Forum Post: Thumbing Their Noses at Us: Election-Based Nonprofits Flouting Their Charters (Part One)
Posted 12 years ago on July 5, 2012, 8:34 p.m. EST by LeoYo
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Thumbing Their Noses at Us: Election-Based Nonprofits Flouting Their Charters (Part One)
Thursday, 05 July 2012 11:08 By Dina Rasor, Truthout | Solutions
We interact with nonprofit organizations every day - little league, Girl Scouts, churches, League of Woman Voters, the PTA, the Rotary Club, volunteer firefighter organizations and veterans' service organizations. The US tax law set up two main types of nonprofit organizations to help the general society. The IRS describes them this way:
501(c)3 non profit organization - Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals Organizations. 501(c)4 non profit organization - Civic Leagues, Social Welfare Organizations and Local Associations of Employees
C3 organizations do not have to pay tax on their income, and donors can take a charitable tax deduction. C3 organizations are not allowed to be involved in political campaigns, but can do limited lobbying for legislation that involves their mission. C4 organizations also don't have to pay taxes on their income, but donors cannot take tax deductions. C4 organizations are allowed to lobby and even be involved in political campaigns, with restrictions. Both C3 and C4 organizations do not have to divulge the names of their donors. According to Wikipedia:
501(c)(4) organizations are generally civic leagues and other corporations operated exclusively for the promotion of social welfare, or local associations of employees with membership limited to a designated company or people in a particular municipality or neighborhood and with net earnings devoted exclusively to charitable, educational, or recreational purposes.[32] 501(c)(4) organizations may lobby for legislation and unlike 501(c)(3) organizations they may also participate in political campaigns and elections, as long as its primary activity is the promotion of social welfare.[33]
The actual IRS language is more blunt on the limitations for C4 political activity:
The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office. However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax under section 527(f).
As with any law in the United States, it is only as effective as the government's willingness to enforce it. Right now, under the current "anything goes" mentality since the US Supreme Court's Citizens United case, some wily "educational" "charitable" and "social welfare" C3 and C4 organizations have opened the floodgates to unlimited political money and they don't have to tell us who is giving it to them. The IRS stated limitations above have become election year road kill, especially since these groups know that any excessive violations of the political restrictive rules won't be looked at until after the elections or perhaps not at all. In fact, even though the media and the public have been fixated on the new super PACs, which have been flooded with seemingly unlimited money from selected millionaires and billionaires, the 2010 election cycle showed that C4 nonprofit organizations continue outspending them. According to a June article by iWatch:
A joint investigation by the Center for Public Integrity and the Center for Responsive Politics has found that more than 100 nonprofits organized under section 501(c)(4) of the U.S. tax code spent roughly $95 million on political expenditures in the 2010 election compared with $65 million by super PACs. Nearly 90 percent of the spending by these nonprofits - more than $84 million - came from groups that never publicly disclosed their funders, the joint analysis of Federal Election Commission data found. Another $8 million came from groups that only partially revealed their donors. Unlike the nonprofits, super PACs are required to release the names of their contributors. In terms of party allegiance, conservative "social welfare" groups outspent liberal groups $78 million to $16 million, nearly 5-to-1, according to the analysis.
Three of these Republican-leaning C4 organizations made up for the bulk of the campaign money spent, including Crossroads GPS, which is run by former Bush administration operative Karl Rove. Crossroads GPS spent $17 million alone in the 2010 midterm election cycle where there weren't presidential candidates on the ballot. On Crossroad GPS' web site, three of the four news items listed were about the organization's "issue ads" they were running against Obamacare and wasteful spending by the Democrats. Yet, on that same web site, Crossroads GPS emphasized that they were a grassroots organization with language that made them look like a "social welfare" advocacy group that hadn't spent huge sums on Republican-based political attack ads and were gearing up for the 2012 elections with more undisclosed money for more attack ads. Yet, the IRS rules strictly say that a C4 organization can be involved in "some political activities, so long as that is not its primary activity." Is the public really supposed to believe that Mr. Rove and his associates do not plan to spend the rest of this year, as they did in the election of 2010, running political advertisements as their "primary" activity? Here is Crossroads GPS' explanation of what their primary activity is from their web site:
Crossroads GPS is a policy and grassroots advocacy organization that is committed to educating, equipping and mobilizing millions of American citizens to take action on the critical economic and legislative issues that will shape our nation's future in the years ahead. Our goal is to provide a clear road map for concerned Americans on the most consequential issues facing our country, empowering them to set the direction of policymaking in Washington rather than being the disenfranchised victims of it.
