In early March, the U.S. House of Representatives passed the For the People Act—also known as H.R.1—by a ten-vote margin largely along party lines, with all congressional Democrats save one voting for it, along with both independents, and all Republicans voting against. The bill is understood by the public to be mainly a voting rights and campaign finance reform bill, but every piece of prospective legislation that comes out of Congress is filled with complexities. This one has items that impact directly upon 501(c)(4) nonprofits.
While 501(c)(4)s are allowed to engage in political campaign activities, their primary purpose must be to promote the common good and social welfare. Some 501(c)(4)s push right up to boundary of this rule by spending precisely 49% of their resources on electioneering. 501(c)(3) organizations, by contrast, are prohibited from engaging in any political campaign activities, though they can, according to the IRS, “conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner.”
Up until 2018 nonprofit organizations of all types were required to disclose the identities of people who donated $5,000 or more. But in July of that year, the IRS and the U.S. Department of the Treasury suspended the requirement. Opponents of the disclosure rule had long claimed that the burdens and costs of collecting the information outweighed any benefits, an assessment with which some IRS officials agreed. But as with anything in the political sphere, it's all a matter of perspective.
Objections against collecting donor information centered not only on cost and effort, but the potential for accidental public release of private information, which in turn could increase the threat of harassment donors might face—no small concern in this era of bitter partisanship, outing, and doxxing. But ditching the reporting requirement allowed donors to anonymously funnel large sums of money to 501(c)(4)s. It also removed any guardrails against the influx of foreign money. Accepting funds from a non-U.S. citizen or green card holder is illegal, but after July 2018 nobody could know whether a 501(c)(4) was taking in foreign money except the 501(c)(4) itself. H.R.1 would change that by requiring 501(c)(4)s to disclose to the IRS the identities of anyone giving more than $10,000 per election cycle.
Notably, H.R.1 would also create a new category of regulated speech—that which promotes, attacks, supports, or opposes candidates or elected officials (dubbed PASO by some). The PASO requirement stems from what Democrats see as a loophole in current campaign finance law, whereby ads do not have to be reported to the Federal Election Commission (FEC) as electioneering if they are run outside certain time periods and don't expressly tell citizens for whom to vote. In practice, this means ads that don't contain specific phrases like “vote for” aren't classified as campaigning.
What percentage of political ads manage to slip through this loophole? One analysis showed that in 2020, $38 million out of the $41 million spent on ads by the Democratic-aligned nonprofit Majority Forward was not required to be reported to the FEC. The PASO requirement throws a loop around any 501(c)(4) originated ads that promote, attack, support, or oppose candidates, radically shifting the ratio of what legally qualifies as campaigning.
There are several exceptions to the new reporting requirements. Nonprofits would not have to report the identities of donors if that person restricted usage of the money (for example specifying it cannot be used for campaign ads), the funds were received during the course of normal business, or if disclosure would result in harassment or reprisal. This last provision is intended to assuage the concerns of modern privacy advocates, but actually has roots that extend back decades to when supporters of organizations such as the NAACP sometimes risked their jobs and physical security, but were finally protected thanks to federal court decisions dealing with donor privacy and freedom of association.
As noted earlier, H.R.1 is Democrat-backed, and Republicans are united in opposition. Critics on the right believe the law simply gives the IRS too much power. Many also say it would restrict political speech and activity, including by nonprofits, with some suggesting that federal overreach could see PASO speech parameters eventually applied even to 501(c)(3) groups engaged in what is currently legally protected advocacy. Yet another criticism has to do with H.R.1's vague language around danger to donors. Donor information would be withheld in cases where harassment or reprisals were likely, but how can this be known unless the donor has already suffered harassment or reprisal?
However, a nagging problem for Republican opposition is that American citizens of all stripes are concerned about the effect of dark money on elections, an area in which 501(c)(4)s undeniably specialize. As of January 2021, about 67% of likely voters across the political spectrum were in favor of passing the law, with 56% of registered Republican voters in the yea column, along with 77% of registered Democrats.
As of this writing, H.R.1 is under consideration in the U.S. Senate, where it's named S.1. If passed, the law would have a profound effect on how 501(c)(4) nonprofits do business. Such groups have spent more than $1 billion on federal elections over the last decade, and just as in the case of Majority Forward, many of those expenditures weren't categorized as electioneering because the groups were adept working around campaign finance rules by avoiding specific phrases, and airing ads during time periods not covered by existing laws.
Of course, for nonprofits the only pertinent question is whether H.R.1 actually has a chance to make it through the Senate and to President Joe Biden's desk, where he has already promised to provide his signature. In its current form the odds are slim. There's no clear indication that 48 Democratic senators plus the two independents who caucus with them will all vote for the bill, and no indication they could overcome Republican filibustering in any case.
But whether it passes or not, H.R.1 represents one of the increasingly rare occasions where public sentiment and legislative priority are in some semblance of alignment. Whatever the fate of the bill, the momentum toward reining in dark money is growing, both among the general voting public and on the Democratic side of Congress, which means 501(c)(4) organizations probably haven't seen the last of legislation aimed directly at them.