The Rules That Govern 501(c)(4)s
October 30, 2012, 9:12 pm ET
E-MAIL THISNearly a century ago, Congress created the complicated legal framework that governs these tax-exempt nonprofits, also known as 501(c)(4)s for the part of the tax code they fall under. That rule said they were supposed to operate “exclusively for the promotion of social welfare” — a definition that includes groups ranging from local fire departments to the Sierra Club to the National Right to Life Committee.
While these nonprofits have always been allowed to lobby for change, in 1959, regulators opened the door to political activity by interpreting “exclusively” to mean that groups had to be “primarily” engaged in social welfare and helping the community.
But regulators never defined exactly how they would measure this balance. Part of the reason, said Marcus Owens, a former head of the IRS division overseeing nonprofits, is because the IRS didn’t want to limit what it could evaluate in deciding what was political activity.
However, the lack of clarity has created a unique type of organization when it comes to politics — chief among those differences being what the public must be told about these nonprofits’ donors.
Why Don’t 501(c)(4)s Have to Disclose Their Donors?
Social welfare nonprofits don’t fall under the Federal Election Commission’s standard definition of a political committee, which, under FEC guidelines, must disclose its donors. Because 501(c)(4)s say their primary purpose is social welfare, they can keep their donors secret. The only exception is if someone gives them money and specifically states the funds are for a political ad.
And unlike political committees, social welfare nonprofits have a legal right to keep their donors secret. That stems from the landmark 1958 Supreme Court case, NAACP v. Alabama, which held the NAACP didn’t have to identify its members because disclosure could lead to harassment.
Fast forward to the post-Citizens United world of campaign finance where outside groups can now spend unlimited amounts of money to influence elections so long as they are