Forget about super PACs. They are so last season. Instead, the group shaping up to be the major players in this year’s election are “social welfare” nonprofits — also known as 501(c)(4)s.
Earlier this month, ProPublica reported that two conservative 501(c)(4)s — Crossroads GPS and Americans for Prosperity — have spent over $60 million on TV ads so far this year, effectively outspending all super PACs combined.
This isn’t the first time social welfare nonprofits have had a major impact on an election. In 2010, nonprofits outspent super PACs by a margin of 3-2. A joint investigation by the Center for Public Integrity and the Center for Responsive Politics found that “more than 100 nonprofits organized under section 501(c)(4) of the U.S. tax code spent roughly $95 million on political expenditures … compared with $65 million by super PACs.”
In fact, between the 2006 and 2010 election cycles, Center for Responsive Politics researcher Spencer MacColl found that “groups that do not disclose their donors rose from 1 percent of all spending by outside groups to 47 percent.”
The 501(c) IRS designation is for nonprofit organizations that are exempt from some income taxes. The numbers following the 501(c) differentiate between them, including C3s (charities), C5s (unions) and C6s (trade associations, like the Chamber of Commerce). The rules surrounding each group’s political activity vary based on type. A 501(c)(3) charity, for instance, isn’t allowed to do much politicking. But 501(c)(4)s are allowed to lobby legislators and create issue ads, as long as they spend less than 50 percent of their time — and money — on those activities (more on that below).
Unlike a Political Action Committee — or a 527 in IRS parlance — 501(c)(4)s are not required to report donors to the FEC or the IRS.
1. They are nearly 100 years old.
The IRS Overview notes that the “predecessor of IRC 501(c)(4) was enacted as part of the Tariff Act of 1913. There is no legislative comment on the statute. It’s generally assumed that it was the result of a U.S. Chamber of Commerce request for an exemption for ‘civic and commercial’ organizations.” The IRS defines a social welfare organization as “primarily engaged in promoting in some way the common good and general welfare of the community.” As noted above, this has been interpreted to mean that as long as they spend less than half their resources (time and money) on political activities, they are playing by the rules.
2. They became political in the 1960s.
Early C4s included the NAACP, Blue Cross/Blue Shield and other groups that contributed to their communities without being straight-up charities [501(c)3s]. In the 1960s, these groups became more political. Organizations like the Sierra Club changed their status from C3s to C4s so that they could lobby Congress. And then in the ‘70s and ‘80s, C4s began to create “issue ads” and lobby the public on TV. This practice opened up what ProPublica reporter Kim Barker calls a “grey area.” The groups pushed to see how far they could go. They started mentioning candidates by name, but fell short of advocating that people vote for or against a particular candidate.
3. Their donors have always been protected.
Since their inception, social welfare organizations have never had to disclose the identity of their donors. The right to keep their donors anonymous was challenged in the 1950s by the Alabama attorney general in an attempt to intimidate people financially supporting the NAACP’s civil rights work. The case went all the way to the Supreme Court, which ultimately sided with the NAACP. Earlier this year, Karl Rove complained that a court ruling and state attorneys general speaking out about “dark money” and the need for transparency in political campaigns were trying to intimidate donors to American Crossroads GPS and other conservative nonprofits. Rove drew comparisons with the NAACP case saying, “We’ve seen this before.” The NAACP called his comparison “outrageous and silly.”
4. Citizens United didn’t open up the floodgates.
An obscure Supreme Court 2007 case did. In Wisconsin Right to Life, the justices ruled that unions and corporations could create ads that mentioned a candidate’s name and attacked his or her position on issues during the two months leading up to a general election as long as they didn’t expressly ask the public to vote for or against that candidate. The FEC calls these types of ads electioneering communications.
In May, a DC district court judge ruled that in the 60 days prior to a general election, social welfare groups that buy electioneering communications must disclose who paid for them. But the decision doesn’t apply to express advocacy ads — commercials in which voting for or against a candidate is encouraged — so it’s possible that C4s will begin exclusively running expressed advocacy ads starting Sept. 6.
5. 501(c)(4)s benefit from lax IRS and FEC oversight.
Last year, there was some hope that the IRS would begin enforcing a tax on gifts to 501(c)(4)s and that the agency might curtail C4s’s unchecked and growing power. Trevor Potter, president of the Campaign Legal Center, predicted, “‘I think it is unlikely that the IRS is going to be the government agency that cuts through the Gordian knot of disclosure.”
He was right. That didn’t happen.