There are a few groups in Michigan that have 501(c)4 status for social welfare, and consequently are tax exempt. The IRS mandates they can’t make political activism their main effort. Yet that’s exactly what some appear to be doing.
With the Michigan primary election fresh on people’s minds, it’s a good time to consider some of the disturbing trends that emerged the past few months. Transparency should be the goal in political spending. Especially when “dark money” crosses the line into unsanctioned activity, alarms should sound.
And there are some glaring examples this election season that point to abuses by shadow organizations on both sides of the political spectrum. While we believe in the free speech of individuals and businesses to contribute to political causes they believe in (protected by our First Amendment), the groups carrying out the political messaging must follow both federal and state law.
Specifically, there are a few groups in Michigan that have claimed 501(c)4 status, arguing they are social welfare organizations, and consequently tax exempt. The IRS mandates such groups aren’t allowed to make political activism and lobbying their primary effort.
Yet that’s exactly what some appear to be doing, while keeping that tax exempt status. That goes against federal law and state campaign finance law.
“It’s a bona fide violation of the law,” says Patrick Anderson, principal and CEO of the Anderson Economic Group.
Anderson recently filed a complaint with the IRS, highlighting alleged abuse by a group called Citizens for Energizing Michigan’s Economy. In the complaint letter, he writes: “The corporation is operating in direct violation of its claimed purpose to ‘receive and administer funds for social welfare purposes.’ In particular, there is no evidence of any activities intended to improve social welfare of the people in the state of Michigan.”
But there is plenty of evidence of the group spending thousands of dollars on political advertising for and against specific candidates in several of the contested primaries.
Anderson details how in the past three months, CEME appears to have spent over $1 million in campaign advertising in a handful of legislative races.
“Unless one considers expenditures in favor or against a specific candidate for an impending election to be ‘social welfare’ expenses — and ignores the many other requirements and restrictions on expenditures involving such express campaign advocacy — there is no salvaging these advertisements under the clear meaning of both state and federal laws,” Anderson writes.
Similar spending from other “social welfare” organizations has also raised eyebrows. As The Detroit News has reported, United for Progress had run attack ads against Democratic 13th district congressional candidate Rashida Tlaib. Last month, Tlaib claimed the group hadn’t filed paperwork with the federal government, hiding where the funding originated. Social welfare groups don’t have to disclose donors but are required to report explicit campaign spending to the Federal Election Commission.
In addition, hundreds of thousands of dollars from other social welfare organizations have been spent in the gubernatorial primary races.
As long as the political portion totals less than half of a 501(c)4′s total spending, the group is in the clear.
But given how some of these groups seem to be taking advantage of existing laws, officials at both the state and federal level should take a closer look — especially with a high-stakes general election just months away.
— DETROIT NEWS