House Ways and Means Committee Chairman Jason Smith (R-MO) and Oversight Subcommittee Chairman David Schweikert (R-AZ) have announced a joint effort to investigate political misuse of non-profit organizations’ funds. Their focus is on preventing tax-exempt money from being used for explicit political activities.
This move suggests a chance for bipartisan cooperation to tackle this issue. Senate Finance Committee Chair Ron Wyden (D-OR) has long advocated for more transparency and restrictions on these organizations, while senators Sheldon Whitehouse (D-RI) and Elizabeth Warren (D-MA) have called for increased disclosure of donors to such groups.
The lawmakers are concerned about one-sided political advantages resulting from non-profit activities. However, it’s important to note that similar efforts have benefited both Democrats and Republicans. The ongoing problem traces back to the Supreme Court’s 2010 ruling in Citizens United v. FEC, which allowed secret campaign contributions. A further boost occurred in 2018 when the Trump Administration reduced donor disclosure requirements for tax-exempt groups.
The focus is on 501(c)(3) and 501(c)(4) non-profits’ involvement in politics. While (c)(3) organizations should avoid partisan politics entirely, the rules for (c)(4) groups are less clear. These groups have sometimes engaged in electoral politics without direct consequences.
The critical issue isn’t the tax exemption itself, as political organizations generally spend all their income. However, the system enables large donors to fund political Super PACs through non-profits. This process often conceals donor identities, exploiting the gap between (c)(4) groups and Super PACs.
An example highlights the problem: Leadership Action Fund, a tax-exempt entity, reportedly contributed over $620,000 to a Super PAC supporting a GOP candidate. This transfer allegedly occurred on behalf of “unknown persons.”
Smith and Schweikert pointed to specific instances of alleged abuses benefiting Democrats. These include a Democratic Super PAC encouraging donations to boost voter registration and large donations from tech CEO Mark Zuckerberg and Swiss billionaire Hansjörg Wyss. Both cases purportedly had political leanings.
While Smith and Schweikert spotlight Democratic-linked cases, it’s crucial to acknowledge that similar problems exist across the aisle. To address this issue, Congress could restrict tax exemptions to public charities with full donor disclosure. Alternatively, it could bar tax-exempts from direct or indirect political involvement, maintaining their right to express opinions without tax benefits.
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