The House GOP Wants to Probe Nonprofits. Both Left and Right Have Pushed Back

In August, House Republicans announced their intention to more tightly regulate nonprofit political activity. That effort is starting to move forward — and drawing the ire of charity experts and professionals across the ideological spectrum.

The House Ways and Means Committee’s Republican members last month published an open letter of inquiry seeking comment on whether the nonprofit tax code is rife with abuse, allowing nonprofits to be key players in political races, rather than serving charitable causes. The responses have been spilling in this month — and nonprofit leaders and lawyers who represent charities warn that too much government oversight could stifle giving, with some saying the inquiry is purely political.

The public comments offer the latest turn in a story that could end up being consequential for nonprofits if the committee follows through on its threats. Expressing concern about alleged foreign influence in American politics and the use of tax-exempt organizations to advance their political agenda, House Ways and Means Committee Chairman Jason Smith of Missouri and David Schweikert, of Arizona, who chairs the panel’s oversight subcommittee, are weighing whether the Internal Revenue Service should require greater disclosure of the identity of donors, particularly foreign nationals.

To expose “dark money” in politics, the leaders of the tax-writing panel asked whether the agency should clarify the limits of permitted political activity for nonprofits and requested examples of nonprofits that engage in voter education and registration drives that are intended to benefit one political party.

“The expansion of politics into almost all aspects of life means that activities that were previously considered nonpartisan have been made partisan — legislation and regulation have not kept up,” states the letter. “Congress may need to consider closing growing loopholes that allow the use of tax-exempt status to influence American elections.”

To bolster their case, they listed a set of perceived abuses of the rules that govern political activity by nonprofits. All of the examples were instances of large donors the committee leaders claimed were pursuing left-leaning goals, including Mark Zuckerberg and Priscilla Chan; the New Venture Fund, which has assets of more than $1.2 billion; the Wyss Foundation, which was founded by Swiss billionaire Hansjörg Wyss; and Mind the Gap, a political-action committee co-founded by Barbara Fried, the mother of indicted crypto-entrepreneur Sam Bankman-Fried.

Among other things, the House GOP leaders are trying to evaluate the practice of funneling money from individuals or political-action committees through charities and 501(c)(4) social-welfare organizations that make grants designed to increase voter participation and ballot security or assist progressive causes.

Charities can provide voter education and can lobby, within limits. Social-welfare organizations do not have to disclose their donors and are allowed to support political campaigns and causes as long as such efforts do not make up a substantial part of their overall activity.

The lack of clarity on what “substantial” means has bedeviled nonprofits for years. Many nonprofit leaders do agree that they need more guidance on what sort of political activity is forbidden, and some are also pushing for greater disclosure requirements for foreign donors.

But many of the public comments were skeptical that the Ways and Means Committee’s effort was a good-faith attempt to solve those problems. Stephanie Robbins, a former IRS attorney now in private practice, says she and her partners at the firm Harmon, Curran, which represents progressive nonprofits, struggled with whether to reply at all to the Ways and Means letter.

“The request is clearly one-sided and trying to incite some sort of witch hunt against progressive organizations,” she said.

A Bipartisan Backlash

What’s noteworthy about the backlash to the House Ways and Means committee’s efforts is that it hasn’t been restricted to the progressive groups being targeted.

Conservative philanthropy leaders also recoiled in response to the inquiry. The Philanthropy Roundtable, a network of conservative donors and foundations, wrote in its reply that requiring more disclosure of donors’ identities could expose philanthropists to threats and violence and have a net result of chilling charitable giving.

Elizabeth McGuigan, the Roundtable’s vice president of policy and government affairs, called voter education a vital function of the nonprofit sector and questioned whether there was systemic abuse of the system. Rather than making wholesale changes, she said, regulators should focus on catching bad actors on a case-by-case basis.

“We support donor privacy even for groups we don’t agree with,” she said. “Donor privacy does not depend on whether you are on the left, on the right, or in the middle.”

Other conservative groups also warned about the threat to donor privacy and raised the specter of using the IRS to police free speech and political activity. In its response, the Public Policy Legal Institute, which promotes First Amendment rights, reminded the lawmakers of the 2013 IRS “targeting scandal,” in which the agency was accused of mistreating Tea Party groups that applied for tax-exempt status. (The agency in 2017 apologized for its excessive scrutiny of conservative groups in a Justice Department settlement; a Treasury Department inspector general’s report that same year found that the agency had also been targeting groups with progressive-sounding names.) The institute argued that neither the IRS nor nonprofits are in a position to collect and analyze the activity of foreign nationals.

“IRS employees are not trained to make these judgments and are already far behind on their current workloads,” the response said. “Tax-exempt organizations, which often struggle to obtain enough donations to survive, also are not in a position to make these judgments.”

Other responses to the Ways and Means letter stressed the role of nonprofits in educating the public on policy issues. A group of five tax experts, organized by Ellen Aprill, a law professor at Loyola Marymount University, wrote that nonprofits would benefit from more concrete guidance on what constitutes political activity. But they warned that some activities are clearly kosher.

“Tax law has long recognized the role of tax-exempt organizations in supporting the democratic process through voter registration, voter education, and get-out-the-vote efforts,” they wrote.

A group of philanthropy organizations — the Council on Foundations, Independent Sector, and the United Philanthropy Forum — noted their support for a bill introduced by Rep. Nancy Mace, a South Carolina Republican, and Rep. Betty McCollum, a Minnesota Democrat, that would, among other things, direct the Government Accountability Office to report to Congress on possible ways to clarify the limits governing social-welfare groups’ political work.

“Fear and confusion around political campaign intervention have stunted entirely legitimate nonprofit engagement with policy and advocacy,” the group wrote, citing a study by Independent Sector that showed that less than a third of nonprofits actively lobby or support advocacy efforts, less than half the amount that reported doing so two decades ago.

In a separate response, the National Council of Nonprofits sounded similar notes, also calling for more guidance on what constitutes political activity for 501(c)(4) groups.

But, as some respondents pointed out, the Republican-controlled House in 2015 had blocked the IRS from using appropriated funds to issue guidance on social-welfare organizations’ political activity.

Nonprofit tax experts suggested that the House Ways and Means Committee, which is one of the committees playing a lead role in the House’s impeachment inquiry of President Biden, wouldn’t have the bandwidth to take on a full-bore investigation of nonprofits and politics. They also noted that the committee’s tax experts seemed to have been left out of the process of drafting the inquiry, which they say was largely composed by the panel’s oversight staff. A Ways and Means majority spokesman did not respond to repeated calls.

The letter is simply “theatrics,” said Eric Gorovitz, a lawyer at the firm Adler & Colvin who represents nonprofits. One of the firm’s clients is the New Venture Fund, one of the nonprofits mentioned in the Ways and Means letter.

“The committee hasn’t done even the most basic homework,” he said.