Charities and Politics: How Much Should They Mix?

To the Editor:

In his opinion article “Charities Must Challenge Politicians” (My View, May 31), Robert Egger of the D.C. Central Kitchen argues that nonprofits should be permitted to intervene in political campaigns. He and those who agree with him should be careful what they wish for.

True, charities cannot endorse a particular candidate for office or contribute money to the candidate’s campaign, but they can engage in direct and grass-roots lobbying on legislation that is of concern to them, so long as that lobbying is insubstantial or comes within the safe-harbor limits created by Congress for charities that elect under Section 501(h) of the Internal Revenue Code.

In addition to the permitted expenditures under Section 501(h), charities can engage in self-defense lobbying (e.g., arguing for extension of the individual retirement account rollover provision), communicate with their members, and prepare nonpartisan research and analysis.

They can also respond to requests from legislative bodies for testimony. Moreover, charities can engage in unlimited issue advocacy — that is, advocacy not related to specific legislative proposals — to the extent the advocacy is educational or otherwise relates to their charitable purpose (e.g., religion). That advocacy can espouse a point of view as long as the discourse is rational and rooted in facts.

Those charities that do bump up against the lobbying limits always have the option of using an affiliated Section 501(c)(4) advocacy organization. The Sierra Club, the National Rifle Association, and Planned Parenthood are examples of well-known organizations that operate using paired (c)(3) and (c)(4) affiliations.

In short, if Mr. Egger wants to advocate on behalf of the homeless, there are already plenty of options available to him and his organization. The one thing he cannot do is have his organization endorse or fund a particular candidate out of the belief that this candidate will foster policies that will aid the homeless.

The specific prohibition in Section 501(c)(3) against political interventions by charities is necessary if the tax system is to yield rational and consistent results.

The tax law prohibits individuals from deducting campaign contributions and expenditures. Without the limitations imposed on charities, individuals would use charities to convert what would otherwise be nondeductible campaign contributions into deductible charitable contributions.

We are now engaged in a two-year-long presidential campaign, with televised debates taking place on what seems to be an almost weekly basis, some 17 months before the election. One thing is driving this accelerated schedule: money and the potential for a knockout punch that comes with amassing it quickly.

Politics is a magnet, pulling money from every source that can legally succumb to its attraction.

Were charities permitted to contribute to campaigns, politicians would force them to divert money to political campaigns that would otherwise benefit the hungry, sick, and homeless. Pay to play would become the name of the game. Government grants (and earmarks) would turn on which charity gave the most to the victor, not on whether a particular charity is most effective in achieving its mission.

Fund raisers would find themselves confronted by an entirely new set of problems. Both Republicans and Democrats can agree that contributions to a well-run food bank or literacy program are worthy. But would that consensus hold if the food bank endorsed a Republican or Democratic candidate for president?

If the only campaign were the presidential one, the potential for donor boycotts might be manageable. But U.S. senators and representatives, state legislators, governors, and other statewide office holders, and city and county elected officials would also be looking for endorsements, placing charities in an untenable position. Donors who opposed a candidate who received a charity’s endorsement would have every right to say “not with my money.”

In short, free speech is a great thing, but sometimes a muzzle is a blessing in disguise.

Jack B. Siegel
Principal
Charity Governance Consulting
Chicago

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To the Editor:

Robert Egger is certainly correct in his call for tax-exempt organizations, including section 501(c)(3) public charities, to join the public debate in election years and in other years as well.

Unfortunately, he is wrong in his claim that they have been “bullied into silence” by laws that allow corporations to contribute to candidates and to lobby, while exempt entities can do neither. Mr. Egger’s article is an example of an interesting claim undermined by supportable premises.

Section 501(c)(3) organizations are entirely free to take hard-hitting positions on controversial issues. Speaking truth to power is and always has been public education, which is a charitable activity. The Internal Revenue Service created confusion, at the very least, in its ill-advised and, indeed, inexplicable examination of the NAACP based on a speech by its president, Julian Bond, at the NAACP national convention in July 2004.

Surprisingly, Mr. Egger does not mention this episode, which ended last year when the IRS decided that it had no case against the NAACP. In June the IRS issued Revenue Ruling 2007-41 that affirms the distinction between issue advocacy consistent with exempt status and the kind of participation in an election campaign that jeopardizes exempt status.

Instead, his article suggests that taxable corporations can make campaign contributions to candidates and receive subsidies comparable to the value of exemption from taxation and the charitable-contribution deduction available to contributors. This is simply not the case.

It is certainly true that taxable entities, along with homeowners and many others, receive valuable incentives through the tax system. This is an area that should be carefully examined to determine whether taxpayers are receiving a good return on the investment of their tax dollars in these various benefits and incentives.

But it is not true that taxable corporations can use money from their corporate treasuries to make campaign contributions. This is prohibited by federal election law. The subsidy is precluded by Section 162(e), which provides that any political expenditures and any lobbying expenses cannot be deducted as ordinary and necessary business expenses.

Organizations classified under Section 501(c)(4) of the Internal Revenue Code are treated more favorably than are corporations because they can use all of the money in their corporate treasuries to lobby and can use some part, but not the primary part, of their general treasury fund to participate or intervene in political campaigns. Section 501(c)(3) organizations can engage in some amount of legislative lobbying using funds that have been deducted by the contributors as charitable contributions and which are not taxed to the organization.

The Supreme Court held in Regan v. Taxation with Representation that the limitation on lobbying by section 501(c)(3) organizations compared to section 501(c)(4) organizations did not impermissibly burden the First Amendment rights of public charities.

Indeed, after all of this, Mr. Egger notes that some section 501(c)(3) organizations are planning to devote substantial sums to issue advocacy in the 2008 campaign. This is as it should be. I agree with Mr. Egger that charities have been too silent for too long on too many vital issues. I agree that “charities must challenge politicians,” as Mr. Egger suggested. I would welcome a discussion of new rules for issue advocacy.

Charities should speak truth to power. In my view, some charities and other exempt entities have been far too eager to use their exempt status to entrench the power of the already powerful. While the exempt entities that transferred money at the direction of Jack Abramoff are the shabbiest examples, they are not the only examples of this unfortunate abuse of their exempt status. Why have nonprofit leaders been so silent on this kind of behavior?

But why does Mr. Egger mount such a spirited defense of the situation at the Smithsonian, a pattern of behavior that even theSmithsonian’s board is at pains to correct and for which it is apologizing?

If there is to be a productive discussion about the role of exempt entities in the modern world, then let’s have that discussion based on the law as it is and on the many roles that many exempt entities have played or may aspire to play. This will be a difficult discussion of challenging complexity. Misstating the premises for such a discussion certainly does not help.

Despite its shortcomings, Mr. Egger’s article is encouraging in suggesting that at least some nonprofit leaders want to speak truth to power rather than to curry favor with and funds from the powerful.

Frances R. Hill
Professor of Law
University of Miami School of Law
Coral Gables, Fla.