An Innovative Idea for Throttling Tax-exempt Secret Campaign Contributions

April 11, 2012; Source: Campaign for America’s Future

Greg Colvin of Adler & Colvin is one of the best public interest lawyers we’ve encountered. Here, Colvin weighs in on one of our favorite topics: how to make the secret donations to independent, tax-exempt political organizations more transparent.

Colvin proposes “A Silver Bullet That Would End Secret Tax-Exempt Money in Elections.” He points out, as we have repeatedly done in the NPQ Newswire, that Super PACs and 527s are required to disclose the names of their donors, but 501(c)(4) social welfare organizations and 501(c)(6) business or trade associations get to behave like 501(c)(3) public charities and keep the names of their donors and the amounts they give secret. These (c)(4)s and (c)(6)s get to make independent campaign expenditures or donate to PACs while keeping the donors’ names hidden from the public.

Colvin notes the fundamental issue with these nonprofits is that they are not supposed to devote more than half of their program activity to partisan political purposes, but a number of ambiguous matters cloud the issue. Who really knows what counts as political and what doesn’t? How far back should one look? Do the donations of all donors count toward an organization’s political activities when some donors might have contributed for the organization’s social welfare functions? Are revenues from donations to be treated the same way as revenues from investments or from fundraising events? But ultimately, the fundamental problem is one of determining what amounts to half of an organization’s program activities, and in the case of (c)(4)s, what parts count as political versus social welfare functions. In fact, is anyone sure that the IRS really means half when it says that partisan political activity must not be the primary work of the entity?

It’s so darn confusing!

Given all that uncertainty, Colvin proposes a new Internal Revenue Code that would deny tax exempt status to any organization that spends (in any tax year) more than the lesser of $100,000 or 10 percent of its total expenditures participating or intervening in political campaigns for or against candidates. Those activities would include publishing or distributing materials for or against candidates. 501(c)(3) public charities would still be prohibited from engaging in partisan political campaign activities. This gets us past the

problem of figuring out what half of an organization’s activities might be. Rather, there’s simply a quantitative threshold. You go over, you lose your tax-exempt status.

Would his proposal drive all political contributions out of the tax exempt 501(c) universe? No, but it would drive out the mammoth 501(c)(4)s like Karl Rove’s Crossroads GPS which were, despite protestations to the contrary, created primarily to be instruments for secret political donors to finance campaign activities. Crossroads GPS and others on the right and left might be able to skirt the murky standards of the law right now, but with Colvin’s proposal, they’d likely be out of the game. Do you like Colvin’s idea?—Rick Cohen

  • John Sayles

    It is certainly a step in the right direction, but couldn’t (c)(4)s and (c)(6)s just collect their donations and pass them along as grants to PACs and 527s? It gets them out of the direct advocacy business, but not out of the money laundering business.

  • Ralph Rosenberg

    Two comments:

    1. Is there any chance this could pass even one chamber in Congress?

    2. However, quickly moving away from a knee-jerk cynical response, what benefits accrue from raising specific proposals?

    3.Proposals, like this, may have advantages, especially in concert with other efforts such as to overturn Citizens United, by Constitutional amendment. It is concrete, specific, and candidates on the campaign trail, as well as editorial boards, can be asked to stake out positions on this.

    4. If enacted, would this proposal pass [I]Citizens United[/I] scrutiny?

    5. First companion idea: Can contributors be required to identify themselves if they fall within other categories, such as already giving to PAC’s or 527s, or are registered lobbyists?

    6. Second companion idea: Can this proposal have greater chances of success, if applied to certain races, like judicial elections (which attract many of the same donors)

    thank you