Monday, April 16, 2012

Eliminating Secretive Tax-Exempt Contributions to Political Campaigns

As reported by Rick Cohen in the Nonprofit Quarterly, Greg Colvin, of Adler & Colvin, has proposed "A Silver Bullet That Would End Secret Tax-Exempt Money in Elections."  Essentially, Colvin concludes that a new Internal Revenue Code provisision should be enacted that would revoke the tax-exempt status of a tax-exempt organization that spends (in any given taxable year) more than the lesser of (i) $100,000, or (ii) 10% of its total expenditures on political campaign activities (i.e., participating or intervening in political campaigns for or against candidates for public office, including publishing or distributing materials for or against such candidates).  The new provision would not apply to tax-exempt public charities, which would still be subject to the absolute prohibition on political campaign activities as set forth in §501(c)(3) of the Code. 

The main targets of this new Code provision would be §501(c)(4) social welfare organizations and §501(c)(6) business leagues that are currently permitted to make political campaign expenditures or donate to Political Action Committees without having to disclose their donors to the public (unlike §527 organizations, for instance).  Although these particular tax-exempt organizations are required to limit their political campaign activities to no more than half of their exempt program activities, there are fundamental difficulties in determining what amounts to one-half of an organization's program activities and what is political vs. non-political in nature.  Colvin's proposal, in theory, eliminates the need to determine what constitutes one-half of an organization's activities and utilizes a potentially simpler quantatitve test.

Cohen is seeking responses regarding the merits of the proposal.

NAM

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