  A serious problem from the late 1950s that was fueled by the conservatives on the SCOTUS via Citizens United.
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Open Secrets. Educating where others do not dare! Marc Antoine, while you read (if you wish)
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Outside Spending: Frequently Asked Questions About 501(c)(4) Groups
The number of politically active nonprofits has surged following the 2010 Supreme Court decision in Citizens United v. FEC, as has their spending. Most of that growth comes from 501(c)(4) or “social welfare” organizations. Read the guide below to learn more about these groups.
What is a 501(c)(4)?
A 501(c)(4) is a “social welfare” organization, in IRS terminology. In fact, the law requires these groups to be “operated exclusively” for the promotion of social welfare.” But the IRS finalized a regulation in 1959 that allows the groups to participate in some political activity as long as politics isn’t their primary purpose. Many of the most prominent issue groups have long existed as 501(c)(4)s — groups like the National Rifle Association and the Sierra Club.
The unwritten rule is that these groups must spend less than half of their resources on political activities. Critics bemoan the lack of guidelines, but the IRS will only go so far as to say they use the “facts and circumstances” of each case, looking at a variety of factors, to determine whether an organization’s primary purpose is or is not political. Most tax lawyers suggest that, to avoid risk, at least 50.1 percent of their efforts must go toward “social welfare” activities, meaning they must be devoted to “promoting in some way the common good and general welfare of the people of the community,” according to the IRS.
Other 501(c) organizations include 501(c)(3) groups, which are charities that can accept tax-deductible donations. Politics is mostly off-limits for them. Others — 501(c)(5)s (labor groups) and 501(c)(6)s (business associations) — can be politically active, within limits. Donations to these groups aren’t tax-deductible. The numerical designations of these organizations come from the provisions of the Tax Code that apply to them.
What is social welfare?
Social welfare is a somewhat ambiguous term. According to IRS regulations, a social welfare organization “must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements).” Because that furthering of common good may require some degree of activism or advocacy, the IRS has determined that “Seeking legislation germane to the organization’s programs is a permissible means of attaining social welfare purposes.”
Involvement in political campaigns is not social welfare activity. But it’s allowed as long as it is less than half of what the organization does.
Examples of groups that have long existed as 501(c)(4) organizations include: the National Rifle Association, the Sierra Club, the League of Conservation Voters, Planned Parenthood and the National Organization for Marriage. Most of these organizations have been active in lobbying — and more recently, since the Supreme Court’s 2010 decision in Citizens United v. FEC, they also have been otherwise involved in politics. But they also pursue other activities related to promoting their cause. Since Citizens United a number of groups that seem to be largely about politics have also emerged, and these top CRP’s list of top-spending political nonprofits. This list includes: Karl Rove’s group, Crossroads GPS; the Koch brothers-affiliated Americans for Prosperity; and the liberal Patriot Majority.
What are the benefits and responsibilities of having 501(c) status?
501(c) organizations can operate without incurring tax liability. Another major benefit, for many groups, is the ability to collect donations without disclosing donors. That can help a donor to a charitable group feel comfortable that other organizations won’t come knocking at his or her door for similar contributions. The lack of disclosure can also help disguise the true nature of a highly political organization. For instance, the Center for Responsive Politics has found examples of so-called “grassroots” groups that appear to be primarily funded by one wealthy individual. In other cases, corporations have been able to make donations to politically active groups that take controversial stands on hot topics without disclosing to shareholders or customers that they are involved. Perhaps the biggest problem with the nondisclosure is that citizens barraged with political messages may not be able to consider the credibility, and possible motives, of the funders of those messages.
All nonprofits must file 990 tax forms, which are publicly disclosed on sites such as Guidestar. In addition, organizations must give them directly to any member of the public who requests them. These forms detail a group’s revenue, primary activities, major vendors, grant recipients and members of its board of directors. Often they will also disclose the highest-paid employees. Nonprofit groups cannot be in the business of making money for shareholders or any individual. The 990 forms can help the public get a sense of an organization and who may be benefiting from it. Groups are also subject to IRS audits to ensure that they aren’t benefiting any shareholders or individuals. And 501(c)(4) groups may also be scrutinized to ensure they are indeed carrying out social welfare activities and not existing primarily as political groups.
What are the downsides?
The downside for 501(c)(4)s is that they must abide by certain rules and regulations, and, in theory, oversight by the Internal Revenue Service. For groups that want to be politically active, alternative corporate structures are available, such as super PACs and “527” groups — and those groups aren’t limited to spending just 49.9 percent of their resources on politics. However, they are required to disclose their donors. Essentially, a 501(c)(4) is an inefficient way to spend money politically — unless there is a high premium on keeping the identity of donors secret.
