Political groups are trying to use social-welfare-action charities to hide their donors' identity

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Don't let political groups hide donors behind charity pretense
By Michael Rich, June 20, 2013

When the Supreme Court's landmark ruling in 2010 opened the corporate floodgates to unlimited election spending, we waited to see its effect on politics.

Last fall, we endured unprecedented bombardment with political television ads from independent organizations as they tried to influence the presidential election. Now thousands of these openly political groups are seeking taxpayer subsidy for their lobbying and grass-roots efforts, while trying to hide the identities of their donors under the guise of social-welfare charities.

Having applied for and received social-welfare-charity status for an organization in the late 1990s, I am quite familiar with the legal minefield around politics and tax-exempt charities. Ours was a 501(c)3 organization, which has a total ban on political advocacy of any kind.

During the 2000 presidential election, we watched churches, 501(c)3 groups, openly advocate one political candidate over another. Many were incensed that groups were flagrantly violating Internal Revenue Service rules without having their charity status reviewed or revoked. The IRS allowed exception to organizations that had long-standing opposition to a certain issue, like abortion.

Now the line is being crossed even further by groups seeking 501(c)4 organization status, which the IRS defines as organizations that would qualify for exemption under 501(c)(3) if they were not "action" organizations. Action being defined as incidental participation, either directly or indirectly, in any political campaign for public office.

Social welfare as your primary purpose does not include participation in political campaigns for public office, yet does allow these 501(c)(4) action groups to secondarily engage in some political activities. In other words, 49.99 percent of the organizations' actions must not involve political-election advocacy.

The problem is, the definition of social welfare is vague and has been broadly interpreted by the courts and the IRS.

One test to determine an action organization asks if the main objective may be obtained only by affecting legislation and if it also furthers the attainment of the primary objective. The rule states, "...in determining whether an organization has such characteristics, all the surrounding facts and circumstances, including the articles and all activities of the organization, are to be considered."

A 501(c)(4) can spend an unlimited amount of money on lobbying, as long as it relates to its primary purpose. So, if I spend 50.1 percent of my time and money on lobbying, education and grass-roots organizing that promotes the social well-being of people in the community through a political ideology, that organization could be political, yet argue to be considered as only secondarily political.

Madison Avenue experts say the most important marketing decision a company can make is the name. It must clearly define the position or niche. Ideally, it should communicate a single word into the mind of the customer that differentiates it from all other competitive businesses. Blatantly political names of groups seeking 501(c)4 status are commonplace recently and are perceived by the prospective donors as a political brand.

This is a major red flag to the IRS. Such groups invite heavy scrutiny for positioning themselves as political organizations, which by definition, do not qualify for the 501(c)4 exemption under IRS rules

We should be outraged that thousands of political groups are trying to use social-welfare-action charities to hide their donors' identity in an attempt to commandeer our elections. This makes a mockery out of transparency in political elections and potentially allows wealthy donors to create the appearance of multiple grass-roots organizations through multiple donations. This increases their impact on the election, while hiding their common funding source
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