Tax Exempt Propaganda Mills Are Just Getting Started

Tax Exempt Propaganda Mills Are Just Getting Started

There has been a lot of coverage lately in the press about the potential impact on public opinion by certain “501(c)(4)” entities and so-called “super-PAC’s” (political action committees). If you don’t believe me, check out the recent front page New York Times article “Tax Exempt Groups Shield Political Gifts of Businesses.”Now, I know, your eyes have already started to glaze over; so have mine, but stay with me on this – it is an important topic, especially now. Here are the takeaways:

• During the election season which, like tax season and rush hour in the NY metro area, seems to have no real beginning or end, these two types of entities will be trying their darndest to get us to think the way that they do – and vote accordingly. While both types of entity are tax exempt, contributions to neither are deductible for income tax purposes. Make no mistake – these organizations are in no way, shape or form to be considered “charitable organizations.”
• As I tell my students, beware those who quote Internal Revenue Code sections by number. They either do not know what they are talking about (bad enough) or they know what they are talking about but they don’t want you to know (even worse!) So, let me define – a “501(c)(4)” entity is a “civic league or organization not organized for profit but operated exclusively for the promotion of social welfare…..” So let’s call them social welfare organizations. Now, to me, the classic definition of a social welfare organization has always been my local civic association working to make life better in my community by advocating for road resurfacing, enforcement of zoning laws, and planting flowers in the common areas of the community. Back when I was involved in the Civic, we always took pains to make sure that we did not side with or support any political party or politician in any way. Today, however, the “social welfare” envelope is being pushed really hard both on the national and local levels. While these organizations are actually prohibited by regulation from devoting themselves primarily to political activity, they can spend the bulk of their money on “issue” advertisements that purport to be educational and not political in nature. And, of course, the IRS does not yet have a clear test for determining what constitutes excessive political activity by a social welfare group. The result is a lovely shade of grey. Consider an organization like the American Action Network which explicitly describes itself on its website as: “…. a 501(c)(4) ‘action tank’ that will create, encourage and promote center-right policies ……. primary goal is to put our center-right ideas into action by engaging the hearts and minds of the American people and spurring them into active participation in our democracy…..” On the other side of the aisle, consider Priorities USA: “….a 501(c)(4) organization dedicated to mobilizing Americans to preserve, protect and promote the middle class ……..We oppose right-wing attempts to harm the American middle class in order to bestow special treatment on the very wealthiest and special interests……” Bottom line, social welfare organizations can “educate” you as to the issues but not directly support any candidates. Donors to such organizations remain anonymous. Educational or political? You decide.
• Super-PACs are a new kind of political action committee that have been around now for about two years. According to https://www.opensecrets.org super-PACs are: “….ttechnically known as independent expenditure-only committees, [that] may raise unlimited sums of money from corporations, unions, associations and individuals, then spend unlimited sums to overtly advocate for or against political candidates. Super PACs must, however, report their donors to the Federal Election Commission on a monthly or quarterly basis — the Super PAC’s choice — as a traditional PAC would. Unlike traditional PACs, Super PACs are prohibited from donating money directly to political candidates.” Unlike social welfare organizations, super-PACs can support candidates but cannot directly finance their campaigns. Donors must be disclosed.
• Direct contributions to political candidates are severely limited, so these organizations provide effective work-arounds for those who want to spread the gospel truth according to the organization.
• Because social welfare groups do not have to report their donor lists to the public, more money has been flowing to the social welfare groups. What a surprise!
• Both sets of groups are aggressively promoting their agenda in advertisements that, while not specifically endorsed by the candidates, pretty clearly point the way to those candidates.

This is a great example of caveat emptor – let the buyer beware. In the short term, there is absolutely no chance of curbing abuses in this arena. Each one of us must take everything we hear and read with a couple pounds of salt.
Happy voting!

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