Rul. 80-282, 1980-2 C.B. 178, as cited in IRS's rejection letter.)
RESPONSE: This test is not relevant to Adversity.Nets case since we did not analyze the voting records of candidates.
GENERAL RESPONSE: In it's citation of Rev. Rul. 80-282, 1980-2 C.B. 178, IRS failed to note that this rule makes it clear that other factors must be examined to determine whether in the final analysis the organization is participating in or intervening in a political campaign.
Rev. Rul. 78-248, 1978-1 C.B. 154
In it's rejection of Adversity.Net's application, IRS cites Rev. Rul. 78-248, 1978-1 C.B. 154 as follows: "Rev. Rul. 78-248, 1978-1 C.B. 154, held that certain "voter education" activities conducted in a nonpartisan manner by a 501(c)(3) organization would not constitute prohibited political activity. The ruling set forth situations involving compilations of toting [sic] records of all Members of Congress and "voter guides" of candidate positions on issues. A publication may constitute political intervention if it contains editorial opinion, or its contents and structure imply approval or disapproval of any Members or candidates or their voting records or positions on issues (as where the publications focus on a narrow range of issues or questionnaire questions evidence a bias on certain issues), particularly if distributed widely among the electorate during an election campaign, even if the publication does not contain an express statement supporting or opposing a candidate."
RESPONSE: We assert that the applicable phrase from Rev. Rul. 78-248, 1978-1 C.B. 154 is "...particularly if distributed widely among the electorate during an election campaign, even if the publication does not contain an express statement supporting or opposing a candidate."
As previously noted, the cumulative total readership of the web pages containing the objectionable quotes were downloaded a grand total of 11,478 times by readers during the period Jan. 1, 2000 to Dec. 31, 2000 and constituted a statistically insignificant 1.8% of our total readership as presented on our web site (computation is based upon the total pages downloaded -- 649,254 pages -- during this period). See especially Appendix A. We assert that this data proves conclusively that the selected quotes were not "widely distributed among the electorate".
Notwithstanding the statistical insignificance of the readership of the selected quotes, IRS seems to imply that we timed the publication of the selected quotes to coincide with one or more election campaigns. Appendix A clearly illustrates that is not the case: The selected quotes were published on our web site as early as 1997 and 1998, and the bulk of them were published throughout 1999. Only two of the objectionable quotes cited by IRS in its rejection of our application were published in 2000. In 2000 Adversity.Net did not stop posting news and analysis simply because an election cycle was underway.
Improper Benefit Test:
We feel that the test that IRS should have applied was the improper benefit test set forth in American Campaign Academy, 92 T.C. 1053. We argue that under this improper benefit test our activities comprise a permissible exempt activity because no actual benefit to any candidate or political party can be demonstrated.
The regulations and cases that apply the improper benefit test make it clear that IRS should focus on the purposes served by the organization's activities rather than the nature of the activities themselves. See B.S.W. Group, Inc. v. Commissioner, 70 T.C. 352 (1978).
Adversity.Net's actions clearly meet this "improper benefit" test because our purposes are exclusively educational and our postings (publications on the Internet) serve a public rather than a private purpose.
In any event, even if Rev. Rul. 78-248 and Rev. Rul. 80-282 were the proper tests, we argue that the above facts show that Adversity.Net's postings did not constitute intervention in any political campaign because the postings were nothing more than news coverage, they were posted soon after Adversity.Net became aware of them rather than during any particular campaign period, they were balanced, they were viewed by very few potential voters, they would not influence voters, and they were at most, a permitted insubstantial attempt to influence legislation.
Other Facts and Circumstances:
Even though Adversity.Nets public message board was not mentioned in IRSs 12/21/00 ruling on our application, we wish to discuss it here in the context of "other facts and circumstances" that help illustrate that Adversity.Net, taken as a whole, is properly organized and operated as a 501(c)(3) exempt educational organization.
As a significant portion of its activities, Adversity.Net maintains an unmoderated, public message board. Any reader may post his or her opinions on the message board without editorial restriction. Adversity.Net does not inject its views into this message board nor do we impose any limitations related to political ideology, party affiliation, or either pro or con views on racial preferences. Candidates for elected office have always had equal access to the message board, just as any other Internet user.
Every time a reader accesses our message board a disclaimer is prominently displayed at the top of the board which states: "This is an unmoderated, public forum. The views and opinions expressed in this message board are those of the contributors only. Adversity.Net does not endorse or support the viewpoints presented." This disclaimer has been in place on our Message Board since 1999 prior to our application to IRS for exempt status.
This activity of Adversity.Net shares significant similarities to a publicly funded broadcast station which offers equal time to air political viewpoints: the contents of the message board are "broadcast" to everyone without restriction (if readers voluntarily choose to "tune in"); the message board would have been sponsored by a publicly funded, exempt organization (Adversity.Net) if IRS had approved our application; and "equal time" was made available, and continues to be made available, to all viewpoints without restriction.
Rev. Rul. 74-574, 1974-1 C.B. 161, holds that a religious and educational broadcasting station was not intervening in political campaigns when it made air time equally available (as then required by the Federal Communications Act of 1934, 47 U.S.C. Section 312(a)(7)), to all legally qualified candidates for public office. The station, at the beginning and end of each broadcast, stated that the views expressed were those of the candidate and not those of the station.
