Should Donor Secrecy in 501(c)4s Go the Way of the Dodo?

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June 2, 2012; Politico

David Axelrod, President Obama’s political advisor extraordinaire, has concluded that it’s time to reconsider 501(c)(4) social welfare organizations. “I think the whole 501c4 concept has to be looked at—groups applying for tax exemption and also to keep their donors secret,” Axelrod told Meet the Press. “That’s the benefit they get from that.”

He added, “how do you decide what is political and what is not political?” The Center for Responsive Politics agrees with Axelrod, saying, “While 501(c)(4) organizations are supposed to have social welfare as their primary purpose, it’s often hard to tell how they provide for the ‘common good and general welfare of the people’ as the IRS describes it.”

But the real issue is the secrecy of donations to and through (c)(4)s, as Axelrod concedes. Donors could give to 527s, such as PACs, to do what (c)(4)s do and more—except that they and their donations would be disclosed to the American public. In a recent debate in the pages of the New York Times, Notre Dame law professor Lloyd Hitoshi Mayer wrote, “Congress has let disclosure of political activity turn in large part on the tax classification of a group instead of the group’s activities. Congress needs to revise the disclosure rules to target the political activity for which it believes disclosure is required and apply those rules to all groups, regardless of tax classification.” In the same debate, University of Illinois law professor John D. Colombo added, “if you want to be a charity, be a charity and live with the 501(c)(3) limits; if you want primarily to be engaged in the political process through lobbying or otherwise, pay taxes like everyone else or register as a 527 political organization.” Hiding behind their social welfare nomenclature, (c)(4)s offer political donors a secret avenue for their giving as an alternative to the publicly disclosed PACs.


Nearly every article about the aftermath of the IRS controversy lists numerous (c)(4)s whose activities were full to the gills of political activity, with scant evidence of anything that might be called social welfare functions. This article from the New York Times points out that it’s legitimate for the IRS to ask 501(c)(4) applicants for their donor lists, which we fully understand. What’s the agenda behind the CVFC’s largest expenditure on behalf of a specific Republican candidate for Congress? Who’s bankrolling the CVFC’s purported social welfare functions, and what is the relationship of the donors to the candidates they’re supporting—and shouldn’t they have been giving to a Section 527 PAC instead of a (c)(4)? Or shouldn’t the (c)(4) have been a PAC in the first place?

In some ways, as everyone is getting to understand, the IRS controversy being whipped up by some in Congress is taking an unproductive partisan turn, due to comments such as Darrell Issa’s (R-CA) calling White House spokesperson Jay Carney a “paid liar.” The real issue is whether, at this point in U.S. electoral history, anything justifies the existence of a secret alternative campaign financing method so significant that it outweighs the reasons for public disclosure, operating under the fig leaf of promoting social welfare?—Rick Cohen

  • Conni Gratop Lewis

    I’d really like to know how many c4s exist and an array of examples. I know of a few that focus on lobbying and advocacy , such as the West Virginia Environmental Council. Anyone willing to step up and defend the category ?

  • Angela Allen

    After listening to the testimony of representatives of several of the groups that were placed on the “be on the lookout list” by the IRS for extra scrutiny and extended delay of their status I must disagree with Mr. Cohen. How does a donor list demonstrate the the “social welfare” purpose of an organization.Besides donor lists, intrusive questions included things that in no way would justify determining a political agenda (if any) of the organizations. Not all organizations requesting tax exempt status were political, for example, a crisis pregnancy center who had questions like, “what is the content of your prayers” and had to stipulate that they would not protest outside an abortion clinic in order to receive their status. Questions such as who have been your speakers and what did they speak about?” What is the content of your facebook page? What about the pro Israel groups who objected to our President’s policies? What about the youth tutoring program for youth that wanted to provide information on our constitutional liberties? Most of the organizations needed tax exempt status to do things like hire a bus for a trip or get insurance for an event, sell candy at a fundraising event, not to do things like buy political influence. If the only issue was the request for donor lists this overlooks the deeper problem. Why were only organizations with conservative agendas the only ones targeted for delay and extra scrutiny? What about the proof that the IRS actually leaked confidential donor lists to opposition groups? What about the retaliation audits of individuals that followed the submission of donor lists? Keep in mind that these targeted organizations were not doing anything wrong. Demanding donor lists is unconstitutional and in no way has anything to do with determining the social welfare purposes of an organization’s mission. IRS officials have admited this targeting was wrong and is unacceptable.Every non-profit should be outraged of this misuse of IRS authority

  • michael

    No, all donors should have their names revealed. That way the Executive Branch can use the immense power of the IRS to crush any and all dissent.