$1 Billion in Gifts Attracts New Attention to the Rules on Charities and Political Giving
We want to be as close, but not over the line in our guidance to clients as we can, right
If you’re doing it as a sham, I’m going to get out the progressive vote. I think that’s that’s off limits for a c3. Three
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When nearly $1 billion flowed to the New Venture Fund, the group didn’t scream from the rooftops that it had more than doubled its donations in a single year — something a lot of other charities would have done.
Instead, it waited to disclose the amount until it filed its IRS informational tax return, which was made public in November.
New Venture could take that route because it is already well known among big donors and grant makers — 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.
Since its founding in 2006, New Venture has become popular among foundations and philanthropists seeking ways to quickly and efficiently funnel money to a range of efforts, such as curbing climate change, reducing racial inequities in health care, and advancing gender equity.
But it has also become a leading player in efforts to advance progressive policies, which is a big reason it hauled in so much in 2020, the year of a pivotal election. New Venture’s success emulating the approach of Charles Koch, a longtime supporter of conservative charities, has prompted some advocates on the left and the right to urge policy makers to lay out clearer rules about how charitable organizations can use their funds when it comes to election-related activities.
As the size of the dollars at stake grows, and divisions in politics get deeper, the issue of what is often called “dark money” has gained greater currency — and is likely to prompt debates in the 2022 midyear elections and the run-up to the presidential election of 2024.
How Today’s System Works
The big question raised by New Venture, the Koch network, and others is whether charities, which are banned from partisan politics, should be easily able to send money to nonprofits that take an active role in elections and debate on legislation — and whether they should continue to be allowed to do so without disclosing the donors steering the contributions.
Under today’s laws and regulations, a rich donor can make a tax-deductible contribution to New Venture — which then can send the money to advocacy groups that do a mix of charity work and election-related activities. In 2020, the New Venture Fund sent $86 million to a political-advocacy group called the Sixteen Thirty Fund and $44 million to America Votes, an organization that mobilizes progressive voters to go to the polls. Donors like Bezos, Scott, Zuckerberg, and Gates have disclosed that they were New Venture Fund donors, but they weren’t required to do so.
It’s not just disclosure that is at stake but tax subsidies for the wealthy. Donors can give to New Venture and get a charitable tax deduction, but they wouldn’t get one if they contributed directly to America Votes or Sixteen Thirty Fund. Those groups have legal status as advocacy groups — meaning they can do some political work, which is why gifts they receive aren’t tax deductible.
So donors to New Venture have the ability to keep their giving secret, get a tax deduction, and provide money in ways that benefit progressive politicians and causes. Those donations may be significant — on its informational tax return, New Venture says the eight biggest contributions it received range from $26 million to $105 million.
Not ‘Values Neutral’
New Venture and the Sixteen Thirty Fund are part of a network of funds created by Arabella Advisors, a for-profit consulting firm that provides advice to wealthy donors and foundations.
The scale of New Venture’s fundraising and its connections to a broader group of like-minded donors make comparisons with the conservative Koch-led network inevitable.
A big difference, says Lee Bodner, president of the New Venture Fund, is that the Koch network is organized on a “top-down” basis in service of a single agenda. New Venture, he says, is not coordinated in the same way and works on a broad range of issues. What matters, Bodner says, is not what ideology nonprofits support but that donors and nonprofits of all political stripes are following the law.
“Everybody should be playing by the same set of rules,” he says, “and it’s not up to me to make the rules.”
The work New Ventures supports is not partisan — which would be a violation of charity rules, Bodner says. But it is aligned with many of the causes and ideas Democrats are seeking to advance.
“We’re not a values-neutral platform,” he says. “We’re trying to advance racial equity, equality, and democracy. “Those are not partisan values, though in today’s world if you’re putting on a political hat you’re going to probably say they’re progressive values. But we’re a nonpartisan organization.”
Technically all of the money New Venture gives to an advocacy organization must support charitable, rather than political, work. But some lawyers and charity watchdogs say the hazy definitions that apply to tax-exempt groups mean the lines between political and charitable activity are often hard to distinguish.
Megan Tompkins-Stange, a politics professor at the University of Michigan and author of Policy Patrons: Philanthropy, Education Reform, and the Politics of Influence, says donors to charity and advocacy groups might choose to spark interest in issues like student debt or climate change. That would be acceptable under charity and advocacy rules as long as it is informational — but what happens if those topics are signature issues of a particular candidate? And how, she wonders, are voters to know what donors are pushing the agenda?
“We don’t know exactly what company and what special interest or high net-worth individuals are giving to these politicians and therefore who they’re held accountable to,” says Tompkins-Stange.
Michael Hartmann, a senior fellow at the Capital Research Center, a conservative group that monitors philanthropy and political giving, says the surge of dollars flowing through charities to liberal and conservative causes is likely to generate attention from lawmakers on the right and left and lead to changes.
"There might be agreement that something’s awry here and needs to be fixed,” Hartmann says.
As a sign of the concerns that some lawmakers have, he points to North Carolina, where lawmakers in the Republican-controlled legislature passed a bill that would have prohibited private donations to local election boards to help ensure the integrity of the vote.
A focal point of the concern raised by the state’s legislators was Facebook co-founder Mark Zuckerberg and Priscilla Chan‘s $400 million commitment during the last election cycle to promote election integrity nationwide.
