This election year, some savvy political donors will get a little something extra for their contribution: a tax deduction.
In a few cases this is perfectly legal. In others however, the legality is questionable at best.
All this is thanks to lax oversight, loopholes and, believe it or not, a single paragraph tucked into the 2,000 page federal budget passed late last year.
THE PARAGRAPH
When the federal budget was passed by the U.S. House a few weeks ago, Republican Paul Ryan seemed downright breathless rattling off his executive summary. "We are increasing military spending. We are tightening security requirements under the nation’s visa waver program," he told a press conference crowd.
Then the newly minted Speaker of the House of Representatives said this. "We are freezing most IRS operations and stopping the IRS from suppressing civic participation in 501(c)4 organizations."
For the next fiscal year, the election basically, the federal budget prohibits the IRS from issuing, revising or finalizing any regulation to determine if a social welfare group, a 501(c)4 in other words, is playing by the rules. It makes it easier for political groups to form 501(c)4s and, here’s the important part for this story, it stops the IRS from finalizing a definition.
"It was a rule that we were hoping would apply across all entities, all 501(c)s to define political activity." says Lisa Gilbert, a director with the watchdog group Public Citizen. Note she said all 501(c)s. This means not just the (c)4s we’ve been talking about so far. It also includes (c)3s, groups like charities and churches.
And Gilbert says the liberal leaning Public Citizen wasn’t alone in this quest for clarity. "We’ve worked with groups like evangelical Christians who want to more clearly understand what people who stand at the pulpit can say. And other interesting entities like that."
Both 501(c)3s and (c)4s can take unlimited amounts of money and keep their donors lists secret. For years 501(c)3s have held a coveted spot in the world of non-profits says Larry Noble, general council at the non-partisanCampaign Legal Center. "Contributions to the organization are tax deductible by the donor. So that’s, in a sense, the highest level of charitable organization."
LOOPHOLES AND LAX OVERSIGHT
These are groups like churches but also the Red Cross, Boys and Girls Clubs and yes, this public radio station.
The IRS isn’t in the business of subsidizing political activity, so (c)3s aren’t supposed to do any. These charitable organizations can take part in some non-partisan election activity, like supporting ballot initiatives and doing voter registration.
And Larry Noble notes the IRS has a facts and circumstance test to determine if a group has gone too far. "It’s basically a ruling that lists 11 facts and circumstances they can look at to determine if something is political." It sounds robust, but Noble adds it’s kind of a mess. "This is one of my favorite parts of it, it says at the end that you may have all or none of these factors and be seen as political or not political." How’s that for clarity?
Add to that the 2010 Citizens United Case, which flipped campaign finance laws on their heads and an IRS clause that allows 501(c)3s to spend up to $1 million on lobbying and issue advocacy and you end up with ads like this:
http://www.youtube.com/watch?v=ydaOFfIMFTQ&feature=youtu.be
So far, we’ve been spared from the political ad bonanza that is sure to come. This is from the 2014 U.S. Senate fight between Kay Hagan and Thom Tillis. Officially, it’s an issue ad about clean air. The Southern Alliance for Clean Energy ran the ad at a cost of just under $1 million. Stephen Smith, the group’s executive director made it clear how it was paid for. "These ads are done under the 501(c)3 because they are not explicit advocacy in an electoral sense for the candidate."
Translation – they didn’t say vote for Kay Hagan. And the donors for this ad got the same tax deduction they would have received if they had given to the Pediatric Cancer Foundation.
GIVING TO OTHER GROUPS
There’s another way these groups can get their money into politics says Republican political consultant Larry Shaheen. "The 501(c)3 money can go to 501(c)4 activities if they give it to the 501(c)4."
Why would they do that? Simple, (c)4s can delve right into political activity. But they can’t give their donors tax deductions; (c)3s can. Officially, that money from a (c)3 still shouldn’t be used for political activity.
But Larry Noble says there are other ways a (c)3 can effectively subsidize the activities of the (c)4. "If the (c)3 pays for the rent and the overhead of the (c)4, it frees up money for the (c)4 to use for political activity and that’s a problem."
A problem Noble says the IRS is not likely to catch. "Is that audited? Probably not that often. Is the IRS aggressive about it? Not these days."
And these days groups like the NRA, the ACLU and the Sierra Club and many others all have (c)3s and (c)4s under their control. And even if a group is audited, since the IRS is barred from issuing that definition this election year, the chances of being caught are slim.