The Democrats are using C4 organizations to also raise money for ads, but have raised more money through their super PACs. It is a touchy subject since many Democrats have heavily criticized the practice of not disclosing the C4 donors and have put in legislation to force all organizations to disclose donors who are giving to election activities. The Democrats have not been nearly as successful as the Republicans in raising money through the C4 organizations. However, Bill Burton, who runs both of the two main organizations (Priorities USA and Priorities USA Action) that support President Obama's re-election, is unapologetic about running election-based money through a C4 organization. According to Nonprofit Quarterly, "since getting out-advertised by Republican (c)(4)s last time around, the Democrats feel they have no choice but to play the game. Bill Burton, Obama's former deputy press secretary who runs both the Priorities (c)(4) and its PAC, said, "We may not like the rules, but we're not going to let Karl Rove and the [conservative billionaire] Koch brothers play by one set of rules while we are overrun with their millions." Burton has admitted that Priorities USA, his C4 organization, will also follow the lead of the Republicans and not disclose all their donors. Priorities USA also has a similar bland explanation of their mission that is as nondescript as the Crossroads GPS mission statement above, but it is interesting that Crossroads GPS specifically tells donors on their donor page that it is their stated policy that their donations will not be made public. There is no such promise on the Priorities USA page. So, is there truly a serious problem with these C4 organizations being used way beyond their legal charters and as a place to put undisclosed donors? Consider what happened to one campaign in the 2010 elections, according to iWatch:
Alexi Giannoulias "can't be trusted," the 2010 election ad said. His family's bank loaned money to mobsters, he accepted an illegal tax break and he even squandered money that families were saving for college. If the charges were true, the U.S. Senate candidate from Illinois must have been a real creep. But they were bogus. Giannoulias, the Democratic candidate, lost anyway. His accuser was not his opponent. It was an anonymously funded, pro-Republican nonprofit called Crossroads GPS, a "social welfare" organization that, thanks to the U.S. Supreme Court's Citizens United decision, can accept unlimited donations from corporations, wealthy individuals and unions and run attack ads.
This type of bastardization of valid rules on nonprofit C3 and C4 charities and social welfare groups not only hurts the transparency of our elections, but also threatens the actions and safeguards of real and legitimate advocacy groups. There have been several waves of attempts to reform this system that have failed in the gridlock of Congress. However, the other question is: why isn't the IRS enforcing their own rules? Next week's column will explore realistic possibilities for reforming the laws to prevent the circumvention of IRS nonprofit rules, and whether or not the IRS has the strength and internal will to enforce their own rules during one of the most expensive, unfair and highly politically charged elections since 1972. If Truthout readers have information and/or ideas on this broken system, contact me at dina@truthout.org.
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ALEC Accused of Violating Its Tax-Exempt Status; Will the IRS Take Action?
Thursday, 05 July 2012 09:48 By Jason Leopold, Truthout | Report
Nonprofit Groups Shield Millions in Political Gifts From Big Business
Sunday, 08 July 2012 09:45 By Mike McIntire and Nicholas Confessore, The New York Times News Service | Report
http://truth-out.org/news/item/10209-nonprofit-groups-shield-millions-in-political-gifts-from-businesses
American Electric Power, one of the country's largest utilities, gave $1 million last November to the Founding Fund, a new tax-exempt group that intends to raise most of its money from corporations and push for limited government.
The giant insurer Aetna directed more than $3 million last year to the American Action Network, a Republican-leaning nonprofit organization that has spent millions of dollars attacking lawmakers who voted for President Obama's health care bill — even as Aetna's president publicly voiced support for the legislation.
