Nonprofits likely under fire as Senate explores ‘dark money’

A Senate hearing on Wednesday is likely to produce fireworks as Republicans and Democrats square off over the role that foundations and nonprofits are playing in elections.

The Senate Finance subcommittee on Taxation and IRS Oversight offers no description of the hearing beyond the title “Laws and Enforcement Governing the Political Activities of Tax Exempt Entities.” Even the witnesses who will testify are uncertain of its focus. It appears likely that subcommittee chairman Sen. Sheldon Whitehouse wants to raise concerns about “dark money” flowing through 501(c)(4) nonprofits, but Republicans plan to widen the scope of the hearing to highlight what they see as illegal political activities by 501(c)(3) charities and foundations.

Contributions to 501(c)(4) social-welfare organizations, unlike 501(c)(3) charities, are not tax deductible, and as a result, those organizations are allowed to engage in a much broader range of political activities.

One of the witnesses at the hearing, Ann M. Ravel, former chairwoman of the United States Federal Election Commission who now teaches at the University of California at Berkeley’s law school, said she will discuss her concerns about the movement of money from 501(c)(4) organizations to political-action committees with little oversight or public awareness of the source of those funds.

“There is a lack of accountability that is problematic,” Ravel said.

However, witnesses who were invited to testify by committee Republicans had a much different perspective, saying it was shortsighted to focus on fundraising for political-action committees when, in their view, the real abuses are occurring at some 501(c)(3) nonprofits and foundations.

Scott Walter, president of the Capital Research Center, a conservative group that monitors philanthropy and political giving, said he was told that there is no specific piece of legislation linked to the hearing. Walter said he intends to make the case that abuses by 501(c)(3) charities crossing the line into partisan activities are a much bigger problem than the 501(c)(4) “dark money” that Whitehouse intends to focus on.

He pointed to Facebook co-founder Mark Zuckerberg and Priscilla Chan’s $400 million commitment during the last election cycle to promote electoral access and integrity. Walter said the vast majority of those funds were spent in heavily Democratic districts, which violates the federal prohibition against spending tax-deductible charitable contributions in ways that have “the intention or effect of benefiting one candidate or party.”

Groups like the New Venture Fund have drawn similar scrutiny from conservatives; it pursues a wide array of progressive policies in areas like climate change and gender equity, and it regularly receives large gifts from people like Jeff Bezos, MacKenzie Scott, Melinda French Gates, and Mark Zuckerberg and Priscilla Chan and from foundations like Ford and MacArthur.

Arabella Advisors, a for-profit consulting firm that provides advice to wealthy donors and foundations, also has drawn the ire of conservatives, who say it is helping its nonprofit clients overstep the boundaries of acceptable activities for charities that enjoy the benefits of tax-free contributions.

Several states across the country have sought to prohibit outside groups from contributing money to the administration of local elections.

Brad Smith, founder of the Institute for Free Speech, who will testify at the hearing at the invitation of Republicans, said he felt that Democrats were exaggerating the problems posed by dark money flowing to political-action committees while ignoring the fact that many 501(c)(3) charities engage in a wide variety of activities that can influence elections or policy. For example, charities are allowed to do voter-registration drives that target certain areas, do a limited amount of lobbying, and do advocacy work to raise the profile of certain issues they care about, Smith said.

“I’m very cynical about the hearing because I view the hearing as somewhat cynical,” Smith said.

Meanwhile, people on the left have taken aim at Charles Koch, a longtime supporter of conservative charities. Those concerns on the left and the right have prompted calls for policy makers to lay out clearer rules about how charitable organizations can use their funds when it comes to election-related activities.

Another witness called to testify is Philip Hackney of the University of Pittsburgh School of Law, who has questioned whether private foundations should retain their preferred tax status because of what he sees as widespread abuse of that privilege.

Whitehouse is a leading advocate of legislation that would require organizations spending money on elections, including 501(c)(4) groups and political-action committees, to disclose donors who give $10,000 or more during an election cycle. Whitehouse has also expressed concerns about the use of “dark money” to groom and promote conservative candidates for federal judgeships, including the Supreme Court.

The offices of Whitehouse and Sen. John Thune of South Dakota, the top Republican on the Senate subcommittee, did not respond to calls or emails seeking comment on the hearing.

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This article was provided to The Associated Press by the Chronicle of Philanthropy. Dan Parks is a senior editor at the Chronicle. Email: dan.parks@philanthropy.com. The AP and the Chronicle receive support from the Lilly Endowment for coverage of philanthropy and nonprofits. The AP and the Chronicle are solely responsible for all content. For all of AP’s philanthropy coverage, visit https://apnews.com/hub/philanthropy.