IRS Strips Electoral Group of 501(c)(4) Status; Will Widespread Crackdown Follow?

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June 8, 2012; Source: Bloomberg News

As of last week, Emerge America, a small organization that exists to identify and train Democratic women to run for office in local, state, and national elections, is no longer a 501(c)(4)—not by choice, but due to a finding from the Internal Revenue Service. Jonathan Salant of Bloomberg News reports that the IRS has determined that Emerge America is a political organization with scant “social welfare” programming to warrant its 501(c)(4) tax-exempt status. The IRS letter to Emerge America read, in part, “You are not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole.”

As a result, Emerge America has been reclassified as a 527 organization and so it must now disclose its donors. It has long been our assumption that a large proportion of the 501(c)(4) social welfare organizations have scant social welfare content. As Melanie Sloan of citizens for Responsibility and Ethics in Washington (CREW) noted, “There’s a boatload of groups that they should looking [be] at.”  

Emerge America isn’t a big money operation, with reported contributions and grants of $438,395 in 2008, $482,529 in 2009, and $265,995 in 2010, though perhaps in the run-up to 2012, Emerge America might have garnered larger amounts of donations. Its advisory board, however, is a powerhouse list of progressive political and philanthropic leaders, including Joan Blades, the co-founder of MoveOn, Jennifer Granholm, the former governor of Michigan, Celinda Lake, the political pollster, Rob McKay, president of the McKay foundation, Eva Paterson, president of the Equal Justice Society, Margery Tabankin, the philanthropic advisor to Barbra Streisand and other celebrities, and several who require no identification at all—Cecile Richards, Naomi Wolf, DeeDee Myers, and Gloria Steinem.

With powerful allies and a small budget, Emerge America has created a network of Democratic women candidates and office-holders including Xiomara Rodriguez, the first Latina to run for Congress from Nevada; Diane Russell, a state representative in the Maine legislature; Rita Smart, a Kentucky state representative; and Kirsten Keith, the mayor of Menlo Park, Calif.

Is the Emerge America decision a sign that the IRS will gear up to act against the big (c)(4)s such as the Republican-supporting Crossroads GPS, the Democratic-favoring Priorities USA, and scads more? And if so, could such a crackdown happen in the remaining months before the November elections?

Here’s our thought. Since donations to 501(c)(4) social welfare organizations are not tax deductible, the real issue is disclosure of donors. 527 organizations must disclose their donors. Given the volume of (c)(4)s that exist just about solely for political functions—making their purported social welfare functions all but farcical—we would hope that the IRS launches a major effort to make these political organizations reveal their donors. Some aspects of American democracy are hanging in the balance, waiting for the IRS to act against these organizations that hide their political identities behind the nomenclature of social welfare.—Rick Cohen