Other corporations, including Prudential Financial, Dow Chemical and the drugmaker Merck, have poured millions of dollars more into the U.S. Chamber of Commerce, a tax-exempt trade group that has pledged to spend at least $50 million on political advertising this election cycle.
Two years after the Supreme Court's Citizens United decision opened the door for corporate spending on elections, relatively little money has flowed from company treasuries into "super PACs," which can accept unlimited contributions but must also disclose donors. Instead, there is growing evidence that large corporations are trying to influence campaigns by donating money to tax-exempt organizations that can spend millions of dollars without being subject to the disclosure requirements that apply to candidates, parties and PACs.
The secrecy shrouding these groups makes a full accounting of corporate influence on the electoral process impossible. But glimpses of their donors emerged in a New York Times review of corporate governance reports, tax returns of nonprofit organizations and regulatory filings by insurers and labor unions.
The review found that corporate donations — many of them previously unreported — went to groups large and small, dedicated to shaping public policy on the state and national levels. From a redistricting fight in Minnesota to the sprawling battleground of the 2012 presidential and Congressional elections, corporations are opening their wallets and altering the political world.
Some of the biggest recipients of corporate money are organized under Section 501(c)(4) of the tax code, the federal designation for "social welfare" groups dedicated to advancing broad community interests. Because they are not technically political organizations, they do not have to register with or disclose their donors to the Federal Election Commission, potentially shielding corporate contributors from shareholders or others unhappy with their political positions.
"Companies want to be able to quietly push for their political agendas without being held accountable for it by their customers," said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, which has filed complaints against issue groups. "I think the 501(c)(4)'s are likely to outweigh super PAC spending, because so many donors want to remain anonymous." Because social welfare groups are prohibited from devoting themselves primarily to political activity, many spend the bulk of their money on issue advertisements that purport to be educational, not political, in nature. In May, for example, Crossroads Grassroots Policy Strategies, a group co-founded by the Republican strategist Karl Rove, began a $25 million advertising campaign, carefully shaped with focus groups of undecided voters, that attacks Mr. Obama for increasing the federal deficit and urges him to cut spending.
The Internal Revenue Service has no clear test for determining what constitutes excessive political activity by a social welfare group. And tax-exempt groups are permitted to begin raising and spending money even before the I.R.S. formally recognizes them. Two years after helping Republicans win control of the House with millions of dollars in issue advertising, Crossroads GPS's application for tax-exempt status is still pending.
During the 2010 midterm elections, tax-exempt groups outspent super PACs by a 3-to-2 margin, according to a recent study by the Center for Responsive Politics and the Center for Public Integrity, with most of that money devoted to attacking Democrats or defending Republicans. And such groups have accounted for two-thirds of the political advertising bought by the biggest outside spenders so far in the 2012 election cycle, according to Kantar Media's Campaign Media Analysis Group, with close to $100 million in issue ads.
US Supreme Court Deals Blow to Unions, Shows Preference for Corporate "Rights"
Friday, 06 July 2012 13:05 By Brendan Fischer, PR Watch | News Analysis
http://truth-out.org/news/item/10191-us-supreme-court-deals-blow-to-unions-shows-preference-for-corporate-rights
A little-noticed U.S. Supreme Court decision from June 21 has dealt a blow to public sector unions and demonstrated the conservative majority's preferential treatment for corporate "rights." The decision in Knox v. SEIU could have an impact on future election cycles. The Court's broadly-drafted opinion establishes new burdens for unions to raise resources for certain political activities. The ruling, which has been described as an "activist decision" because it dealt with issues not before the court, is written in such a way that it could also threaten unions' ability to raise any political funds, or even raise money for their very existence. Because unions are one of the few counter-weights to corporate spending in elections, diminishing union political power will increase relative corporate influence over politics. Perhaps most importantly, when compared with other recent Supreme Court decisions, it becomes clear that the conservative majority is laying out a double-standard for how corporations and unions can be involved in the political process.
