Tax Deductible Dark Money?

Tax law will grant charitable contribution deductions for dark money if two of three things happen.  Or just one thing happens.  The one thing that could create tax deductible dark money is a Court declaring the Johnson Amendment unconstitutional as applied to churches. Churches don't file 990s so political dollar donations to churches will necessarily be dark.  But the complaint in Religious Broadcasters and Three Churches seeking that declaration is problematic and should not survive a standing challenge.  We could still have tax deductible dark money if a Court rules that the (c)(3) donor disclosure requirements are unconstitutional, and another Court declares the Johnson Amendment unconstitutional on its face.  The Buckeye Institute and SAFESPACE complaints, both well written, are more likely to bring about deductible dark money donations. 

There are self-help ways, I suppose, of getting charitable contribution deductions for dark money donated to influence elections.  Donating to a DAF that then makes grants to a (c)(4) engaged charitable activity, but also campaign intervention might work.  Funding a (c)(4) 's activities consistent with the (c)(3) donor's charitable purposes "frees up" a (c)(4)'s un-deducted contributions for campaign intervention.

A reporter asked me last week whether I thought a court's declaration that the Johnson Amendment is unconstitutional would open the flood gates for tax-deductible dark money.  Here is the hook to her resulting article:

A new lawsuit pushed by conservative operatives with ties to Donald Trump, right-wing power broker Leonard Leo, and a hate group could make donations to dark-money groups tax deductible. Such an outcome could further incentivize the massive surge of dark money flowing into politics, where there are already no limits on how much the rich and powerful can spend to influence elections. 

Currently, most dark-money donations flow through 501(c)(4) groups, or “social welfare” organizations, since these nonprofits are allowed to engage in political activities. While these donations are considered “dark” because their origins can remain secret, they are not tax-deductible. On the other hand, donations to charitable, religious, educational, and scientific groups that qualify as 501(c)(3) nonprofits are tax deductible — but these organizations are generally not allowed to dabble in politics.

Overturning the Johnson Amendment would indeed render political donations to churches dark and deductible because churches are not required to file information returns.  Political donations to non-church religious organizations and secular charities could also be dark and deductible, but only after a ruling overturning the (c)(3) donor disclosure requirement.  And that ruling seems only a matter of time.  The Buckeye Institute is winning right now  because a lower court determined that the "exacting scrutiny" standard applies to determine whether the Service can require disclosure of (c)(3) donors.  The ruling is pending interlocutory appeal, but there isn't much to support the notion that a standard more deferential to that applied in Americans for Prosperity Foundation v. Bonta should apply. And when SAFESPACE refiles, it won't have the standing problem that the Broadcasters and Three Churches have.  

darryll k. jones