Tuesday, August 10, 2010

Of (c)(4)'s and Lobbying

This story from the San Francisco Chronicle notes that one of the largest single contributions to the campaign for a November ballot measure to suspend California's greenhouse gas reduction law, some $498,000, has come from an obscure, Missouri-based conservative organization that ended 2009 with just $109.  The head of the Adam Smith Foundation, which states its purpose is to promote "conservative principles and individual liberties in Missouri," said that aggressively limiting greenhouse gas emission regulations in California could eventually push Congress to take similar actions. According to the story, the organization's head, John Elliott "would not disclose the names of the people who gave his foundation the money to make the campaign contribution. He said the money came from about 10 individuals and described them as 'an alliance of like-minded individuals who had this issue as an interest.' He said the money did not come from a corporation or an industry group.

OK.  So is all this legal from a tax perspective?

Well, probably.  501(c)(4) organizations, or "social welfare" organizations as those of us who practice in or write about the area call them, differ from 501(c)(3) charities.  The main difference is this: charities under 501(c)(3) can get tax-deductible contributions; 501(c)(4)'s cannot.  Perhaps as a result of the deductibility of contributions to 501(c)(3)'s, those organizations are subject to limits on how much lobbying they can engage in (the statute says that "no substantial part" of a (c)(3)'s activities can be lobbying; while the this test is itself fuzzy, I'd be pretty comfortable saying that an organization whose major activity over the past 4 years was providing half a million dollars to win a ballot proposition has a "substantial part" of its activities in the lobbying arena).

But (c)(4)'s are not subject to the same restriction.  The IRS tells us that  "To be tax-exempt as a social welfare organization described in Internal Revenue Code (IRC) section 501(c)(4), an organization must not be organized for profit and must be operated exclusively to promote social welfare. . . . Seeking legislation germane to the organization's programs is a permissible means of attaining social welfare purposes. Thus, a section 501(c)(4) social welfare organization may further its exempt purposes through lobbying as its primary activity without jeopardizing its exempt status."

The SF Chronicle story indicates that opponents of Prop 23 have asked the Justice Department to investigate the matter; well, OK - but it seems pretty clear to me that the Adam Smith Foundation is square with the tax laws.



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Isn't the issue whether a ballot initiative counts as political campaigning instead of lobbying? The news article treats it as the former.

Posted by: reader | Aug 10, 2010 9:04:35 AM

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