Although the couple didn’t make the elections gifts through New Venture, nearly $25 million from undisclosed donors was funneled through the fund to the Center for Tech and Civic Life, the beneficiary of much of Chan and Zuckerberg’s largess. The center educates election workers on the latest technology and helps them implement newly enacted election laws — the very kind of activity North Carolina wanted to ban. The measure was stopped, however, with a veto from Democratic Gov. Roy Cooper.
Incubating Fledgling Groups
While New Venture’s 2020 fundraising surge was in part a response to the election and in part a response to the pandemic, racial reckoning, and more, New Venture’s popularity comes from a wide range of work. Its primary role is what is known in IRS jargon as a fiscal sponsor — meaning it can accept funds for groups that don’t have tax-exempt status, providing them with legal guidance and taking care of paperwork headaches. Thousands of nonprofits across the country serve as fiscal sponsors, and money for fledgling groups often flow through them.
The biggest project that New Ventures has supported as a fiscal sponsor has been Co-Impact, a donor collaborative started by some billionaires who have signed the Giving Pledge.
The collective announced a $500 million fund in 2017, and last year it invited donors to participate in its second round of grant making through the Gender Fund, which aims to raise $1 billion to support equality and women in leadership globally.
Pam Foster, Co-Impact’s chief operating officer, says using New Venture Fund’s legal team and administrative staff members to provide oversight meant that it did not need to devote its own staff time to applying for nonprofit status at the IRS and setting up an office, which would have resulted in delays.
Foster declined to say how much the Gender Fund has raised. But she said the collaborative’s two funds have attracted so much interest that Co-Impact is in the midst of re-establishing itself as a separate, independent nonprofit.
Gaining Expertise in the Pandemic
The James Beard Foundation is another nonprofit that benefited from New Venture’s fiscal oversight.
Within weeks of the onset of the pandemic in March 2020, with diners across much of the country huddled around their own kitchen tables rather than at a restaurant, food and hospitality companies asked Kristopher Moon, Beard’s president, how they could help.
Over the years, the nonprofit has become known for its cooking awards, promoting culinary culture, and educating chefs through scholarship programs. But it has done very little direct grant making, Moon says, which made the decision to lead a fund to support restaurant owners and workers difficult.
“We knew we wanted to take it on, and we knew that among our network there was certainly desire from a donor perspective to support an initiative like that,” he says. “But we didn’t even know where to start.”
With New Venture Fund as a fiscal sponsor, Beard raised $4.6 million in a matter of months and distributed all of it in $15,000 payments to 312 restaurants. The experience allowed Beard’s staff to become familiar with the process, so when it created its Investment Fund for Black and Indigenous Americans last year, it brought the campaign in-house.
Supreme Court Battle
It’s common for groups that are incubated by fiscal sponsors or started as projects of a nonprofit to think they’ll leave once they get the experience and money they need to be a freestanding organization.
That’s what happened to a project of the Sixteen Thirty Fund, known as Demand Justice.
The work Demand Justice did has led to some of the questions legal experts have raised about New Venture and other similar groups that funnel money to advocacy groups.
Demand Justice called for the removal of Sen. Dianne Feinstein of California as the top Democrat on the Senate Judiciary Committee and called out then President Trump and Senate Majority Leader Mitch McConnell for what the group felt was a rushed vote on the confirmation of Supreme Court Justice Amy Coney Barrett.
But it also did other work that charities and advocacy groups have freedom to pursue, such as educating people about the Supreme Court and researching the ramifications of increasing the number of Supreme Court members, Bodner says.
Educating citizens and mobilizing people to vote strengthens democracy, he notes, even if many of those voters are likely to vote for candidates who belong to a particular party.
Art, Not Science
In recent years, the Internal Revenue Service has done little to enforce the rules on political activity by charities, says Richard Riley, a lawyer who practices nonprofit tax law — and that adds to the murkiness of what is acceptable and what is not.
Riley, who is not familiar with individual grants made by New Venture Fund, says, “There is some uncertainty and subjectivity in the definition of political campaign intervention” that governs whether a gift from a 501(c)(3) group like New Venture Fund would be kosher, he says.
Rosemary Fei, a lawyer who has represented New Venture Fund for several years and who serves as chair of the American Bar Association’s tax-exempt section, agrees that today’s rules make it more art than science to determine what kind of activities charities and advocacy groups can pursue around election time.
Efforts to get more people to vote and educating people about political issues enhance democracy and are classified as charitable activities, Fei says. But making the claim that such efforts are nonpartisan can lack credibility, she says, depending on the voting districts being targeted, the timing of nonprofit campaigns, and the language being used to spur voters to action.
Fei has served on the drafting committee of the Bright Lines Project, a progressive coalition of lawyers pushing to clarify rules about nonprofits and politics. At New Venture Fund, just like at other organizations she represents, she says it’s important to do everything that the law allows — but never to cross the line into partisan politics.
Any efforts to clarify the rules will probably run aground, Fei predicts, because in the current hyperpartisan environment, both conservatives and liberals want to use every method at their disposal to win.
As New Venture gets ready for what’s next, Bodner says it’s unlikely to get quite as much money in the months ahead as it did in 2020 — a big election year. But the dollars will probably still be significant, he says, because “the problems that people are trying to solve on our platform aren’t getting smaller.”
Correction (Jan. 5, 2022, 8:43 p.m.): Rosemary Fei's title has been corrected in this article. She is chair, not vice chair, of the tax-exempt division of the American Bar Association.