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

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