The scandal resulting from the IRS examination of a swath of politically conservative groups’ applications for 501 (c)(4) status has also resulted in questions about the validity of this classification within the IRS’s “501 nonprofits” group.
Essentially, (c)(3)’s exist for charitable purposes, while the (c)(4) classification allows for groups too politically active and/or engaged in working for the benefit of a member group to qualify as charities — though they, too, feel their work will enhance society.
These groups can operate for social welfare purposes, as local associations of employees whose net earnings are devoted exclusively to charitable, educational or recreational purposes or some other political purposes as long as these are not the bulk of the organization’s activities.
Examples of such (c)(4) groups include homeowner associations, community development associations of various kinds, fire protection services, public housing authorities and community airport commissions.
Few would argue the public good such organizations accomplish in their local communities.
The general public is more familiar with 501 (c)(3)’s, which include public charities and private foundations operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes or to foster national or international amateur sports competition or for the prevention of cruelty to children or animals.
The (c)(3) groups are prohibited from supporting political candidates and can engage only in limited lobbying. But (c)(4)’s are allowed to engage in unlimited lobbying for their cause and can engage in some political activity as long as it’s not the organization’s primary activity.
While donors to charities can receive deductions for these contributions on their income taxes, the (c)(4)’s do not get this benefit.
Because (c)(4)’s are not required to reveal their donors, it opens plenty of opportunity for abuse. A variety of reports from respected national media indicate that several groups have taken blatant advantage of this classification in their spending on political activities.
Significantly more organizations began applying for (c)(4) status after the Supreme Court’s Citizens United decision further opened the gate to political expenditures.
The IRS is performing its correct function to assure that a group applying for 501(c)(4) status is not simply a political group masquerading as a (c)(4). How they went about it in this instance was wrong.
Ensuring the IRS is fair and even handed in its examination of tax-exempt applications is the right thing to do. But we also need to recognize that the IRS needs to be able to effectively investigate the abuse of tax-exempt classifications.
Let’s not kid ourselves that there are no political motivations in these discussions. Our federal representatives need to empower the IRS to investigate this activity even as they are examining what happened with the current missteps.
Sarah Todd is founder of Change Pioneers, a resource on effective social change leadership. She can be reached at 912-224-2120 or toddsar@gmail.com.