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As if the flood of unlimited spending on political campaigns, since 2010, wasn’t bad enough, a new lawsuit against the IRS and the tax code threatens to make political donations fully tax deductible up to 60% of a donors income (Contributions that exceed that amount can carry over to the next tax year and do not need to come from current income).
Since 1954, the Johnson Amendment to the tax code has forbidden 501(c) 3 organizations from engaging in “direct or indirect political activities” to shield such organizations from political influence. To be clear, the IRS has no power to censor what religious leaders may say, both inside and outside their houses of worship, only that the religious organization, itself, may not be eligible to offer a tax deduction to their donors. Activities permitted by the Johnson Amendment include nonpartisan voter education and registration drives and sermonizing on the social and political issues from the pulpit. Lax enforcement by the IRS, stemming from decades of underfunding has allowed many religious organization to go far beyond those guardrails and endorse political parties and even sponsor campaign events within their walls, including candidate speeches to the faithful.
In recent years, most dark money contributions into the political sphere have come through tax exempt ‘social welfare’ organizations registered under Section 501(C) 4 of the Tax Code, which do not offer donors a tax write off for their donations.
The new lawsuit, filed by the National Religious Broadcasters, the Alliance Defending Freedom (designated as a hate group by the SPLC for developing ‘religious liberty’ legislation to allow for discrimination against LBGTQ+ individuals) and other groups, argues that in order to express their free speech rights, 501(c)(3) organizations should be allowed to support political candidates. If successful, the lawsuit could be a big win for dark-money donors who want to influence elections while remaining anonymous — since they would score huge tax breaks on their massive election spending.
This is not the only lawsuit challenging the IRS’s rules on political activity by tax exempt organizations. The Buckeye Institute, a nonprofit conservative public policy think tank in Ohio, is currently in legal proceedings against the agency over the IRS’ requirement that it disclose the names and addresses of major donors, who donate over $5,000, if those donations exceed 2% of the total donations received by the organization.
These lawsuits follow a 2021 Supreme Court ruling that California-based nonprofits do not have to disclose the names of their biggest donors, a victory for dark-money groups.
If both the National Religious Broadcasters and the Buckeye Institute lawsuits are successful, Jones says, wealthy donors will be able to engage in tax-deductible, anonymous dark-money campaigning, no matter the amount.
“On the one hand, I don’t think it can get much worse because we have so much dark money in politics already,” said Darryll Jones, a law professor at Florida A&M University in Tallahassee who has been following this lawsuit. However, if the National Religious Broadcasters win, it may “result in a bunch of smaller and medium ‘charities’ coming into bloom precisely to get into politics… That part right there is worrisome.”
“The IRS’ attempts to police this class of nonprofits have almost completely broken down,” according to an investigation by ProPublica. “Since 2015, thousands of complaints have streamed in — from citizens, public interest groups, IRS agents, government officials and more — that C4s are abusing the rules. But the agency has not stripped a single organization of its tax-exempt status for breaking spending rules during that period.”
However, if these new lawsuits are successful, dark-money groups could shift their operations to 501(c)(3) nonprofits. That way, wealthy donors won’t just be able to use dark-money donations to avoid tax bills on their profits — they’ll be able to write off their secret unlimited political spending for a hefty tax deduction.