Court Makes New Law, Requiring "Opt-In" for Certain Union Fees Unions have an obligation to represent all employees in a bargaining unit, regardless of whether an individual employee chooses to join the union. To avoid non-union employees reaping the benefits of this representation without paying the costs -- thereby "free-riding" on the dues paid by the other employees -- non-union members can be required to pay their fair share of the collective bargaining expenses. However, employees are not required to pay for the union's political activities. Many years ago the U.S. Supreme Court crafted a rule giving employees a right to opt-out of funding the union's political expenses, such as campaign activities. According to the rule, unions are supposed to annually notify employees about the year's expected expenses and give dissenting employees an opportunity to "opt-out" and not pay for the political and other costs not related to bargaining.
In this case, the SEIU issued an "emergency" dues increase, not anticipated in the annual notice, to raise funds for fighting anti-worker initiatives on the ballot in California. It did not provide dissenting nonunion employees an opportunity to opt-out of paying for the political expenses, and a handful of these employees sued. A lower court required the SEIU to send a new notice and the union refunded the expenses to non-members who requested it.
Seven justices agreed that prior to the SEIU deducting dues from nonmembers, it should have sent an additional notice about the political expenses and provided an opportunity for nonmembers to not fund the activities. But the five conservative justices went further, and like they did in Citizens United, addressed an issue that was not before the court to establish new law. Justice Alito, writing for the majority, said that unions can only assess a dues increase like this one if employees affirmatively choose to opt-in, departing from the long-standing principle that opting-out of paying for political expenses was constitutionally sufficient. This creates new bureaucratic burdens for unions to raise funds for political activity. What's more, the majority opinion's language suggested that the "opt-in" requirement might apply to all mandatory dues arrangements, which could potentially end the requirement that non-union employees be required to pay the costs of union representation. This would essentially create nationwide "Right to Work" standards. And that would be a massive blow to public sector unions.
Additionally, even though Citizens United opened the door for both corporations and unions to spend more freely on elections, the Knox decision will likely mean that unions will have fewer resources with which to do so. As John Nichols notes in The Nation this impact could compel labor to get serious about a constitutional amendment to overturn Citizens United.
But there's more.
Preferential Option for Corporations
Harvard Law Professor Benjamin Sachs notes that "the Court's concern for avoiding compelled funding of union political speech stands in stark contrast to the lack of concern for compelled funding of corporate political speech."
In Citizens United, the court ruled that corporations (and unions) have a First Amendment right to fund independent political expenditures from their general treasuries. If individual shareholders disagree with the way a corporation is funding political attack ads or bankrolling front groups, they have no right to opt-out and ask that their investments not be used for those purposes. Unions must get this permission. And corporations certainly have no obligation to ask shareholders (who are officially the corporation's owners) to opt-in, and give affirmative permission for their ownership shares in the corporation to be used for political activities. The Court in Knox signaled that unions might have to get this permission.
"To put it simply," Sachs writes, "the law gives employees the right to opt out of funding union political speech, but shareholders get no right to opt out of funding corporate political speech. This kind of differential treatment of political speakers is inconsistent with the American ideal of treating political speakers equally."
"Taking seriously the arguments in Knox and the Court's other cases about compelled political speech and association means extending these principles beyond the union context and to the corporate one," he said.
There have been some legislative efforts to make this a reality. Sen. Bob Menendez (D-NJ) and Rep. Mike Capuano (D-MA) have introduced the Shareholder Protection Act, which would require shareholder approval for a company's expenditures in the coming year, that the company's board of directors vote on political expenditures over $50,000, and to make the vote public within 48 hours.
Erwin Chemerinsky, Dean and Distinguished Professor of Law at the University of California-Irvine School of Law, supports similar legislation on the state level. "A state can adopt a law which says that neither a corporation nor a union can spend money on political activities without the consent of the individuals. If the Supreme Court is going to require opt-in for unions, it seems only fair and appropriate that the same be required for corporate political spending," he writes.
But in the wake of successful attacks on public sector unions in Wisconsin, Indiana, Florida and elsewhere, and with a network of right-wing institutions like the American Legislative Exchange Council (ALEC) pushing an anti-union message, passing legislation that is "fair and appropriate" may still be a long way off.