The Internal Revenue Service's clumsy handling of applications for social-welfare status in 2012 has triggered a rash of fevered responses along with some serious policy proposals.
It's fair to argue that an examination of the rules governing these organizations, classified under Section 501(c)(4), is long overdue.
No one involved in the world of nonprofit advocacy would claim that the current system is a model of clarity or coherence. Causing the problem in part is the IRS's vague definition of the standard for a social-welfare group: It says such organizations must be "primarily" engaged in social welfare but doesn't say what that means.
Regrettably, though, lawmakers are responding to the scandal by trying to impose serious limits -- or an outright ban -- on the advocacy work conducted by social-welfare groups.
Rep. Michelle Lujan Grisham, Democrat of New Mexico, has introduced legislation banning political activity. Rep. Chris Van Hollen, a Maryland Democrat, has sued the IRS and the Department of the Treasury, claiming that the "primary purpose" regulations violate what Congress intended; the New York Times last month published an editorial cheering on Mr. Van Hollen's suit.
These limits have the potential to weaken our democracy by limiting the ability of everyday citizens to get involved in influencing policy makers and should be strongly opposed by everyone in the nonprofit world.
Although the national discussion about social-welfare groups is new, the existence of these nonprofit organizations is not. Listen to some commentators and you'd think this category of nonprofit group was invented during the 2012 election cycle.
The fact is, 501(c)(4) social-welfare nonprofits have been around for 100 years; there are more than 100,000 of them, and the rules governing their behavior -- and which the IRS by law must enforce -- have been in place since 1959.
Many 501(c)(4) groups have familiar names: the Sierra Club, American Civil Liberties Union, AARP, the National Rifle Association, and the Human Rights Campaign, just to name a handful.
Social-welfare groups were created to allow people with shared policy concerns to amplify their voices through collective action. Some have a handful of members, some have millions. The vast majority aren't nefarious organizations lurking in the shadows of the political system. To the contrary, they are a vital outgrowth of the First Amendment right to petition the government for redress of grievances.
Widespread misunderstandings about what these groups do, and the nature of the IRS rules that govern them, could lead to serious unintended consequences.
To understand what's going on here, it helps to know why some nonprofit groups seek (c)(4) status in the first place.
First and foremost, unlike with charities, which are tax-exempt under Section 501(c)(3) of the tax code, forming a (c)(4) group is virtually the only way that nonprofits can legally engage in unlimited lobbying.
Beyond that, there are two big advantages to (c)(4) tax status: a group doesn't have to pay taxes, and it doesn't have to disclose the names of the people supporting its work, unless a gift is earmarked for political activity.
But accepting those advantages comes at a cost, which nonprofits by the tens of thousands have been willing to pay. The trade-offs required in the law are that contributions are not tax deductible for donors; that groups attest that their main work is related to promoting issues in the public interest; and that they accept limitations on how much of their work can be overtly political. The IRS has interpreted the law to mean that a group's "primary purpose" cannot involve election activities.
If an organization's goals are fundamentally about influencing elections, there are many kinds of overtly political organizations they can create to be as partisan as they want, including PACs and the new SuperPACs (which arose largely out of the Supreme Court's decision in the Citizens United case).
But although social-welfare groups aren't designed for this purpose, they are allowed to undertake some election-related activities.
As a result of IRS rules, 501(c)(4)s are a kind of blended organization, created primarily to advocate on important issues of the day -- but with the ability to enter the political arena in a limited way. Think of them as an organizational martini -- mostly advocacy gin, but with a bit of election vermouth mixed in.
It's the combination of the two ingredients that makes them effective. The question is, what's the right recipe? What proportions are appropriate -- and legal?
The fact that no one has yet to come up with a very clear answer to that question is the source of much of the current controversy.
Prohibiting social-welfare nonprofits from engaging in politics would be a terrible mistake. Such groups are allowed to get involved in some election work for good reason.
The reality is that effective policy work usually requires nonprofits to pursue some election activities because elected officials who pass laws are most sensitive to messages that come from voters.
This work is not just about raising money but also about organizing people -- encouraging everyday Americans to turn out and vote for candidates who will support the issues they care about.
The 501(c)(4) organizations we advise do not engage in political work as their ultimate goal. They see political work as a means to an end -- a cleaner environment, stronger gun regulations, the protection of a woman's right to make the best health decisions for herself.
Additionally, in the present hyperpartisan climate, the basic decisions about policy are made, for all intents and purposes, in the election, because once candidates become legislators they rarely stray from ideological orthodoxies. For those reasons, drastic restrictions on the political activity of 501(c)(4) issue-focused groups, and hence their members, would fatally hamper their ability to affect policy outcomes.
It is ironic that those who advocate restricting political activity because they fear the power of secret donations by the superrich are willing to weaken the political clout of organizations made up of millions of individuals whose only hope to influence policy is through the power that comes from collective action.
It would be preposterous to claim that every (c)(4) group is a legitimate social-welfare organization and is staying on the right side of the "primary purpose" line, even under the most generous interpretation of the rules.
One problem is the vagueness of the definitions, and another is the outright willingness of some groups to flout it. Both require federal attention.
In the wake of the application-screening controversy, IRS procedures need to be made completely unbiased. No one disagrees with that.
The term "primary purpose" has to be given some concrete meaning so that groups can decide if they truly qualify and IRS staff members can make sound judgments based on consistent standards, although whatever definition is adopted should still allow for meaningful political work. Common definitions will also enable both the government and the public to assess whether some of the newer 501(c)(4) "social welfare" organizations are truly that or purely political groups trying to take advantage of tax and donor rules during elections.
In the frenzy of "reform," it is critical that the ability of legitimate 501(c)(4) organizations to engage in the political process not be eliminated or drastically reduced.
The result would be the weakening of the ability of everyday Americans to band together with like-minded people to fight for what they believe. The only winners in that scenario are the wealthy and powerful who have no trouble being heard. The big loser would be democracy itself.
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