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Ashlee Titus

Don’t Blame the IRS!

Everyone knows that our nation’s tax laws are a mess, and the specific rules in the tax code that apply to political activities are no exception. While they are very complicated, they aren’t to blame for secret money in the funding of ballot measures. John Myers’ article “Ballot measure money not political under IRS loophole” confuses two separate and distinct legal issues, and credits the wrong one for the supposed problem.

The 501(c)(4) status under the federal tax code is not a loophole and has very little to do with campaign (candidate or ballot measure related) disclosure laws in California. The fact that ballot measure advocacy isn’t defined as “political intervention” in the tax code (it’s actually part of the definition of “lobbying”) doesn’t mean that state campaign finance rules don’t apply to such activity when engaged in by 501(c)(4)s. Just the opposite is true.

Since ballot measures are creatures of state law, state campaign finance laws, not the federal tax code, define the parameters for disclosable ballot measure-related advocacy. In fact, take a look at organizations that file campaign reports with the California Secretary of State and you’ll find numerous entities that are formed under section 501(c)(4) providing very detailed reports of their donors and their expenses.

The fact that the Internal Revenue Code doesn’t provide a tax exempt status specifically for ballot measure advocacy is intentional, or is at least an informed omission. Nonprofit tax and political law lawyers and accountants have been asking the IRS and Congress for decades to create a simple ballot measure committee tax status, similar to what already exists for candidate committees, known as 527 political organizations, a reference to the section of the Internal Revenue Code. Groups that engage in lobbying and ballot measure advocacy do not choose to organize under Section 501(c)(4) because it’s a loophole or somehow provides an advantageous status, they choose it because it’s the best fit under existing law.

If there’s insufficient disclosure of the activities of 501(c)(4)s, it’s either due to gaps in state laws or constitutional constraints, most notably the First Amendment. Can’t blame this one on the IRS!