The Image of Charitable Organizations Is At Risk

The Supreme Court’s landmark Citizens United decision in 2010 held that the portions of the McCain Feingold campaign reform act that prevented corporations and unions from making “electioneering communications” within sixty days of an election violated their right of free speech. This has opened the door to a flood of money to the so-called “Super PACs”, and to nonprofits organized as “social welfare” organizations under section 501c4 of the IRS code. It threatens to corrupt the campaigning process by effectively circumventing all campaign finance restrictions. It also threatens to tarnish the image of the 501c3 organizations that operate exclusively for charitable purposes.

The Super PACs, or Political Action Committees, are able to contribute directly to campaigns, but are also able to make “independent expenditures” of money for campaign ads which the candidates can justifiably say they had nothing to do with. Attack ads in the current presidential campaign have become especially vicious against both candidates, and often include charges that lack credibility.

However, the Super PACs have one disadvantage: they must identify their donors. Thus, a significant new player has now emerged, the so-called “social welfare” organizations. Like the Super PACs, these 501c4s also make independent campaign expenditures, but do not have to disclose their donors. As a result, they are now substantially outspending the Super PACs roughly three to two, $95 million to $65 million in the 2010 Congressional elections.

In an article published in the Chronicle on Philanthropy, Larry Ottinger, a civil rights lawyer, comments on how 501c4 organizations are straying from their original purpose, stating “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.”

He goes on to say that “Misuse of 501c4 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.”

This flow of essentially unregulated campaign finance money represents a major threat to the integrity of the campaigning process. While “fact checkers” may have some influence over information flowing directly from the candidates, the Super PACs and social welfare organizations have much more latitude to say whatever they care to.

And those of us who are concerned about the image of the charitable 501c3 organizations cannot help but worry about the possibility that 501c4s, with their new found wealth and status, may tarnish the image of the whole nonprofit sector, the charities included.

Are the actions of the 501c4 organizations harmful and detrimental to the reputation of 501c3 organizations? For readers interested in looking in to this question in more depth, the following are several helpful links:

http://funderscommittee.org/resource/charities_must_take_a_stand_on_partisan_groups_masquerading_as_nonprofits

http://www.demos.org/publication/million-dollar-megaphones-super-pacs-and-unlimited-outside-spending-2012-elections

http://www.nonprofitquarterly.org/policysocial-context/20543-political-501c4s-outspend-super-pacs.html

We will welcome comments from our readers. Could the actions of the 501c4 social welfare organizations adversely impact the image and the tax preferences for the 501c3s? If so, is it time for you to urge your advocacy groups to weigh in on the issue?

Leonardo Cruz, Deputy Director
Nonprofit Sector Resource Institute
Seton Hall University

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About Robert Calkins

In banking (JP Morgan) for 25 years. Long time interest in the nonprofit world. Excited to be with the Nonprofit Sector Resource Institute at Seton Hall University. Active in my church. Love playing the guitar and singing. Love playing bridge and working out each morning (well, most mornings).
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