IT HAS BEEN over half a century since restrictions on tax-exempt 501(c)4 organizations – defined broadly as civic leagues and groups whose primary function is to “promote social welfare” – were spelled out in detail. It was then, in 1959, that the IRS modified “social welfare” to exclude “direct or indirect participation or intervention in political campaigns.” Since modern (c)4’s must play by the rules lest they relinquish their tax free privileges, it seems on the face of it that they would avoid meddling in politics.
But everyone knows this isn’t the case. Crossroads GPS, the (c)4 arm of Karl Rove’s American Crossroads, is a case in point. The conservative advocacy group spent over $213,000 on federal elections last year. How, one might ask, is that permissible? Check the fine print: According to the IRS, “an organization that primarily engages in activities that promote social welfare will be considered under the current regulations to be operating exclusively for the promotion of social welfare.” It’s easy to engage “exclusively” in something when the meaning of the word is watered down beyond recognition. According to the Washington Post, tax lawyers have taken all of this to mean that (c)4’s can keep their tax status as long as they spend at least 51 percent of their resources on social welfare.
Now, nearly 55 years since the issue was last dealt with in depth, the IRS is proposing clearer boundaries for political activities that should not be considered social welfare. An outline released just two weeks ago proposing the rules changes is considered by most experts to be a significant first step, signalling what’s likely to result in drastic revisions to current practice. Still, some are skeptical about the potential outcome, claiming that so-called “dark money” will simply filter out of (c)4’s and into other 501(c)s, such as (c)6’s. Others, mostly on the right, call the proposal a political move, the latest in an “unfortunate pattern” that began with the IRS’s targeting of conservative grassroots advocacy groups. Whichever one’s take on the matter, (c)4’s are inevitably in for the makeover of a lifetime.