What is the significance of the Citizens United Supreme Court decision for nonprofits?
It’s true that 501(c)(4)s existed prior to the Citizens United decision, and it’s also true that there were other types of politically active nonprofits in existence, specifically 527 groups, made famous in the 2004 election by the Swiftboat Veterans for Truth organization. However, these groups were limited in how they could spend their money. They could hire lobbyists or spend money to make general ads about topics important to their cause, which many people refer to as “issue ads”, but they couldn’t directly involve themselves in political campaigns. And they had to identify their funders to the public.
The Citizens United decision is best known for allowing corporations to spend money from their general treasuries on political campaigns — so long as they don’t coordinate directly with the candidates they are backing. Nonprofits are corporations, too, and are subject to the same new rules as for-profit corporations. So, with the Citizens United decision, nonprofits were suddenly free to begin spending money to directly advocate for and against specific candidates. Previously, a group like Swiftboat Veterans could create advertisements that encouraged voters to consider the record of a candidate, as it did with 2004 Democratic presidential candidate John Kerry, but could not urge viewers to vote for or against him. Citizens United changed that.
Essentially, Citizens United allowed 501(c)(4) groups to participate in political activities just like other groups already had been doing. But, unlike most of the other groups, which are under the oversight of the Federal Election Commission and must disclose their contributors and expenditures, 501(c)(4)s fall are overseen by the IRS. They must make filings with the FEC when they spend money explicitly advocating for or against a candidate, as well as when they buy issue ads that run in the weeks close to an election, but they aren’t required to provide detail about where they’re getting their money or how they’re spending much of it.
Since the Citizens United decision, the number of groups applying for 501(c)(4) status has dramatically increased, more than doubling in the years following the ruling, according to a May 2013 Treasury inspector’s general report. The money spent by these groups on politics — or at least the money we know is being spent (see below) — has also skyrocketed. The Center for Responsive Politics estimates that in the 2012 election, 501(c) groups spent at least $333 million and that’s only the money we can track. That’s an increase of 53 percent from 2008, the last election before Citizens United, when the same type of groups spent just $159 million.
Do we know how 501(c)(4) groups spend their money?
We know how 501(c)(4) groups spend some of their money. We can see on their 990 forms what major vendors they hire and what groups they give money to. But 501(c)(4) groups often submit vague explanations for how money is spent with vendors, such as “consulting” or “fundraising,” and are not obligated to say what the money purchased with any specificity.
A 501(c)(4) group that spends money explicitly advocating for or against a candidate (known as an independent expenditure) has to report that spending to the FEC.
What is the IRS’ role in enforcing campaign finance law?
The IRS’ job is not to enforce campaign finance law. Its purpose is to make sure that all of these 501(c) groups qualify for their tax-exempt status. Only a small number of the 501(c) groups that are in existence appear to be active in political campaigns. The reasons for creating this class of groups have nothing to do with enabling them to be politically active.
The IRS scandal of May 2013 arose because agency employees, faced with a rising number of applications for 501(c)(4) status after the Citizens United decision, tried to create ways to weed out groups that seemed overly political. According to the Treasury Inspector General for Tax Administration, they used “inappropriate criteria” — such as searching for the words “patriot” and “tea party” in groups’ names — to identify applications for tax-exempt status for review. To date, though, there has been no in-depth examination of the most politically active 501(c) groups — at least, not one that has been shared with the public.
How could the (c)(4) loophole be closed?
A number of suggestions have been made to try to fix the problem of political organizations gaming the system and using the (c)(4) loophole to shield the identities of their donors. The most straightforward is to ban 501(c)(4) groups from being involved in politics at all. That is in fact what the law says, but the language was, in effect, weakened when the IRS began applying the “primary purpose” test; that put the IRS in the business of making judgments about what activity is political.
Alternatively, social welfare organizations could be required to disclose the identity of their donors if they participated in political activity. Others have suggested that IRS officials draw a “bright line” delineating exactly how much political activity is acceptable, and then enforce it. The current understanding that groups may spend up to 49.9 percent of their resources on political activity was drawn from rules barring groups from having politics as their primary purpose, but exists nowhere in law or regulations.
While many have no time for such descriptive and detail screeds, that same number will ignore the issue, and they will suffer deeply form their indifference. ~The Pardu
The Pardu's Scroll 