Liberating the 501c4 from the “Dark Money” Trap

mask” Credit: plaisanter~

August 6, 2017; Prospect

The 501c4 has, for better or worse, become an increasingly important tool in politics. As Nan Aron and Abby Levine explain in the Prospect, the “501(c)(4)’s value lies in its almost unlimited ability to use a variety of advocacy strategies, mixing public education with lobbying and, sometimes, partisan electoral work.” However, the 501c4 has gotten a bit of a bad name, in large measure because the lack of financial disclosure rules for contributors have made many 501c4 organizations a friendly home for “dark money.”

Many nonprofits, such as the Center for Community Change, that wish to engage in advocacy without the limitations that a 501(c)(3) has have created affiliate 501c4 organizations to do so. Aron and Levine cite many other prominent nonprofits that have affiliated (c)(4) groups, including AARP, the National Organization for Women, the American Civil Liberties Union, and the Sierra Club.

While 501(c)(3) nonprofits can and should engage in advocacy and lobbying, the extent to which they are able to do so is limited, whereas 501c4s can engage in as much of any type of political activity so long as less than 50 percent of the organization’s funds are used for political purposes. Put together, this means that 501c4 organizations can accept large sums of money to influence a political outcome with no one knowing who’s behind the wheel. Back in 2012, comedian Stephen Colbert brilliantly parodied this, when he set up his faux Super PAC Shh!

Further, what constitutes political activity is poorly defined. For instance, the Federal Election Commission ruled that raising money to produce and run campaign ads is not considered campaign giving, even though donors know their funds are going to pay for candidate ads. In short, while officially 501c4 organizations can only spend 50 percent of their funds on political activities, there are many ways to evade that limit.

But one does not have to be a fan of current campaign finance law to understand the importance of combining advocacy, public education, lobbying, and electoral campaigns for nonprofits to achieve their social change missions. The 501c3 legal structure limits the ability of nonprofits to lobbying and prohibits electioneering, yet many events that take place in politics can dramatically affect their ability to achieve their missions.

It should surprise no one that a growing number of nonprofits have chosen to form affiliated 501c4s that, in exchange for giving up tax deductibility, provide the organizations a much greater ability to affect political outcomes. The Yes on Proposition 47 campaign in California, for example, relied on both 501c3 and 501c4 organizations and showed how engaging in multiple levels of advocacy can be beneficial for progressive causes.

While transparency is absolutely needed, progressive organizations would be smart to use the 501c4 platform to promote their cause while also leading by example with regards to donor transparency. After all, just because the law says you don’t have to disclose donors, there is nothing prohibiting 501(c)4 organizations from doing so.—Sheela Nimishakavi and Steve Dubb