It’s considered the equalizer for the most-talked about organizations in politics: an IRS requirement that 501(c)(4) ‘social welfare’ groups spent less than half their cash on politics. But experts say the IRS left a big loophole that could play out big time in California: ballot measure spending isn’t considered political. “You could have a nonprofit doing virtually no traditional charitable work at all and really just being a funnel for campaign funds,” says Gary Winuk, the chief enforcement officer of the state’s Fair Political Practices Commission. The existence of the loophole is understandable; few states have an initiative system that allows voters to write their own laws. And even fewer have a system that’s used as often, and costs as much, as the one in California. Even so, it’s a loophole not widely publicized and likely to gain more attention as 501(c)(4) groups turn more of their attention — and money — to the Golden State.
Simply put, Internal Revenue Service guidelines say that these groups — nonprofit organizations deemed to exist to “promote social welfare” — must spend less than half of their money on political campaign activities.
But “political campaign activities” is not explicitly defined. In fact, as IRS advice documents (PDF) make clear, the agency simply assumes it means “a political campaign on behalf or in opposition to a candidate.”
“It doesn’t count ballot measures expenditures, advocacy for or against as part of campaign activities,” says FPPC’s Winuk.