Nonprofit groups are supposed to exist to promote the public welfare, not to run political campaigns. IRS rules say that tax-exempt 501(c)(4) organizations, which are allowed to campaign consistent with their welfare-promoting missions, can’t have politicking as their primary activity. But because those rules aren’t being enforced, presidential campaigns now feature such nonprofits. Why is this happening? And what — if anything — can be done to stop it?
The source of the problem isn’t IRS laziness. It’s a deeper difficulty in defining the interaction between money and free speech in the logic of the First Amendment, one that’s gotten much worse in the era of Citizens United and the U.S. Supreme Court’s gradual subversion of campaign-finance laws. The solution, if there is one, is going to have to come from the courts.
Let’s start with a clarification. Organizations classified under Section 501(c)(3) of the tax code — such as charities, religious institutions and educational institutions — don’t have to pay taxes, and donations made to them are tax deductible. But they can’t participate in a political campaign or endorse candidates for office — at least not now. Organizations classified as 501(c)(4)s are a bit different. They are tax exempt, but donations made to them aren’t deductible. According to the IRS’s guidelines, they must be “operated exclusively to promote social welfare” — and social welfare “does not include direct or indirect participation or intervention in political campaigns.” Yet the 501(c)(4) “may engage in some political activities, so long as that is not its primary activity.” It may, for example, lobby freely, and promote candidates — so long as that isn’t its primary activity.
The deep reason the IRS isn’t enforcing the restrictions on 501(c)(4) organizations isn’t just the difficulty of knowing what counts as “primary activity.” It’s that the Supreme Court has systematically eroded the distinction between advocacy in general and campaigning for particular candidates. That distinction was, for a generation, fundamental to campaign-finance law.
Admittedly, the distinction was always a bit tenuous as a matter of logic. If the First Amendment protects anything, it protects citizens’ political speech. In a democracy, political speech should logically matter most around election time, because speech then is most likely to affect voting outcomes, thereby translating spoken opinion into political results that matter to elected officials. And campaign speech costs money.
Yet to avoid the effects of money swamping political campaigns, campaign-finance laws passed by Congress, and upheld the court, regulated speech that took place in connection with particular candidates and around election-time differently from more general speech, which typically may not be regulated consistent with the First Amendment. The McCain-Feingold Act, for example, prohibited corporations from advocating for or against candidates around an election.
In the Citizens United case, the court struck down that provision. The entity known as Citizens United is, in fact, a 501(c)(4). The decision held, among other things, that a 501(c)(4) couldn’t be limited in broadcasting ads that mention a candidate by name in the run-up to an election. More important, the Citizens United case also held that so- called independent advocacy, not officially affiliated with a campaign, could never be justifiably regulated because there was no danger that it might give rise to the appearance of corruption.
In a less well-known case from 2007, Federal Election Commission v. Wisconsin Right to Life, the court defined the difference between “express advocacy” of a particular candidate and more general political speech. It held that an ad could be regulated under campaign-finance rules “only if the ad is susceptible of no reasonable interpretation other than as an appeal to vote for or against a specific candidate.” This decision blurred the traditional line between issue-advocacy and campaigning. Taken in its broadest sense, the court’s doctrine has been allowing more and more people to speak about campaigns without regulation, and more and more speech connected to elections to go unregulated.
Given these developments, it’s not surprising that 501(c)(4) organizations are claiming that they aren’t “primarily” doing campaigning — even when they’re created in conjunction with specific presidential campaigns. The message from the Roberts court is that when it comes to election-related speech, almost anything goes.
In theory, it should be possible to distinguish between the freedom to speak and the benefits of nonprofit status. In practice, however, the court’s lack of sympathy toward campaign-finance regulation is likely to spill over to the question of nonprofit status. If the IRS were to crack down on 501(c)(4)s, it might well find the court highly unsympathetic.
Any solution would have to come from the court stating clearly that 501(c)(4)s aren’t just any corporations — they’re corporations that get special tax-exempt status only because they’re devoted to a particular social-welfare purpose. Short of that, expect the gradual transformation of some 501(c)(4)s into ordinary political actors.
Behold the age of the tax-exempt super-PACs.
Noah Feldman, a Bloomberg View columnist, is a professor of constitutional and international law at Harvard.