Although individuals cannot deduct contributions to social welfare nonprofits on their taxes, companies may be able to write off donations as business expenses as long as they aren’t earmarked for lobbying or political ads.
Many social welfare nonprofits became more active in politics after a series of recent court rulings, including the Supreme Court’s Citizens United decision in January 2010, reshaped the rules of campaign finance.
Previously, laws had barred nonprofits from accepting donations from corporations or unions for political purposes and had mostly restricted 501(c)(4)s to generic “issue” ads that stopped short of calling on people to vote for or against candidates.
Citizens United dismantled this system. In a 5-4 decision, the high court said corporations and unions enjoyed the free speech rights of any individual. They could spend directly on political ads or give unlimited amounts of money to nonprofits for political activities. Over the next two years, contributions to existing social welfare nonprofits skyrocketed and new ones geared specifically toward elections were formed.
“It really sounded the starting gun for the creation of nonprofits that were strictly political in nature,” said Sheila Krumholz, executive director of the Center for Responsive Politics, a nonpartisan research group that tracks money in politics.
Political expenditures by groups that do not disclose their donors — a category that includes trade associations like the U.S. Chamber of Commerce as well as social welfare nonprofits — have jumped dramatically in recent years. In 2006, groups that didn’t report their donors made up less than 2 percent of outside spending, excluding party committees, research by the Center for Responsive Politics shows. By 2010, that had grown to more than 40 percent.Some new-style social welfare nonprofits share staff members and offices with super PACs. Their goals are intertwined: Crossroads GPS, or Crossroads Grassroots Policy Strategies, and its sister super PAC, American Crossroads, for example, announced that together they hoped to spend $200 million on the presidential election. Political operatives often hold key positions: The vice president of policy at Crossroads GPS oversaw the development and passage of the Republican platform in 2008.
Most of the money spent by social welfare groups in 2010 came from conservative groups, a pattern holding true so far this year. As of Aug. 8, CMAG estimates show, liberal groups accounted for only $1.6 million of the total spent by such organizations on TV ads for the presidential race. By contrast, the two leading conservative 501(c)(4)s, Crossroads GPS and Americans for Prosperity, founded by conservative billionaire brothers David and Charles Koch, had spent about $60 million. Even as the role of social welfare nonprofits in politics has expanded, the IRS has not clarified how much time and resources they can legally devote to political activities — or what it means to be “primarily” engaged in promoting what the agency terms the “common good and general welfare of the people of the community.”
Some groups have interpreted the rules to mean they can spend up to 49 percent of their money on political ads. The IRS has never set a hard limit. The agency has struggled to revoke or deny tax exemptions to groups because of political activity, sometimes having its decisions reversed by courts.
Many established social welfare nonprofits, such as the Sierra Club or the National Right to Life Committee, spend only a fraction of their money on political ads. But a few groups have devoted most of their expenditures to ads that have an undeniable political component, ProPublica found. A group called Economy Forward spent $173,470 on ads in March 2010 praising Senate Majority Leader Harry Reid, the Nevada Democrat, according to a transcript of the ad and public filings with eight TV stations in Nevada. That’s almost 99 percent of the total the group told the IRS it spent that year. The group did not respond to repeated requests for comment.
More than three-quarters of the money the American Action Network — former Republican Sen. Coleman’s group — told the IRS it spent in its 2010 tax year was for political ads. In an email, American Action Network spokesman Dan Conston said the group complied with all laws and government regulations.
“The IRS seems to blink if you push them on this, which is what groups like the American Action Network and Crossroads GPS are probably betting on,” said Lloyd Hitoshi Mayer, an associate dean and law professor at Notre Dame University who specializes in the intersection of tax and political law.
Groups Say “No” to Politics; Tax Returns Say Otherwise
When groups apply to the IRS for recognition as tax-exempt, they must spell out their plans. They also must swear under penalty of perjury that they believe what they say is true. Politics is one litmus test the agency uses to determine whether a group has a legitimate social welfare purpose and warrants a tax exemption, experts say. Question 15 on the application asks, “Has the organization spent or does it plan to spend any money attempting to influence the selection, nomination, election, or appointment of any person to any Federal, state, or local public office or to an office in a political organization?”
ProPublica compared applications from 58 501(c)(4)s with tax returns they filed later. We found 24 groups that initially said “no” to politics then filed tax returns showing they had done the opposite.
Even before mailing its application to the IRS saying it would not spend money on elections, the Alliance for America’s Future was running TV ads supporting Republican candidates for governor in Nevada and Florida. It also had given $133,000 to two political committees directed by Mary Cheney, the daughter of the former vice president. No one from the Alliance for America’s Future returned calls for comment.
Another group, the Revere America Association, launched with the help of former Republican New York Gov. George Pataki, told the IRS in May 2010 that it wouldn’t spend money to influence elections. But in its 2010 tax return, Revere America said it spent about $2.5 million on political ads.
Marianne Zuk, the group’s president, did not return calls or emails about the discrepancy. In a brief interview in December, she said the group was “in the process of winding down.” Zuk said a new social welfare nonprofit, Partnership for America, had taken over Revere America’s activities.
Some nonprofits provided other information in their applications that didn’t line up with what they said in later filings.
There’s no sign America’s Families First sponsored any conferences, however. The group’s website consists of a photograph of a family holding hands and a single paragraph of text. Its tax return does not specify how much time the group spent on grants, but most of its expenditures were grants to other liberal groups.
Although America’s Families First’s IRS application said the group would “be funded by contributions from individuals only,” tax records show much of its money came from other sources.
The group received $2 million from the Pharmaceutical Research and Manufacturers of America, or PhRMA, the pharmaceutical industry’s main trade group, and an additional $3.15 million from the National Education Association teachers union weeks before the election. The contributions became public in late 2011, when PhRMA and the NEAdisclosed them.
America’s Families First’s leadership includes Greg Speed, now the treasurer forPriorities USA Action, the super PAC devoted to re-electing Obama.
In a written statement, a spokeswoman for America’s Families First said the group’s application for IRS recognition broadly sketched out its planned activities. “As with all plans, they evolve, we adjusted our execution of activities and fundraising to reflect the changing environment and landscape,” she wrote in an email.
Social welfare nonprofits can operate without IRS recognition, although most seek it. Having the agency’s approval helps with fundraising and can help insulate groups against sanctions or back taxes later, experts say.