Make the IRS heed the law on tax-exempt organizations

But that is exactly what an Internal Revenue Service (IRS) regulation does by allowing tax exempt social welfare organizations—501(c)(4)s—to spend money, not exclusively, but primarily on social welfare activities.  Congress created tax-exempt 501(c)(4)s to operate exclusively for social welfare purposes like early childhood education, environmental protection, and veteran’s assistance.  However, an IRS regulation allows 501(c)(4)s to operate primarily for the promotion of social welfare.  The IRS’s misinterpretation of the plain meaning of federal law effectively allows social welfare groups, which receive federal tax exemptions, to use as much as 49% of their expenditures on political campaign activities instead of the social welfare activities that Congress intended.

The Supreme Court’s decision in Citizens United v. Federal Election Commission (FEC) made this problem worse.  The ruling ended long-standing prohibitions on corporations, including 501(c)(4)s, from using their “general treasury” funds to intervene in political campaigns.  In addition, donations to 501(c)(4)s are not required to be publically disclosed.  The Citizens United ruling opened the door for tax-exempt social welfare organizations to spend substantial portions of their funds on campaign activities, without having to disclose where that money came from.

Not surprisingly, political groups were quick to see the advantages of a legal way to avoid publically disclosing the sources of their campaign spending.  In the two years following the Citizens United decision, the number of applications for 501(c)(4) status nearly doubled, and these groups spent hundreds of millions of dollars in the 2012 election cycle.  Crossroads GPS alone spent an estimated $70 million.  Exact quantities of 501(c)(4) campaign spending are not available, because the FEC does not collect such data.

{mosads}Although many organizations continue to use their funds exclusively for social welfare activities, there are others that seek 501(c)(4) status solely because it enables them to keep their donors secret.  Groups across the political spectrum are guilty of this, and the public is left guessing where hundreds of millions of campaign-related dollars are coming from.  It’s wrong.

I have introduced legislation to fix this problem.  My bill, The 501(c)(4) Reform Act, would simply require the IRS to adhere to the original intent of the law.  It would apply the same restrictions on political campaign activities that govern charities (501(c)(3)s) to social welfare organizations (501(c)(4)s).  501(c)(4)s would need to set up political action committees (PACs)—which are required to disclose their donations—to engage in campaign activity.

The current tax code sanctions secret political donors and is arbitrary, subjective, and impossible to administer fairly and transparently.  My bill ensures that the public is informed about the identity of political donors and establishes a clear standard for how much political campaign activity is permitted for social welfare organizations—none.  This will help streamline the application process for 501(c)(4) status, not only for groups applying for tax-exempt status, but also for IRS employees reviewing applications.

The current system is broken.  It’s secret and subject to abuse by organizations, donors, and the government itself.  The identity of political donors should be disclosed and bureaucratic rules should not circumvent the original intent of federal law or interfere with the public’s ability to hold these organizations accountable.  Exclusively should mean exclusively, and money used for campaign purposes should kept separate from money used for the promotion of social welfare.

Lujan Grisham represents New Mexico’s 1st congressional district in the House of Representatives, elected in 2012. She sits on the Agriculture, Budget, and Oversight and Government Reform committees.