Published in Nonprofit Quarterly
In recent months, a narrative has taken hold that is compounding a reputational problem for an entire class of nonprofits—and it is threatening to rob advocates of one of their most powerful tools for effecting change.
The narrative is this: the Internal Revenue Service’s oversight of 501c4 social welfare organizations has lapsed, resulting in an explosion in the formation of 501c4 organizations along with irresponsible behavior by what have frequently been labeled “dark money” groups—so-called because they are not required to reveal all of their donors. A ProPublica article headlined “How the IRS Gave Up Fighting Political Dark Money Groups” directly attributed an increase in 501c4 organizations to the lack of IRS oversight activity.
An NPQ article, “The IRS’s C4 Regulation Problem,” took the conclusion a step further, noting that “the press often refers to these unregulated political players as ‘nonprofits’—not as c4s—and that means that any violations of trust land up in our collective reputational laps, not to mention their deleterious effect on democracy.”
As is often the case, the real picture is more complicated. The IRS has reportedly scaled back its oversight of social welfare organizations due to budgeting and other constraints, as well as complaints several years ago that it was only scrutinizing conservative 501c4s. It is also true that the number of social-welfare organizations has rapidly increased. This is due in part to the effect of the Citizens United decision on 501c4s, but there are other factors as well. For example, a recent article in Fortune tied the current volatile political climate to more groups choosing to organize themselves as 501c4s, because of the greater latitude a 501c4 designation provides when it comes to lobbying and political engagement. It would be a real loss if negative perceptions about social welfare organizations chilled this activity.