501(c)(4) organisation lobbying and some global context

Future World Giving

501(c)(4) organisation lobbying and some global context – Image via functoruser

While not-for-profit in most countries struggle to make their voices heard in the face of restrictions on political advocacy, some argue that one form of not-for-profit in the USA is being subjected to too little regulation.


In conducting research for the forthcoming Future World Giving report on “Fostering an Independent Civil Society” I have come to realise that there is a worrying, and growing trend for government policies which aim to restrict the ability of not-for-profit organisations to engage in advocacy work.


The trend is pan global with policies restricting campaigning being enacted from the Law on Mass Organisations (ORMAS Law) in Indonesia which bars not-for-profit organisations from propagating ideology that conflicts with ‘Pancasila’ – the principles of official state philosophy of Indonesia (as reported on this blog) to the Law on Information in Algeria which require all publications to have prior approval by a media regulatory authority. Only last week CIVICUS reported on restrictive new laws proposed in Azerbaijan. This is not an issue that is restricted to developing nations as anyone reading our recent updates on the UK “Lobbying Bill” will understand.


I am not alone in noticing this trend. In reaffirming the freedom to advocate for electoral and  broader policy changes as guaranteed by the Human Rights Council in resolution 15/21, Maina Kiai, Special Rapporteur on the rights to freedom of peaceful assembly and of association stated:


“It is a source of serious concern that the term “political” has been interpreted in many countries in such a broad manner as to cover all sorts of advocacy activities; civic education; research; and more generally, activities aimed at influencing public policy or public opinion. It is clear that this interpretation is solely motivated by the need to deter any forms of criticism.”
Maina Kiai, United Nations Special Rapporteur on the rights to freedom of peaceful assembly and of association


But while much of the worlds not-for-profit organisations are struggling to retain an independent voice in the face of restrictive rules on advocacy,  in the USA, lobbying rules governing a certain type of not-for-profit organisation has been the source of vigorous debate on quite different grounds.


In recent years the political activities of organisations categorised as 501(c)(4) by the Internal Revenue Service (IRS) in the USA have been the subject of scrutiny and ultimately controversy. These organisations are not perceived by the public as in any way charitable and donors to 501(c)(4) organisations do not receive tax benefits. 501(c)(4) organisations are nevertheless not-for-profits and receive tax exemption.


501(c)(4) organisations are required to be primarily engaged in “social welfare” activities but they  may engage in political campaigns on behalf of or in opposition to candidates for public office provided that such intervention does not constitute the organization’s primary activity. This has been interpreted  to mean that political activities must account for less than 50% of expenditure. Crucially, unlike other “charitable” forms of not-for-profits, 501(c)(4) organisations are able to engage in lobbying activities to directly influence elections.


Over time, successive rulings have loosened the constraints on the ability of these organisation to engage in political advocacy without providing commensurate checks and balances. The loosening of political advocacy rulings combined with the ability to solicit anonymous donations has led to the increasingly widespread use of 501(c)(4) organisations as funding vehicles for party political campaigning. The Centre for Responsive Politics report that spending by 501(c)(4) organisations increased from $2.6 million in the 2004 presidential election  to well over $300 million in the 2012 election.


Organisations have been able to increase the proportion of funds that they allocate to political campaigning by exploiting the vagueness of the political lobbying rules. One way that organisations have done this is by making grants to other lobbying organisations which are not counted in their own financial reports as contributing towards their political lobbying expenditure. Crossroads GPS, a conservative 501(c)(4) organisation donated $26.4 million to Americans for Tax Reform in 2012 who subsequently increased their political lobbying expenditure but did not count that donation as contributing to its lobbying expenditure. Noting the rise in political lobbying expenditure, in 2010 the IRS withheld a number of applications for tax exempt status. The Treasury inspector general for the IRS later found in favour of conservative groups who complained they had been unfairly targeted whilst others have claimed similar targeting of liberal groups.


The failure to provide unambiguous guidance on the political advocacy of 501(c)(4) organisations has allowed a form of not-for-profit to develop which is understood by the public to exist for the purpose of supporting a political figure, movement or party – even if on paper it professes to support social welfare.


Government proposals to tighten regulation of 501©(4) lobbying rules are open for public comment until February 27th. On January 14, 2014, House Ways and Means Committee Chairman Dave Camp (R-MI) introduced legislation that would prohibit for one year the IRS and the Treasury Department from issuing or finalizing any of the proposed regulations addressing the activities of 501(c)(4) tax exempt organizations that were released in November.


Though divisive, it is hoped that a consensus will eventually be found on this issue to establish clear ground rules on political lobbying for 501(c)(4) organizations.


Adam Pickering



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