May 17, 2013

POLITICAL SPEECH SHOULD NEITHER BE TAXED NOR ANONYMOUS:

The IRS' Role in Campaign Finance Is an Awkward, Unhappy Accident (PHILIP BUMP 1,426 ViewsMAY 13, 2013, Atlantic)

The IRS isn't clear on the origin of section 4, but it apparently resulted from a 1913 request from the Chamber of Commerce asking that "civic and commercial" organizations be exempt from paying federal taxes. In 1958, the NAACP won a case at the Supreme Court allowing it to keep its donor list private, in order to protect its work for the social welfare.

Which is what (c)(4)s are supposed to do: advocate for the improvement of the social welfare. Here's how the IRS describes that mandate:

To be operated exclusively to promote social welfare, an 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).

The IRS gives examples: groups pushing for affordable housing, those doing job training for the unemployed, those working to build a stadium at a school.

What isn't mentioned is: using non-profit status to shield contributions from donors that are used to advocate during political campaigns. It's this use that's become a problem, because the IRS definition of what constitutes social welfare is broad and vague. And unlike some other non-profits, these groups can do political advocacy. The IRS indicates that such groups cannot directly or indirectly advocate for candidates, but can "engage in some political activities, so long as that is not its primary activity."

After Congress revised rules governing contributions to political parties a decade ago, donors went looking for other ways to anonymously promote political causes they supported. As far back as 2006, the media was calling out 501(c)(4)s that appeared to serve little "social welfare" outcome beyond the political goals of its funders. Forming a (c)(4) offered the best of all possible worlds: anonymous political money that could largely be used to influence politics. Once, that money flowed into political parties. Now it goes to IRS-designated non-profits.

In 2011, with the prospect of a presidential election looming, the Center for Public Integrity described the breadth of the loophole -- little reporting, lots of money, unknown sponsors. 

Posted by at May 17, 2013 7:37 PM
  

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