It's the audit heard 'round the nonprofit world.

On Oct. 8, the IRS notified the National Association for the Advancement of Colored People that the organization may have violated the prohibition on partisan activity by nonprofits. Specifically, the IRS said it was initiating an investigation because NAACP Board Chairman Julian Bond made "statements in opposition of George W. Bush for the office of the presidency" in a 45-minute speech on July 11 at the group's annual convention.

The inquiry takes on heightened significance because of the NAACP's status as a public charity. "Charity" may be a misnomer, but it's one shared by the million or so nonprofits that qualify for tax-exempt status under section 501(c)(3) of the nation's tax code. Such nonprofits are entitled to accept tax-deductible donations, but the law is emphatic in declaring that those dollars may not be used in election campaigns or other partisan activities. This makes sense: Surely there's no reason why tax-deductible donations should be used to pay for ads by groups such as the Swift Boat Veterans or -- or a church's activities on behalf of one candidate or another.

But if the principle is clear, distinguishing between partisan activity and protected free speech is anything but. That's why the IRS investigation has the nonprofit world anxious and angry. The stakes are huge: If a nonprofit is found to be in violation of the political prohibitions in 501(c)(3), the ultimate penalty is revocation of its tax deductibility. For many nonprofits, losing this privileged status would threaten their very existence. For the NAACP, says Bond, "It would be catastrophic." If donors could not take a tax deduction, many would not give -- or, if they did, they would give less. Foundation grants would disappear.

Is the IRS taking a harder line and sending a message? Or did the NAACP, the nation's oldest and largest civil rights organization, violate a prohibition that it was surely aware of? Let's take a look at what Bond actually said.

The text of his speech reveals a complex and scholarly oration, largely devoted to an analysis of the civil rights movement since the 1954 Supreme Court decision in Brown v. Board of Education. It effortlessly traverses 50 years of American history with many lyrical passages, including a reminiscence of his grandfather, who was born a slave but, with great determination, graduated from college. Along the way, Bond reflects on almost all the presidents who have served since the Brown ruling and finds much to criticize in their records on civil rights. The Democrats are not spared; he describes them collectively as "absent without leave from this battle for America's soul" and worries that they have become "spineless."

As the IRS alleges, Bond did harshly criticize President Bush: "They preach racial neutrality and practice racial division." And, "They write a new Constitution for Iraq and ignore the Constitution here at home." And, "The reason for the current deficit and the vanished surplus can be placed squarely on the tax giveaways to the rich."

Although Bond did not endorse Democratic nominee John Kerry, he left no doubt about his preference. Bond told delegates to the conference, "The differences between the candidates this year are neither incremental nor inconsequential."

Whether this type of talk truly violates the IRS code is at the heart of the dispute. In a handbook for nonprofits, the IRS states that "public statements of position (verbal or written) made by or on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity." Taking those words at face value, one must conclude that the Bond speech crossed the partisan threshold.

On the other hand, Bond's only specific call for action entailing the expenditure of organizational resources was an appeal for expanded voter registration drives. Another passage in the IRS's handbook indicates that it's legal for nonprofits to engage in voter registration drives, and experts on nonprofit law have expressed surprise that the IRS would initiate an audit just on the basis of overheated rhetoric in a single speech. So the larger question is whether the IRS's investigation of the NAACP moves the agency into a far more restrictive stance on political activity than it has ever taken. Since the IRS's tax-exempt unit operates with just 800 employees monitoring 1 million nonprofits, a turn toward policing the speeches and publications of public charities will likely result in an even more arbitrary application of the law than is currently the case.

The IRS's task is actually much more difficult than that. The 1 million number does not include the roughly 350,000 churches in the United States. Although they don't fall under the same IRS registration requirements, churches do come under the same political prohibitions of 501(c)(3) as secular nonprofits.

The application of the law to churches is particularly relevant given the many charges of extensive partisan activity in 2004 on behalf of President Bush by both Catholic and Protestant institutions. Many Catholic prelates made it clear that Church doctrine dictated a vote against a candidate who supported abortion rights.

But there's an even clearer possible violation of the spirit of the public charities law: whether individual churches engaged in activities that aided the Bush-Cheney campaign. Alan Cooperman, a Washington Post reporter who covers religion, reported in July that the president's reelection campaign sent instruction sheets to religious volunteers, listing 22 "duties" to be accomplished on a specific timetable. The sheet included such tasks as acquiring a church membership directory and sending it on to campaign headquarters, calling "all pro-Bush" church members, speaking at the church's seniors group and distributing a voter guide at the church before the November election.

If the IRS is to be logically consistent, it must pursue any church whose minister provides a membership directory to the Republican Party as zealously as it pursues an organization whose board chairman castigates the president. There are, in fact, some churches among the 60 or so organizations currently under investigation by the IRS for possible violations of the political campaigning restrictions. But if other churches were engaged in similar activities, they should receive scrutiny as well. The unique role of the NAACP in American history has given this case an unusual visibility, making it even more important for the IRS to exercise evenhandedness in its inquiry.

Emerson's aphorism that "A foolish consistency is the hobgoblin of little minds, adored by little statesmen" doesn't appear to apply here. Republican statesmen, little or otherwise, do not seem beset by doubts about the inconsistency of championing free speech for churches while applauding the crackdown on liberal, secular nonprofits. Although the IRS says it is not responding to political pressure, the tax-exempt unit has complete discretion in deciding whether to instigate a review. In terms of the gravity of potential violations of 501(c)(3), Bond's speech is a featherweight.

What's more disturbing is that the Bush administration has a record of trying to intimidate liberal nonprofits. In 2003 the Department of Health and Human Services sent a letter threatening legal sanctions against local Head Start agencies that were lobbying against the president's proposal to rework the program. Nevermind that this sort of lobbying is perfectly legal.

Based on what it has done in the past, it's likely that the IRS will issue a mild warning to the NAACP and tell it to behave itself from now on. The agency has no interest in revoking the organization's favorable tax status, because it would then find itself in court where drawing bright lines and being consistent is held to be important.

But the IRS investigation has already had an undesirable impact. Research demonstrates that many nonprofits cower in fear of the IRS and avoid any kind of advocacy, even though lobbying is expressly permitted under law, within limits. The NAACP case will further chill the nonprofit sector. No matter what the ultimate outcome of the case, it's the wrong message for those in power to send to nonprofits that dare to criticize them.

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Jeffrey Berry is professor of political science at Tufts University and the author (with David Arons) of "A Voice for Nonprofits" (Brookings Institution Press).