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Rules of the Game: Bad News for Nation’s Nonprofits

But reining in nonprofits is a lot harder than it looks. Going back to the Supreme Court’s 1958 ruling in NAACP v. Alabama, which found that the state could not compel the civil rights group to turn over its membership lists, nonprofits have enjoyed the constitutional right to keep their donors anonymous.

Attempts to regulate advocacy groups are notoriously politically charged. Witness the recent outcry over IRS questionnaires to tea party groups and the subsequent letter from a dozen GOP Senators warning the agency to steer clear of selective enforcement and “politics of any kind.”

The IRS permits 501(c)(4) and trade groups to engage in politics, as long as that is not their primary purpose. But it has failed to define clearly what that means.

“I think there is a lot of concern in the nonprofit community about this,” said Leslie Lenkowsky, an Indiana University professor who studies nonprofits. “The problem is: What do you do about it? It’s hard to see a solution that’s workable.”

Mainstream nonprofits face multiple risks — from losing donors to scandals that could lead to a new wave of regulation to losing sight of their mission.

Part of the answer, says Lenkowsky, lies with nonprofits themselves: “I think they should be a little more forthcoming about what they’re doing and who’s supporting them voluntarily — or preferably, from my point of view, cut it out and go back to delivering services.”

Nonprofit leaders tend to passionately defend their right to engage in public policy debates and to raise money anonymously. But some are beginning to recognize that undisclosed, unrestricted campaign spending is a problem they can no longer ignore.

“We can’t duck away from this and wait until after the election,” Aviv said. “This is something we have to engage ourselves, and figure out how we can resolve these conflicting goals of protecting donors’ right to anonymity and the public’s right to know about partisan political activity.”

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