Charities Risked Tax-Exempt Status With Political Ads

The Internal Revenue Service prohibits charities from getting mixed up in politics, and those that do risk losing their tax exemption. Despite the threat, a handful of groups in the 2014 midterm elections paid for ads that appeared to be campaign-related.

The Natural Resources Defense Council, for example, is known as a 501(c)(3) organization, meaning it pays no income taxes and donations to the group are tax deductible. It is organized the same way as a charity, a hospital or university.

Despite the risk, the NRDC lambasted North Carolina Republican state Sen. Bill Cook in a $700,000 ad campaign this spring. The nonprofit paid for eight different ads that aired more than 2,600 times from mid-April through mid-July, according to a Center for Public Integrity analysis of data from media tracking firm Kantar Media/CMAG.

One ad opens with video of trash being emptied into a landfill, then turns to a shot of Cook.

“State Sen. Bill Cook voted for a bill that would encourage New York, New Jersey and other states to dump their trash in North Carolina,” the voiceover says. “Tell Bill Cook attracting New York trash doesn’t pass the smell test.”

The NRDC, whose mission is to promote environmentally friendly policies, said the ads had nothing to do with the Cook’s re-election campaign. If the ads had been, the organization could face a fine or lose its tax-exempt status as a charity.

Politics ‘absolutely prohibited’

The IRS says 501(c)(3) groups are “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”

Despite the restrictions, the NRDC and a few other charities chose to navigate the complicated web of IRS rules to air ads that criticized or supported politicians running for election in November.

In addition to the ads targeting Cook, the NRDC partnered with the Southern Environmental Law Center and seven other charities under the name North Carolina Environmental Partnership to air ads criticizing four other state senators and four state representatives. All told, the partnership’s 20 ads — the majority of which were about the lawmakers’ support of fracking — ran more than 5,100 times from late March through mid-July and cost the groups an estimated $1.7 million to air, according to Kantar Media/CMAG.

The ads aired both before and after the state’s primary election, but disappeared months before the general. None of the candidates had primary opponents.

Rob Perks, the campaign manager for NRDC’s North Carolina efforts, offered that as proof that the ads weren’t intended to influence the election.

“We were incredibly careful,” Perks said. “During primary season, we only chose subjects of the ads to be people who ran unopposed in primaries or had no primaries of their own so that we wouldn’t run afoul of any electioneering activity.”

The goal of the ads, representatives for both the NRDC and the Southern Environmental Law Center said, was to help North Carolinians hold legislators accountable.

“We definitely were not intending to ask people to do anything at the polls, and some of the ads were about folks that were unopposed so wouldn’t even show up on a ballot,” said Mary Maclean Asbill, attorney for the Southern Environmental Law Center.

Of the lawmakers targeted — all Republicans — two state representatives lost their seats in November, one representative and one senator were unopposed, and the others, including Cook, won re-election despite the ads.

Cook, who faced former state Sen. Stan White, a Democrat Cook unseated in 2012, told the Center in an email that the voters’ actions confirmed his feelings that the ads were “completely false and ineffective.” He did not answer additional questions.

Nonprofit backed Hagan

Also in North Carolina, the Southern Alliance for Clean Energy, another charitable nonprofit aimed at protecting the environment, spent an estimated $500,000 airing an ad that expressed support for U.S. Sen. Kay Hagan, a Democrat who lost her seat in November.

“Who’s behind the attacks on Kay Hagan? Oil industry billionaires, that’s who,” the ad intones. “They want to undermine the air safety standards that protect us, and Sen. Kay Hagan is working to stop them.”

The ad aired roughly 1,450 times between March 24 and April 13, a few weeks before the primary when Hagan faced two other Democrats, both considered longshots.

Apparently adhering to a federal law that regulates “electioneering” communications, the group filed a report with the Federal Election Commission disclosing the spending because the last week of the ad’s run was less than a month before North Carolina’s primary election, Yet the group still maintains the ad wasn’t political.

“The ad never endorsed her as a candidate,” said the group’s executive director, Stephen Smith. “For all practical purposes, Kay Hagan had no candidate opposing her in that, so it was not at all meant to influence any election.”

Larry Noble, former FEC general counsel, said the ads aired by all the groups fall into a legal gray area but come dangerously close to crossing the line into election politics.

“They’re on a spectrum,” said Noble, who is now an attorney at the Campaign Legal Center, which advocates for tighter campaign finance regulation. “It’s a question in part of whether they’re focused on a person or whether they’re focused on an issue.”

Another ad that appeared to test the limits was produced by the nonprofitChange Agent Consortium. It aired in Michigan touting a September rally about Detroit’s bankruptcy amid Republican Gov. Rick Snyder’s ultimately successful re-election bid.

“When Gov. Snyder suspended home rule 18 months ago, he and his co-conspirators promised better jobs, safer neighborhoods and improved city services. Instead crime is up, our school system is under attack and our water’s shut off,” Change Agent Consortium founder the Rev. David Alexander Bullock says in the ad. “Join me Monday, Sept. 29, at 6 p.m. at Hart Plaza and say, ‘No,’ to Gov. Snyder’s takeover of Detroit.”

While the event may have been educational, the language used borders on telling people explicitly to vote against the Republican governor, Noble said after watching the ad.

But Bullock said the ad was not about the November election.

“We did not mention [Democratic gubernatorial candidate] Mark Schauer. We did not tell people to vote for Mark Schauer,” he said. “We didn’t even tell people, ‘Don’t vote for Snyder.’”

Political or not?

In examining ads by charitable nonprofits, the IRS looks for references to a candidate — whether by name or not — and positions on “wedge” issues that are expected to turn the tide of a race, said Marcus Owens, an attorney at the Washington firm Caplin & Drysdale who previously oversaw the IRS division that regulates charities.

His firm represents the NRDC, so he declined to comment specifically on any of the ads in this story.

The IRS also considers a variety of contextual details, such as the timing of the message and whether it is consistent with the charity’s overarching mission, he said.

Unlike the FEC, which requires groups to report ads that name candidates within a certain window before an election, the IRS does not rely on specific time frames to determine whether an ad influences an election.

“When someone has been identified as a candidate and that person begins making campaign-style presentations, identifies a position on the issues, that person is a candidate under federal tax law, and so the campaign has begun,” Owens said.

Still, the likelihood that a charity would actually lose its tax-exempt status over a few political ads is pretty slim, said Brett Kappel, an attorney with the Washington firm Arent Fox. Someone could file a complaint with the IRS, but the investigators there are unlikely to jump to action.

“They’re so afraid of their shadow right now — you know, because of congressional oversight — they’ll put it on the pile and say, ‘Yep, we’ll get to that in 2018, 2019, somewhere around there,’” he said.