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.

5 Responses

  1. Mark (from the article):

    The best solution to the problems with 501(c)(4) organizations is to eliminate them completely.

    I disagree. The best solution is to eliminate the tax exemption for charitable contributions of any kind whatsoever. The government ought not be in the business of picking and choosing which donations to which organizations deserve preferable tax treatment.

    There is no legitimate reason in the world why my donations to, say, an organization whose mission is to eliminate the scourge of cancer should get better tax treatment than my donations to an organization whose mission is to end the scourge of progressivism..


  2. Yes, but still investigate what happened with the IRS and whether it was targeting people personally.

    The 501 (c)(4) question is a separate issue from what the obama administration may or may not have done.


  3. Interesting piece in the NYT:

    “The Great Divide May 18, 2013, 12:04 pm
    The 1 Percent Are Only Half the Problem


    • jnc:

      One of many false premises advanced by Noah:

      But if economic growth depends on rewarding effort…

      It doesn’t. Economic growth depends on rewarding the creation of value, regardless of the effort required to create it. A guy who puts in a tremendous amount of effort digging a ditch in the morning and filling it back in in the afternoon hasn’t done a single thing to produce economic growth.


  4. Yes, but I did like this:

    “Liberals resist talking about the skills-based gap because they don’t want to tell the working classes that they’re losing ground because they didn’t study hard enough. ”

    And his at least acknowledging the liberal/progressive strawman:

    “This dismal litany invites the conclusion that if we would just put a tight enough choke chain on the 1 percent, then we’d solve the problem of income inequality. “


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