501(c)4’s “Social Welfare” Organizations

Large, publicly-held corporations are restrained from making publicly reported donations to political campaign by the potential for shareholder lawsuits and by public relations considerations. As a result, the people who manage some of the Super PACs have also been creating IRS code 501(c)4 “social welfare” non-profit organizations to accept donations that do not have to be publicly reported. Business trade associations (Such as the U.S. Chamber of Commerce) also accept unreported contributions under IRS non-profit code 501(c)6.

Following the Citizens United decision, 501(c)(4) and (c)(6) groups spent more than $135 million in unlimited, secret contributions in the 2010 congressional elections. This amount is expected to dramatically grow in the 2012 presidential and congressional races.
Without the Citizens United decision, there would be no campaign expenditures in federal elections by incorporated 501(c) groups, and no secret contributions being spent by these groups in the elections.

In a potentially quite important development, a federal judge ruled on March 31, 2012, that the Federal Election Commission ruling allowing these contributions to remain secret is invalid, since it violates the McCain-Feingold Bipartisan Campaign Reform Act of 2002. So, it looks like the 501(c) organizations may have to reveal their donors’ identities.
Furthermore, a number of 501(c) groups appear to be ignoring the laws. A number of political organizations appear to be improperly claiming tax-exempt status as 501(c)(4) “social welfare” organizations to keep secret the donors financing their campaign expenditures.

Democracy 21, joined by the Campaign Legal Center, have filed complaints against several 501(c)(4) groups at the IRS challenging the eligibility of these groups to receive tax-exempt status and thereby to keep their donors secret.