Section 501(c)4, as it is currently interpreted, is the notorious tax loophole that allows political parties to funnel unlimited amounts of money into nominally independent “social welfare” organizations without disclosing the source or the amount of each contribution.
As indicated below, the lack of disclosure encourages governmental corruption, as well as, government by and for the “deep pockets”.
It is ironic that section 501(c)4 has been perverted to serve political interests, because the law literally forbids political activity. The law states that 501(c)4 organizations must be operated “exclusively for the promotion of social welfare…[and] devoted exclusively to charitable, educational, or recreational purposes.” Additionally, it states that “social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”
So why are political operatives of both political parties allowed to masquerade as social welfare organizations if they are explicitly forbidden by the 501(c)4 tax code?
During the Eisenhower administration in 1959 the IRS arbitrarily, absurdly and, perhaps, illegally reinterpreted the word “exclusively,” pertaining section 501(c)4 , to mean “primarily,” opening the way to political abuse. Adding insult to injury, the IRS failed to quantify “primarily”; thus, some politicized organizations claim that 50.1 percent means “primarily.”
The control of 501(c)4 organizations was further degraded by the Federal Election Commission in 2007. The commission amended disclosure regulations so that disclosure of gifts of $200 or more are not required to multipurpose organizations – unless the donor specifies that a gift is for electioneering. Obviously, no donor desiring anonymity would specify that a donation is for electioneering – so their anonymity is easily maintained.
Thus, acts of governmental incompetence or malfeasance (the IRS in 1959) and, even, political corruption (the FEC in 2007) allowed the 501(c)4 to be transformed from a societal asset to a political tool to deceive and circumvent scrutiny by the electorate.
There are several reasons why unlimited, undisclosed political contributions are harmful.
Donors and candidates are freed of responsibility for the ads and actions of secretly-funded 501(c)4 organizations. The electorate is denied the identity of the large donors who are financing campaign ads and buying the influence of the candidates/elected officials whom voters are being asked to elect.
Most importantly, elected officials are free from political scrutiny and conflict-of-interest recognition when they sponsor legislation that benefits their unidentified large donors or when they fail to prosecute donors accused of wrongdoing (i.e., government by and for the wealthy).
In 2010 and 2012 Democrats in the Senate sponsored a bill, the Disclose Act, that would have closed the FEC and 501(c)4 loopholes by mandating disclosure of donors and amounts for all contributions of $10,000 or more. Surprise! The legislation was filibustered and kept from the floor by Republicans.
Democracy, like free enterprise, requires the free flow of information to function. Those who oppose campaign disclosure and transparency also oppose good government, they encourage corruption, and they are destroying our representative democracy.