What to Do about “Reputational Risk” to Nonprofits from Political Spending?

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March 20, 2012; Roll Call

Now at Roll Call after an excellent run at the National Journal, Eliza Newlin Carney is still keeping a close eye on the political dimensions of the nonprofit sector. She comments that in this election cycle, “politically active nonprofits are the new bad guys, drawing ethics complaints, letters to the IRS, and legislative action.” She might actually mean letters from the IRS, as the IRS has looked behind the curtain of some 501(c)(4) social welfare organizations to see exactly what they are doing to warrant their continued 501(c) status.

Carney quotes Independent Sector’s (IS) Diana Aviv, who says that political spending by 501(c)(4) organizations might result in a “serious reputational risk” for all nonprofits. In its typical approach to responding to big issues, Independent Sector has convened a task force to look into the problems posed by 501(c)(4) organizations, though Carney’s article doesn’t identify who IS appointed to the task force, nor its specific charge. Is Aviv saying that the extensive political spending of 501(c)(4)s making large donations to super PACs is the problem, or that the IRS investigation and other probes (including calls from members of Congress) constitute a difficulty that the nonprofit sector would be better off not having to confront?

Perhaps the issue is that there aren’t any particularly good solutions that come to mind for some observers. Congressional Democrats have introduced legislation to compel increased disclosure by 501(c)(4) nonprofits, but that seems to be a bright red line that 501(c)(3) public charities do not want to cross. Aviv hints at the quandary when she says, “This is something we have to engage ourselves, and figure out how we can resolve these conflicting goals of protecting donors’ right to anonymity and the public’s right to know about partisan political activity.”

Carney turns to the always-candid Les Lenkowsky, a professor at Indiana University, who says, “The problem is: What do you do about it? It’s hard to see a solution that’s workable.” Generally not a fan of increased regulatory directives to the nonprofit sector, Lenkowsky suggests that nonprofits “should be a little more forthcoming about what they’re doing and who’s supporting them voluntarily—or preferably, from my point of view, cut it out and go back to delivering services.”

Maybe the new scrutiny from the IRS, Congress, and perhaps the Federal Election Commission is good for the nonprofit sector, a purgative needed for cleaning out some toxic organizations and practices. Guidestar CEO Bob Ottenhoff gives something of an “attaboy” to the IRS for its recent vigorous scrutiny of 501(c)(4) applicants. Ottenhoff steps out on the nonprofit ledge in his recommendations for existing and prospective 501(c)(4)s: “This is not a Republican or Democrat[ic] issue…I’m one of those who believe that all this money pouring into politics is not good for our fragile democracy. It’s going to take a while to figure out what can be done, if anything, to slow down the money train. In the meantime, I would encourage the IRS to be rigorous in not only awarding new (c)(4)s but to keep a closer eye over existing (c)(4)s to make sure they are complying with IRS regulations. Secondly, I’d like to see the IRS change the regulations and begin requiring full disclosure of all donors to (c)(4)s. That seems to [be] the bare minimum when it comes to showing transparency and accountability.”

Our reaction? Attaboy, Bob! –Rick Cohen