All Things in Moderation

Do Away With Them
John D. Colombo

John D. Colombo is the Albert E. Jenner Jr. professor of law at the University of Illinois College of Law. His primary research area is federal and state tax-exemption for nonprofit organizations.

May 15, 2013

The best solution to the problems with 501(c)(4) organizations is to eliminate them completely. The problem with the (c)(4) designation is that it is essentially a charity that is permitted to engage in unlimited lobbying and some significant amount of political campaign activity (as long as that activity isn’t the organization’s “primary purpose”) in exchange for denying the organization the ability to receive deductible charitable contributions.

The I.R.S, will never be able to satisfactorily police the line at which political activity becomes “primary.”

But the Internal Revenue Service will never be able to satisfactorily police the line at which political activity becomes “primary.” Since “issue advocacy” (for example, lobbying) is permitted in any amount, the problem isn’t just one of identifying when political campaign activity becomes primary; it is also identifying the line between permissible issue advocacy and political campaign activity. This line is hard enough to enforce in the 501(c)(3) context, where political campaign activity is absolutely prohibited and lobbying permitted only to an “insubstantial” degree. The loosening of these restrictions in the (c)(4) context virtually invites wholesale noncompliance, which is pretty much what we have.

Further, the (c)(4) designation has no real purpose. The best explanation, in my view, for tax exemption for charities is that it is a sort of partial government subsidy for organizations that offer services that the private market will not offer, and that government either will not or cannot offer directly. I find it hard to believe that lobbying suffers from such a serious market failure that we need to subsidize organizations whose primary activity is to lobby. In fact, it seems almost perverse that the government would subsidize organizations whose primary purpose is to lobby the government.

So let’s make it simple: if you want to be a charity, be a charity and live with the 501(c)(3) limits; if you want primarily to be engaged in the political process through lobbying or otherwise, pay taxes like everyone else or register as a 527 political organization.

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