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How Nonprofits Spend Millions on Elections and Call it Public Welfare

Forget super PACs, their much-hyped cousins, which can take unlimited contributions but must name their donors.
 
 
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Matt Brooks describes the mission of the Republican Jewish Coalition as educating the Jewish community about critical domestic and foreign policy issues.

But the well-dressed crowd that gathered in May for a luncheon on the 24th floor of a New York law firm easily could have figured that the group had a different purpose: Helping Mitt Romney win the presidency.

Brooks, the group's executive director, showed the 100 or so attendees two coalition-funded  ads taking aim at President Barack Obama. Then Brooks made a pitch for a $6.5 million plan to help Romney in battleground states, reminding guests that their donations would not be publicly disclosed by the tax-exempt group.

"Contributions to the RJC are not reported," Brooks told the people sitting around a horseshoe-shaped table. "We don't make our donors' names available. We can take corporate money, personal money, cash, shekels, whatever you got."

The Republican Jewish Coalition and similar organizations enjoy tax-exempt status in exchange for promoting social welfare. In this election, the most expensive in U.S. history, they also have emerged as the primary conduit for anonymous big-money contributions.

Forget super PACs, their much-hyped cousins, which can take unlimited contributions but must name their donors.  More money is being spent on TV advertising in the presidential race by social welfare nonprofits, known as 501(c)(4)s for their section of the tax code, than by any other type of independent group.

As of Aug. 8, they had spent more than $71 million on ads mentioning a candidate for president, according to estimates by Kantar Media's Campaign Media Analysis Group, or  CMAG. Super PACs have spent an estimated $56 million.

Congress created the legal framework for 501(c)(4) nonprofits nearly a century ago. To receive the tax exemption, groups were supposed to be "operated exclusively for the promotion of social welfare." The IRS later opened the door to some forms of political activity by interpreting the statute to mean groups had to be  "primarily" engaged in enhancing social welfare. But neither the tax code nor regulators set out how this would be measured.

In recent years, Democrats and Republicans alike have seized on that seemingly innocuous wording to create the darkest corner of American political fundraising.

An investigation by ProPublica, drawing on documents filed with the Internal Revenue Service and the Federal Election Commission, offers the most detailed picture to date of how 501(c)(4) groups have used their tax status for purposes likely never intended.

Our examination shows that dozens of these groups do little or nothing to justify the subsidies they receive from taxpayers. Instead, they are pouring much of their resources, directly or indirectly, into political races at the local, state and federal level.

The 2010 election functioned, effectively, as a dry run, providing a blueprint for what social welfare groups are doing on a larger scale today. Records on what is happening in the 2012 campaign will not be available until well after the election.

For this story, ProPublica reviewed thousands of pages of filings for 106 nonprofits active during the 2010 election cycle, tracking what portion of their funds went into politics. We watched TV ads bought by these groups, looked at documents from other nonprofits that gave them money, and interviewed dozens of campaign finance experts and political strategists. We found that some groups said they would not engage in politics when they applied for IRS recognition of their tax-exempt status. But later filings showed they spent millions on just such activities.

On the  very day in 2008 that the  American Future Fund mailed its application to the IRS, checking the box for "no" on whether it planned to participate in politics, it uploaded an ad to YouTube praising a Republican senator. The group reported more than  $8 million in political spending in 2010.

 
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