NYT on the ABC’s of 501(c)s

Why these groups are “popping up like mushrooms” this election season

Quick: what’s the difference between a 527 group and a 501(c)(5)? What can a 501(c)4 group do that a 501(c)3 cannot? How is American Crossroads different from Crossroads GPS?

Chances are you’ve been hearing and seeing these numbers and names a fair amount lately, as the midterm elections (and reporting on same) gather steam. And today (finally!) comes a report (and accompanying clip-and-save graphic), by the New York Times’s Michael Luo and Stephanie Strom, from which a reader might come away with a decent, basic understanding of some of the distinctions between these various groups. (Less so Luo’s article last week, in which, as is more often the case in stories sprinkled with 501(c)s, the differences weren’t as clearly delineated).

Today, Luo and Strom write about the growing influence that 501(c)(4) nonprofit groups (like Crossroads GPS) are having on this year’s elections, and why these groups in particular are, as one lawyer told the Times, “popping up like mushrooms after a rain right now.”

While the primary function of a 501(c)(4), by law, is supposed to be “social welfare,” not politics, Luo and Strom write:

that has not stopped Crossroads and a raft of other nonprofit advocacy groups like it — mostly on the Republican side, so far — from becoming some of the biggest players in this year’s midterm elections, in part because of the anonymity they afford donors, prompting outcries from campaign finance watchdogs.

The chances, however, that the flotilla of groups will draw much legal scrutiny for their campaign activities seem slim, because the organizations, which have been growing in popularity as conduits for large, unrestricted donations among both Republicans and Democrats since the 2006 election, fall into something of a regulatory netherworld…

…somewhere between an “understaffed, underfunded” division of the IRS (“which has jurisdiction over nonprofits”) and the FEC, “which regulates the financing of federal races.” What’s more:

the I.R.S. is unlikely to know that some of these groups exist until well after the election because they are not required to seek the agency’s approval until they file their first tax forms — more than a year after they begin activity.

Quite a hospitable environment—speaking of which, here’s that “mushrooms” quote in its entirety, from Marcus S. Owens, a lawyer who once led the IRS unit that oversees tax exempt organizations and “now works for Caplin & Drysdale, a law firm popular with liberals seeking to set up nonprofit groups:”

“These groups are popping up like mushrooms after a rain right now, and many of them will be out of business by late November. Technically, they would have until January 2012 at the earliest to file anything with the I.R.S. It’s a farce.”

They’re pop-up political advocacy groups – here today, gone tomorrow. More, from the Times, on their popularity, influence, how they differ from other, similar groups:

Almost all of the biggest players among third-party groups, in terms of buying television time in House and Senate races since August, have been 501(c) organizations, and their purchases have heavily favored Republicans, according to data from Campaign Media Analysis Group, which tracks political advertising.

They include 501(c)(4) “social welfare” organizations, like Crossroads, which has been the top spender on Senate races, and Americans for Prosperity, another pro-Republican group that has been the leader on the House side; 501(c)(5) labor unions, which have been supporting Democrats; and 501(c)(6) trade associations, like the United States Chamber of Commerce, which has been spending heavily in support of Republicans.

Charities organized under Section 501(c)(3) are largely prohibited from political activity because they offer their donors tax deductibility…

… A revamped regulatory landscape this year has elevated the attractiveness to political operatives of groups like Crossroads and others, organized under the auspices of Section 501(c) of the tax code. Unlike so-called 527 political organizations, which can also accept donations of unlimited size, 501(c) groups have the advantage of usually not having to disclose their donors’ identity.

Interviews with a half-dozen campaign finance lawyers yielded an anecdotal portrait of corporate political spending since the Citizens United decision. They agreed that most prominent, publicly traded companies are staying on the sidelines.

But other companies, mostly privately held, and often small to medium size, are jumping in, mainly on the Republican side. Almost all of them are doing so through 501(c) organizations, as opposed to directly sponsoring advertisements themselves, the lawyers said.

In other 501(c)(4) news today, from USA Today:

A donor who does not want to be named has written a $1 million check to Tea Party Patriots, and the organization’s national coordinators intend to push the funds out into the field by the beginning of next month — in time to help with get-out-the-vote efforts for the Nov. 2 election.

In a Q&A with reporters at the National Press Club, Mark Meckler and Jenny Beth Martin of Tea Party Patriots dropped a few hints about their benefactor: “He” is a businessman and entrepreneur, they said. Asked if he had given to other political causes, Meckler said he didn’t know.

The anonymous nature of the donation was Topic A at the press conference where Meckler and Martin announced the grant. Organized as a “social welfare” group under section 501(c)4 of the tax code, the Tea Party Patriots is not regulated by federal campaign finance laws and is not required to make its funding sources public.

One way to keep up on what interest groups (and political parties) are spending this season and where they are spending it (if not from where that money comes) is this Washington Post interactive chart updated every Tuesday. The headline this week: “Conservatives dominate campaign spending by interest groups.” (“Interest groups and political parties reported $13.9 million in expenditures to the Federal Election Commission last week— 85 percent…spent on behalf of Republicans and 15 percent on behalf of Democrats.”)

And, amidst all this discussion of 501(c)(4)s, let us not forget PACs (political action committees), another way that corporations can give to political campaigns —but, directly, with dollar limits, and without anonymity. The Wall Street Journal today reports that corporate PAC donations are this year “swing[ing] toward the GOP” (which apparently doesn’t hold the same appeal to online Journal readers as “Jeans Care Secret: Rarely Wash Them,” currently – and distractingly— the “most read” story on wsj.com). But, back to the PACs piece:

Corporations have begun to send a majority of donations from their political action committees to Republican candidates, a reversal from the trend of the past three years.

The change in corporate PAC giving is the latest sign Republicans are likely to make significant gains in November’s midterm elections. Business PACs are notoriously cautious in deciding which party should receive a majority of their donations. They nearly always give most of their contributions to candidates whose political party is in power on Capitol Hill.

According to data from the Center for Responsive Politics, business PACs gave 52% of their $72.2 million in total donations to Republican candidates from January through July.

In the same period of 2009, corporate PACs had sent 59% of their $64 million in campaign contributions to Democratic candidates, according to the data. AT&T Corp. and GlaxoSmithKline PLC are among the companies whose PAC donations shifted this year toward GOP candidates.

All of which we know, of course, because PAC donations—refer back to today’s handy New York Times clip-and-save graphic!— must be reported to the Federal Election Commission.

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Liz Cox Barrett is a writer at CJR.