IRS Needs to Draw the Line on 501(c) Electioneering
The passage of tax season offers an apt time to discuss one of the Internal Revenue Service’s lesser-known, but increasingly crucial, responsibilities: policing 501(c) nonprofit groups that violate their tax status by spending too much effort influencing elections.
The IRS has shown great reluctance to meddle in the electioneering affairs of nonprofit groups (except those registered as charities; more on that later). Its inaction now threatens to blow a gaping hole in the integrity of our campaign finance laws and sacrifice yet another election cycle to a soft-money arms race.
First, a little background. The IRS permits various types of Section 501(c) groups — such as trade associations, unions and those falling within the broad category of “social welfare” organizations — to engage in the same types of electioneering activities as those registered under Section 527 of the tax code, with one exception: Section 501(c) groups may not devote themselves primarily to such work.
Unlike Section 527 groups, Section 501(c)s enjoy a First Amendment right to protect the identities of their contributors. Thus, the status is a welcome haven for groups that adopt populist-sounding names — often including variations of the word “Americans” in their appellations — but that in fact receive the bulk, or all, of their money from wealthy special interests.
Ironically, Section 501(c) is becoming even more alluring because of recent actions by another reluctant policeman: the Federal Election Commission. The FEC in December took the groundbreaking step of fining three Section 527 groups for engaging in federal electioneering activities even though they had not run ads using the “magic words” (e.g., “vote for,” “vote against,” “Smith for Congress,” etc.).
Public Citizen has warned for years that restrictions on 527s could prompt a flood of new Section 501(c) registrations by political groups unless there is better enforcement. This prediction is proving prescient. In the face of the FEC’s growing oversight of 527s, the Club for Growth recently converted to 501(c) status. Former FEC Chairman Michael Toner chalked up the club’s decision to “a growing recognition that 501(c)s are the vehicles of choice in this legal and political environment.”
In 2004, the IRS cracked down on groups registered under Section 501(c)(3) of the tax code — charities and churches — which are forbidden from engaging in any electioneering efforts. But the agency has been derelict in enforcing the rules that apply to 501(c)(4), 501(c)(5) and 501(c)(6) groups. These groups’ electioneering expenditures dwarf those of the charities and churches that ended up in the IRS’s cross hairs.
One particular group’s success in flouting the rules illustrates the IRS’s lassitude. Since Americans for Job Security arrived on the scene in 1998, the group has plainly spent the vast majority of its money on ads attacking or promoting candidates. Public Citizen, other reform groups and at least one candidate have sent evidence of the group’s activities to the IRS.
But the AJS continues undeterred. In the previous election cycle, the organization pumped an estimated $1.5 million into television ads praising then-Sen. Rick Santorum (R-Pa.) or attacking his opponent, now-Sen. Bob Casey (D-Pa.).
To evaluate the AJS, Public Citizen obtained transcripts of 32 of the group’s ads, direct-mail messages and robocalls. Then we scored the messages against an 11-point test that the IRS issued to determine whether advocacy communications should be considered electioneering or issue-advocacy in nature. Our analysis showed that each message — 32 out of 32 — overwhelmingly scored as electioneering. Remarkably, the AJS annually reports to the IRS that it spends no money to influence elections.
Earlier this month, Public Citizen submitted this information in a complaint to the IRS. We hope our latest complaint will prompt action. The IRS needs to send a message that Section 501(c) is not a refuge for stealth, soft-money PACs.
Taylor Lincoln is research director of the Congress Watch division of Public Citizen.