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Critics Blast Biden’s Selective EO Politicking Plan

Posted on Oct. 29, 2019

Former Vice President Joe Biden’s proposal to ban tax-exempt social welfare groups from political activity is receiving a chilly reaction from some tax practitioners who think the plan would be unfair and ineffective.

Biden, the leading contender for the 2020 Democratic presidential nomination, would bar section 501(c)(4) organizations from spending money on political campaigns, a prohibition that currently applies to section 501(c)(3) entities.

The objective is to end “dark money” groups that spend hundreds of millions of dollars on campaigns without revealing their donors, according to Biden’s campaign. However, critics are concerned with how the plan imposes a strict electioneering ban on 501(c)(4) organizations while continuing to allow political activity for section 501(c)(5) labor unions and section 501(c)(6) trade associations.

John Pomeranz of Harmon, Curran, Spielberg & Eisenberg LLP says that while concerns about exempt organizations’ political activity are legitimate, “there still needs to be a way for a group of people to organize together to promote their vision for the future of the country through a combination of public education, legislative advocacy, and political activity, and that’s what 501(c)(4)s are now.”

Rosemary E. Fei of Adler & Colvin expressed similar thoughts on the proposal, which she called a “terrible idea.”

“Prohibiting (c)(4)s from political activity silences groups across the political spectrum but leaves professional and trade associations under 501(c)(6) able to speak for the business interests they represent, which tend to have views on one end of the political spectrum and benefit private interests, which is hardly fair,” Fei told Tax Notes.

Moreover, banning social welfare groups from political activity would silence the political speech of section 501(c)(3) entities, which can form section 501(c)(4) groups to speak for them with non-charitable, nondeductible dollars, Fei noted.

“A 501(c)(4) is really the only tax-exempt vehicle through which a 501(c)(3) can speak,” Fei said. “So this is a bad idea because it will leave charities, our most public-minded organizations, with no voice in electoral politics at all, while doing nothing to restrain the voice of private interests, already far louder than any charity’s.”

And if Biden’s proposal became law, there would be few differences between section 501(c)(3) and section 501(c)(4) entities, which would undermine the effectiveness of joint efforts by charitable organizations and social welfare groups to effect social change, according to Fei.

“Why have two separate types of exemption with so little light between them?” Fei asked. “501(c)(4)s have a separate function in the EO ecosystem, and in social movements, from 501(c)(3)s. Social movements . . . are founded on taking advantage of those different roles using a tandem 501(c)(3)-501(c)(4) structure.”

Alternative Solutions

Biden’s proposal makes the common mistake of focusing on recent abuses of some politically active social welfare groups while ignoring the valuable role section 501(c)(4) organizations played in civil discourse for decades with no wrongdoing, Fei said.

The answer isn’t to ban political speech by section 501(c)(4) entities but to enforce existing rules limiting those organizations primarily to social welfare activities and undoing the Citizens United Supreme Court decision on independent political communication expenditures, Fei said.

If the problem is dark money going through social welfare groups, an obvious remedy would be to make section 501(c)(4) organizations report their political expenditures and disclose their income sources to the IRS, Fei added.

Also, Congress should allow the IRS and Treasury to complete work on guidance that would clearly spell out the permissible amount of political activity for EOs, Fei and Pomeranz said.

Lawmakers should also amend federal campaign finance laws to increase transparency of major independent efforts to influence elections and to unmask supposedly independent efforts that aren’t truly independent, Pomeranz added.

Meanwhile, the Biden campaign’s opposition to accepting funding from super PACs seems to have lessened amid the competitive race for the presidency. Campaign spokeswoman Kate Bedingfield said in an October 24 statement that until “badly needed reforms” are put in place to overturn Citizens United and end the unrestrained spending by super PACs, “we will see more than a billion dollars in spending by [President] Trump and his allies to re-elect this corrupt president.”

“In this time of crisis in our politics, it is not surprising that those who are dedicated to defeating Donald Trump are organizing in every way permitted by current law to bring an end to his disastrous presidency,” Bedingfield added.

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