Charities Must Take a Stand on Partisan Groups Masquerading as Nonprofits

As the November election approaches, partisan political groups that are masquerading as social-welfare nonprofits have taken center stage.

This development, emerging in the aftermath of the Supreme Court’s 2010 Citizens United ruling, raises critical issues about the role and the reputation of social-welfare and charitable organizations, which are required by law to operate primarily for public purposes and not for private gain.

Yet the main coalitions that represent nonprofits and foundations have been mostly silent, declining to weigh in on a controversy that has prompted calls for advocacy groups to disclose their donors and could even threaten nonprofits’ tax exemptions.

The Citizens United ruling allows noncharity groups that are independent of political candidates to spend large amounts of money to influence elections. Social-welfare organizations, or advocacy groups covered by Section 501(c)(4) of the federal tax code, have become the main vehicles for purportedly independent political advertising.

According to a May analysis by The Washington Post, about 90 percent of this advertising—roughly $28.5-million worth—came from social-welfare nonprofits, which generally do not have to reveal their donors, not from the better-known “super PACs,” which do have reporting requirements.

These ads are highly partisan on both sides. The Post noted that most of the ads were being aired in electoral swing states by conservative groups, led in spending by Crossroads GPS, a nonprofit headed by Republican operative Karl Rove.

Under the federal tax code, such advocacy groups must devote most of their work to promoting the social welfare, not to activities designed to promote or defeat specific political candidates or parties. However, these partisan nonprofits are testing the limits of the law. The IRS, sensitive to political pressure and not quick to confront controversial matters, has been proceeding cautiously.

Misuse of 501(c)(4) groups by political operatives, regardless of political or ideological affiliation, tarnishes the image of all nonprofits, but especially the country’s more than 110,000 social-welfare groups that are advocating on issues like education, health, and human rights.

If huge sums of money continue to flow through these organizations for clearly partisan purposes, it could weaken support for the tax exemption granted to social-welfare organizations and lead to inappropriate government regulation.

What’s more, the Citizens United ruling has led to growing demands from the public and policy makers for political-advocacy groups to reveal their donors.

In 2010, the U.S. Senate came within one vote of passing the Disclose Act, which would have imposed donor-disclosure requirements on 501(c)(4) nonprofits, businesses, and unions for election-related spending. Senate Democrats this month tried unsuccessfully to pass a narrower version of the bill.

But the organizations that represent nonprofits in Washington have been absent from the policy debate about this legislation.

While the Citizens United decision did not delve into the tax rules for public charities or private foundations, which are covered by Section 501(c)(3) of the tax code, it still has important ramifications for their advocacy.

These groups continue to be prohibited from partisan political activity, which is critical to maintaining their reputation and effectiveness as nonpartisan problem solvers. However, because the Supreme Court opened the door to rules for political speech, some nonprofit leaders might want to use its reasoning to challenge this ban on partisan activity.

Since taxpayers and policy makers would be loath to subsidize partisan political spending, this could seriously jeopardize the charitable tax deduction. At the same time, social-service charities and their donors have been stifled far too much from nonpartisan advocacy for their causes.

While the Citizens United decision has unleashed massive political spending that diminishes even further the relative voice of charities, it also provides an opportunity for a much-needed updating of charitable advocacy rules.

The default lobbying rules that still govern more than 90 percent of the nation’s charities date back to 1934 and are confusing, vague, and outdated

In addition, the law effectively prohibiting foundations from lobbying and earmarking grants to charities for lobbying, now more than 40 years old, has sown tremendous fear and confusion about permissible advocacy among private foundations.

This is true even though such foundations can legally engage in advocacy as long as they don’t lobby, can finance charities that lobby, and can both pay for and engage in nonpartisan voter activities.

What’s more, the IRS’s rules on nonpartisan voter education and get-out-the-vote activities by charities, foundations, and other nonprofits are vague and confusing, defining what is permissible case by case.

The recent spate of state laws making it harder for racial minorities and other groups to vote demand the attention of all nonprofits, along with broader money-in-politics reforms. All of these regulations chill broad civic participation essential to our democratic process, while making it more difficult and costly for nonprofits to follow the rules and for governments to enforce them.

The time for action on these issues is long overdue.

For starters, Republicans and Democrats both are committed to overhauling the tax code after the 2012 elections, and proposals to simplify and update the charitable lobbying rules should be part of the package. Clearly, nonprofit associations that represent charities and foundations on Capitol Hill have a tremendous amount on their plates with increased human needs and diminished resources. They do important work and encourage lobbying and other advocacy by their members. Also, these issues are complex and challenging.

That said, why haven’t they weighed in more on political issues that so centrally affect the reputation of nonprofits and their ability to serve society?

They may be constrained by conflicting views among their members when dealing with politically controversial or otherwise hotly contested issues. Some members may fear government regulation of nonprofits and argue that nonprofits should keep a low profile rather than risk the ire of policy makers. Also, money often dictates what organizations do, and grant makers are devoting insufficient funds to advocacy rights. And some nonprofit coalitions consider social-welfare organizations and politics as generally beyond their purview.

But failing to speak up more fully on these issues will not make them go away. Rather, it will mean that others will decide them. Nonprofits are an essential part of American democracy, and nonpartisan advocacy may be a tonic for the polarized politics of these times.