Our interpretation of Rev. Rul 74-574 is that the broadcast of varying political viewpoints by a nonprofit entity (public broadcasting station) is a permissible exempt activity as long as (a) all viewpoints can be presented by all willing persons without restriction; and (b) the activity (expression of viewpoints) is not attributable to the broadcaster.
The relevant characteristics of the public broadcaster, on the one hand, and the Adversity.Net message board, on the other hand, are so similar that we interpret Rev. Rule. 74-574 as a valid test of whether our message board constitutes a substantial, permissible exempt activity, and as such it is a test that our message board passes.
We conclude as follows: (a) Our message board is a permissible exempt activity; (b) Our message board comprises a significant proportion of our activities; (c) Our message board greatly surpasses the activity represented by the selected quotes to which IRS objected; and therefore (d) The overwhelming majority of our activities are permissible exempt activities.
The table below documents the relative volume of readership (distribution) of our web site which is devoted to the message board, and this data reinforces our position that the vast majority of our activities are permissible under Section 1.501(c)(3).
Message Board Readership
Messages Read (Downloaded) during Period:
Total of ALL Pages Downloaded (exclusive of graphic files) during Period:
Percent of Readership from Message Board during Period:
(See Appendix C)
Table Revised Fri., Feb. 23,2001
Thus, our unmoderated message board accounted for 24.6% of our total pages read during the year 2000. See Appendix E for detailed web server logs pertaining to readership (downloads) of message board messages.
We believe that according to section 1.501(c)(3)-1(d)(3)(i), an organization may be educational even though it advocates a particular position or viewpoint. While Adversity.Net uses its web site to advocate abolition of reverse discrimination (racially discriminatory preferences), the web site -- taken as a whole -- does not evidence any greater disdain for the Democratic Party than for the Republican Party, nor does it evidence greater bias for or against Al Gore than bias for or against George W. Bush, nor does the web site amount to intervention in opposition to or in favor of any candidate for elected office, including Maxine Waters.
Finally, even if Rev. Rul. 78-248 and Rev. Rul. 80-282 are independently determined to be the proper tests and Adversity.Net's postings during the period Jan. 2000 through Dec. 2000 are determined to have constituted intervention in political campaigns, none of Adversity.Net's actions have had any demonstrable, provable effect on any campaign, none of Adversity.Nets efforts can be shown to have improperly benefited any political party, any candidate, nor any individual, and we have conclusively demonstrated that none of Adversity.Net's efforts were taken with the intent of intervening in any political campaign.
In summary, we also note the following:
- During the almost 13 months during which IRS had our application, we have demonstrated a good faith willingness to accommodate and resolve questions or problems with our application.
- Eight months after we filed our application, we were contacted by Mr. Will Chapman from the Exempt Organizations office who sent us a list of eight concerns and questions IRS had regarding our organization and its bylaws.
- On Sept. 21, 2000 we concluded negotiations with Mr. Will Chapman in response to these eight areas of concern. We answered every concern, and implemented specific changes to our bylaws as suggested by Mr. Chapman. (A copy of our 9/21/00 letter to Mr. Chapman is attached.)
- During the negotiations leading up to our 9/21/00 resolution of IRSs concerns, and during the 3 months following (right up until Dec. 21, 2000) the IRS raised no further concerns either with our pending application nor with our web site.
- It is our position that if IRS had raised with us the additional concerns it expressed its 12/21/00 rejection letter, we would have been more than willing to make changes to our web site in order to allay IRSs concerns, just as we did in our earlier negotiations with Mr. Chapman regarding our bylaws (see attached 9/21/00 letter).
- We remain willing to modify our web site activities in order to comply with the IRSs requirements regarding 501(c)(3) organizations. We remain very flexible and accommodating in this regard.
- IRS indicated there were no problems with our Form 1023 application. Therefore we conclude that if we had merely submitted the Form 1023 application without having a web site already on-line, IRS would have granted our application for exempt status.
- We believe had we launched our web site after IRSs approval of our exempt application, and had subsequently published the objectionable quotes cited by IRS, there would have been available an equitable administrative remedy and/or fine far less severe than revocation or denial of our exempt application.
- If we had been granted exempt status prior to publishing our web site we would have had the ability to raise the necessary funds for expert legal counsel who would have advised us not to publish the quotes to which IRS objected. As our Form 1023 application clearly delineates in our financial statements, we have planned all along to spend significant funds for legal counsel for this very purpose.
We also note that in 1987, Congress added section 4955 to the Code, which imposes excise tax penalties on 501(c)(3) organizations that make improper political expenditures. We believe that the legislative history of that enactment made it clear that Congress intended to provide IRS with an alternative penalty to apply when the penalty of revocation of exempt status was disproportionate to the violation.
In that context, we believe the penalty of denial of a 501(c)(3) application is just as severe as, if not more severe than, revocation of 501(c)(3) status. We feel that a negotiated "administrative remedy", i.e., allowing us the opportunity to respond to the concerns IRS rather abruptly presented in its 12/21/00 rejection letter, would have been a much more equitable solution, in keeping with the clear intent of the Congress.
Tim Fay, Chairman
(Submitted Feb. 23, 2001)