A side effect, however, results from the Tax Code. In brief, non-profit organizations, registered with the IRS as a 501(c) organization (usually a 501(c)(3), or social welfare entity) may not engage in certain types of activities, lest they lose their non-profit status. Clearly, acting as a commercial (i.e., selling something) is a violation. Less obviously, however, is that 501(c) organizations may "educate" on issues related to their purpose (i.e., a group dedicated to opposing flourination of water could run ads opposing a referendum on that subject) but may not run ads for or against candidates. (This is further complicated by various "magic words" tests of what it means to be "for" or "against" a candidate... "defeat Joe Smith"? or "Call Joe Smith and ask him why he's not getting your vote"? but I digress...)
Anyway, this issue is even further complicated by the complex web of organizations (on both sides of the ideological aisle) who pass funds from one another. Tracking such funds, which may start as a charitable contribution, and then pass to increasingly less tax-exempt organizations, eventually ending up being used to support pure lobbying efforts (and therefore not tax-exempt). Even more complicated is that organizations can say that a contribution was used for organizational (i.e., salaries) expenses but not political outreach, even though the contributor was clearly making the donation for political purposes, and not to support the staff. (Again I digress).
The net is that even though we have a government entity called the Federal Election Commission, only the IRS now has the legal mandate to track such funds. Not surprisingly, the IRS is not eager to embrace this role; it's not geared towards figuring such things out.
However, some groups are beginning to publicly call for IRS investigations into the questionable spending habits of some of these groups. One, the Nonprofit Law Prof Blog (which I believe means that they teach the laws related to running non-profit organizations), has formally called for an audit into one such web of expenditures.
Group Seeks Audit of U.S Chamber of Commerce and Affiliate
A group called U.S. Chamber Watch (“Chamber Watch”) has asked the Internal Revenue Service to audit the Starr Foundation, the National Chamber Foundation (“NCF”) and the Chamber of Commerce of the USA, also known as the U.S. Chamber of Commerce (the “Chamber”). The Chamber is an organization exempt from federal income tax and described in Section 501(c)(6) of the Internal Revenue Code, and NCF is a tax-exempt affiliate of the Chamber described in Code section 501(c)(3). In its letter to the IRS, Chamber Watch asserts that the Starr Foundation, a private foundation established by AIG founder Cornelius Vander Starr, appears to have acted contrary to the requirements of Code section 501(c)(3) by making $19 million in grants to NCF, which then used the money to “finance NCF’s transfer of at least $18 million” to the US Chamber of Commerce. The letter further states that “it appears that charitable funds” were eventually used to support the Chamber’s “lobbying and electoral agenda.” As reported in the New York Times, the Chamber’s chief financial officer, Stan Harrell, maintains that the Chamber's legal and accounting advisors have reviewed the Starr Foundation funding and found that it complied with all relevant tax law. He is further reported as saying, “Chamber Watch, which was created by a federation of five unions called Change to Win, was simply trying to create trouble for the chamber because of its opposing political views.”
To be continued, I'm sure...
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