Monday, August 20, 2012

How Nonprofits Spend Millions on Elections and Call it Public Welfare

By Kim Barker of ProPublica
Mon, Aug 20, 2012 at 12:10 PM

Matt Brooks describes the mission of the Republican Jewish Coalition as educating the Jewish community about critical domestic and foreign policy issues. But the well-dressed crowd that gathered in May for a luncheon on the 24th floor of a New York law firm easily could have figured that the group had a different purpose: Helping Mitt Romney win the presidency.

Brooks, the group's executive director, showed the 100 or so attendees two coalition-funded ads taking aim at President Barack Obama. Then Brooks made a pitch for a $6.5 million plan to help Romney in battleground states, reminding guests that their donations would not be publicly disclosed by the tax-exempt group. "Contributions to the RJC are not reported," Brooks told the people sitting around a horseshoe-shaped table. "We don't make our donors' names available. We can take corporate money, personal money, cash, shekels, whatever you got."

The Republican Jewish Coalition and similar organizations enjoy tax-exempt status in exchange for promoting social welfare. In this election, the most expensive in US history, they also have emerged as the primary conduit for anonymous big-money contributions.

Forget super PACs, their much-hyped cousins, which can take unlimited contributions but must name their donors. More money is being spent on TV advertising in the presidential race by social welfare nonprofits, known as 501(c)(4)s for their section of the tax code, than by any other type of independent group.

As of August 8, they had spent more than $71 million on ads mentioning a candidate for president, according to estimates by Kantar Media's Campaign Media Analysis Group, or CMAG. Super PACs have spent an estimated $56 million.

Congress created the legal framework for 501(c)(4) nonprofits nearly a century ago. To receive the tax exemption, groups were supposed to be "operated exclusively for the promotion of social welfare." The IRS later opened the door to some forms of political activity by interpreting the statute to mean groups had to be "primarily" engaged in enhancing social welfare. But neither the tax code nor regulators set out how this would be measured.

In recent years, Democrats and Republicans alike have seized on that seemingly innocuous wording to create the darkest corner of American political fundraising.

David Koch
  • David Koch
An investigation by ProPublica, drawing on documents filed with the Internal Revenue Service and the Federal Election Commission, offers the most detailed picture to date of how 501(c)(4) groups have used their tax status for purposes likely never intended.

Our examination shows that dozens of these groups do little or nothing to justify the subsidies they receive from taxpayers. Instead, they are pouring much of their resources, directly or indirectly, into political races at the local, state, and federal level.

For the full report, go here.


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