Do Nonprofits Raise Less Money In Election Years?

What Should Nonprofits Know About 501(c)(four) organizations? Especially in an Election Yr?

Breaking news: The United states of america Supreme Court ruled earlier this week that politically agile nonprofit groups will take to disclose the identity of certain donors (those giving more than $200) when these organizations annunciate for or against a political candidate.

In this article, we explain why a nonprofit may want to form a separate C4, and nosotros look at the growing and controversial function C4s are playing in our elections.

"C4s" -- short for 501(c)(four) nonprofits -- "are going to play a very large role in electoral politics," commented nonprofit chaser Rosemary Fei in an interview for this article. There are oftentimes valid and compelling reasons for 501(c)(3) nonprofits to start their own C4s, but at the same time, C4 organizations are also vulnerable to abuse in elections, so having a C4 affiliate can raise concerns for some.

What the heck is a C4 anyway?

C3s . . . C4s . . . sounds similar we're talking in lawmaking? Nosotros are: the Internal Revenue Code. For most people, the term "nonprofit" refers to a corporation described in the Internal Revenue Code Section 501(c)(three). These are the tax-exempt "charities" and donations to them are tax-deductible to individuals. For short sometimes people say "C3s."

But to lawyers and regulators, "nonprofit" can mean 1 of many different types of corporations. For instance, labor unions are C5s; chambers of commerce are C6s; cemeteries are C13s. All of these other 501(c) corporations are exempt from corporate income tax, but donations to C3s are the simply ones that are taxation deductible.

Okay and then what is a 501(c)(4) and why are we hearing so much well-nigh them lately?

A 501(c)(4) is a "social welfare" arrangement, and "it'southward a mushy term," says Rosemary, "a catch-all for many types of organizations that serve the public however don't quite qualify as 501(c)(three) charities." Traditional examples of C4s are volunteer burn down departments and service clubs such equally Rotary, while C4s formed recently are more likely to be politically involved. An important stardom is that donations to C4s are not taxation deductible (whereas donations to C3s are).

We're hearing more about them in an ballot twelvemonth for 2 central reasons:

C4s can endorse candidates (which C3s can't)
C4s may not have to disclose their donors (which C3s practice -- although only to the federal and state government) (annotation: this requirement is changing in some circumstances as we noted earlier).

As a result of these two attributes, unfortunately C4s have get a favored conduit for "dark coin" -- vehicles for which large sums of money tin can exist used to support or oppose candidates.

How will this bear on the 2018 election?

Nosotros don't know nevertheless. Just nosotros do know that election funds through C4s are substantial: in the 2012 election, just over $80 meg was spent; $48.five 1000000 was spent in 2016, and $43.9 million has been spent thus far in 2018. (Center for Responsive Politics).

From a public policy standpoint, the not-transparency of 501(c)(four) organizations goes in the reverse direction of campaign contribution limits and disclosure laws. While it'southward clear that such laws take not prevented dark money, at that place are nonetheless limits such as those in California, where individuals cannot give more than $4,400 to an election campaign for a state senate seat and their contributions must be disclosed. But in that location are no limits to what an individual tin spend to support or oppose a candidate if it goes through a C4.

Should our nonprofit start a C4?

Despite the abuses, the C4 framework as well has a valuable role to play for many nonprofits. Many nonprofits exist as 2 (or more) corporations: one is a 501(c)(three) and i is a 501(c)(4). For instance, the Sierra Order endorses candidates through its C4 incorporation, and raises tax-deductible funds for inquiry and pedagogy through its C3 incorporation.

We asked Maricela Morales, executive director of Crusade in Ventura Canton, why they created a C4:

By 2012 we had been doing organizing for x years -- on immigrant rights, environmental justice, educational activity. And naturally people would inquire u.s.a.: "Who'south adept in this race for school lath?" And we were silent, express in what we could say.

But that led us to asking ourselves: if we had a C4 we could add together to our toolbox [for example, endorsing a candidate for the school board], be able to engage and educate our base on questions they were asking anyhow.

Since 2013 (when we got the C4) for example, in Oxnard through our C4 work we actively worked for district elections. Through our C3 we proposed maps, and the city unanimously chose our map. And now it's time for the states to follow-upwards through our C4 to discover candidates to run in those districts who volition be leaders and advocates.

Nosotros don't just want a say in what policies are in place. We want a voice in who is going to implement those policies!

Similar Cause, the cardinal reasons for nonprofits creating C4s are considering you want to be able to practise more lobbying, to endorse candidates, and "and to enhance money for the person-to-person piece of work of engaging voters, especially voters that no one else is speaking to."

"While having a C4 chapter can significantly expand how a 501(c)(iii) nonprofit can accomplish its objectives, if it'south not done properly, the C4 can get the C3 in trouble," Rosemary cautions. Board and staff volition need to have into account the additional, sometimes complex bookkeeping and bookkeeping that will be required to ensure that C3 and C4 activities are beingness tracked and paid for separately. Working with an attorney experienced in advising C3/C4 nonprofits is of form a good idea, as is working with your accountant to prepare the right controls and charts of accounts.

"In that location are legitimate ways to make good apply of both," Rosemary says. "And if you're office of a social movement and see your role as influencing policy in an ongoing way -- not just around an election -- it could very well be the right side by side step for you."

Note: Regulations affecting C4s are constantly being examined, challenged, and changed. Not only practice individual nonprofits need to be informed about how new rulings may affect them, simply the nonprofit community must also participate in how C4 law is changed.

Further resources and reading:

Attorney Gene Takagi has an excellent Pace-By-Footstep guide to forming a C4

IRS: Social Welfare OrganizationsPhoto credit:illustration at height of article is by Dale Glasgow for HR Mag

PS: The ballot is in 46 days!

Is your nonprofit "Voting with Its Mission?" Join united states of america next Tuesday, Sept. 25th at 11AM for a fast-paced (free) webinar where we'll talk about easy-to-implement strategies for nonprofits who want to engage their communities, colleagues, board, and volunteers in voting in the upcoming election.

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Source: https://calnonprofits.org/publications/article-archive/616-what-should-nonprofits-know-about-501-c-4-organizations-especially-in-an-election-year

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