With the election upon us it’s no surprise that CharityWatch has been called upon in recent weeks to comment on the use, and sometimes misuse, of charities by political interests. Some have expressed frustration that the government has been slow to crack down on perceived violations of this kind, particularly in situations in which it seems obvious that rules preventing charities from involving themselves in political campaigns to endorse specific candidates have been breached.
CharityWatch CEO, Laurie Styron, recently commented in an article for The Texas Observer on one such case involving a religious leader in the state who has been encouraging his flock to campaign for conservative candidates.
“Laurie Styron, executive director of the watchdog group CharityWatch, added that political charities are a growing issue.”
“’Whether or not the letter of the law is being violated here, the spirit of it certainly is,’ Styron said. ‘These kinds of activities breach public trust in the nonprofit sector at large. Public charities (501(c)(3)s) … were designed to be used as tools to promote the public good, but are now frequently being used as weapons in battles for political gain.’”
Enforcement
The blowback the IRS received just over a decade ago involving would-be nonprofits that applied for tax-exempt status under names that were politically charged could be one reason the agency has been slow to crack down on perceived violations. The IRS was sued and accused of targeting and unfairly subjecting organizations to additional scrutiny when they applied for tax-exempt status with words like “Tea Party” or “patriots” in their names. The IRS ultimately settled and apologized, admitting that it had been wrong to screen applicants based on their names or policy positions.
The outcome of this legal battle may have deterred the IRS from cracking down on charities that operate at the intersection of charitable activities and politics, whether their activities are illegal, unethical, or both. In addition, people who know the history of this case may feel emboldened to imply endorsements of specific candidates knowing that the sometimes-vague rules surrounding nonprofits’ engagement in political activities are not always easy for regulators to enforce in practice.
In theory, the rules are clear. According to the IRS, “Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.”
But the IRS was never designed to take on full responsibility for maintaining separation amongst religious institutions, nonprofits, and politics. The IRS is first and foremost a revenue collection agency. There is not a lot of revenue to be generated from nonprofits given that they are exempt from tax on most forms of income. Making highly nuanced judgements about matters of free speech as it pertains to the intersection of politics and religion, including churches that are organized as nonprofit organizations, is the work of legal scholars and philosophers, not the tax man.
Dark Money
The Citizens United Supreme Court decision in 2010 unleashed a flood of dark money through various types of legal entities, and nonprofits were not excluded from that trend. While 501(c)(3) public charities are prohibited from engaging in most types of political activity, particularly endorsing specific candidates for public office, because money is fungible it can be difficult to trace funds that are flowing through networks of legal entities that may include public charities, 501(c)(4) social welfare nonprofits, and 527 political action committees (PACs). Organizations with multiple, related legal entities with different tax designations under the IRS code frequently engage in cost and asset sharing, reimbursements, loans, cash transfers, and other types of related party transactions that can obfuscate which funds are ultimately being used directly or indirectly for political purposes, and in what amounts.
In a separate case decided in 2021 the Supreme Court ruled against state regulators’ attempts to better oversee these types of transactions when it decided that requiring nonprofits to privately disclose the names of their major donors to state regulators was unconstitutional on free speech grounds. This may theoretically allow some types of nonprofits to funnel money more easily to political action committees (PACs) in ways that are difficult, if not impossible, for regulators to trace.
“Although political campaign finance is not the primary focus of her organization, Laurie Styron, the executive director of the independent charity watchdog group Charity [Watch], told TNND that the increasing flow of dark money through non-profit organizations is becoming a significant issue in potential foreign election interference.“
“‘Transactions of these kinds that flow through multiple organizations with varying tax designations can be difficult to follow, and therefore difficult to regulate,’ Styron said. ‘There are rules in place regulating the types of political activities charities and [social] welfare non-profits can engage in, and in what amounts, but these rules can be both vague and complex, in part, because money is fungible.'”
Conclusion
While these legal issues are nuanced, the court cases mentioned above collectively opened the floodgates with respect to nonprofits being used as vehicles for political activity on a scale not seen before. Considering the power, influence, and financial resources of the people or industries that stand to benefit when candidates who align with their interests get elected, most government agencies are really no match for the legal firestorms interested parties can rain down on anyone who opposes their views.
