At the 2018 University of Miami’s Heckerling Institute, Trevor Potter, of the Campaign Legal Center in Washington, D.C., discussed how Sec. 501(c)(4) tax exempt organizations are being used to finance political campaigns.
Sec. 501(c)(4) applies to “civic leagues or organizations not organized for profit but are operated exclusively for the promotion of social welfare… and the net earnings of which are devoted exclusively to charitable, educational, or recreational purposes”.
501(c)(4) has become a catch-all for groups that don’t fit elsewhere in the tax code but which want tax exempt status. Examples of typical 501(c)(4)s include: volunteer fire departments, Rotary, AARP, American Kennel Club, and so on.
Trevor pointed out at the conference that, in recent years, “501(c)(4)s have become the entity of choice for political donors seeking to spend money on elections without having their names publicly disclosed.” Trevor advised that the IRS has held that social welfare does not include direct or indirect participation or intervention in political campaigns — the focus appears to be that political activity may not be a 501(c)(4)’s primary purpose.
Trevor notes that “IRS regulations do not answer two questions which are central to today’s controversies over political activities by 501(c)(4) organizations: (a) what constitutes political campaign intervention; and (b) how much campaign intervention may a 501(c)(4) engage in before it becomes its “primary” activity.”
If this topic interests you, also check out Dark Money by Jane Mayer (I haven’t read it yet, but it is now on my bookshelf as a ‘must read’).
