Your conscience may not be, but your money is. Ideological groups on the left and right collect billions of dollars in tax-deductible contributions every year to wage their crusades—which means you and every other taxpayer is subsiding their efforts.

How could this be? Doesn't the same First Amendment that allows these groups to exist also protect you from being forced to support them? It does. By funding their causes with tax-deductible money these crusaders are breaking the law. The problem for taxpayers is that despite the rampant abuse taking place, nothing is being done to stop it.

The Nonprofit Corporate Crime Scandal:
How ideological groups break the law by helping themselves to your tax dollars.

Perhaps one of the most frequently violated provisions of the federal tax code is IRC 501(c)3. This is the law that grants special tax-exempt status to nonprofit organizations that are operated for charitable and certain other public benefit purposes, such as education. In addition to exempting an organization from income tax, 501(c)3 status entitles a group to solicit tax-deductible contributions (and thereby tap into a form of taxpayer funding).

How is the law being abused? It's being routinely violated by ideological and social action groups that improperly obtain 501(c)3 exempt status by describing their purposes to the IRS as "educational." While the IRS has so far done virtually nothing to stop this form of abuse, federal tax laws and the IRS' own regulations make it very clear that propaganda campaigns or efforts to force social action do not qualify as education. Those who wish to undertake such crusades have every constitutional right to do so, but when they use tax-deductible contributions to fund such activity they break the law and violate the free speech rights of taxpayers who don't support their causes.

Under the tax laws, social action groups may be established as tax-exempt nonprofit organizations, but not as 501(c)3 organizations. Instead, such groups are exempt under IRC 501(c)4, which provides exemption from income taxation but does not confer eligibility to collect tax-deductible contributions.

The law on tax-exempt "educational" organizations:

• Under federal tax law IRC 501(c)3, organizations that are "organized and operated exclusively for religious, charitable…or educational purposes" are exempt from taxation. Exemption under this section gives these groups the right to solicit tax-deductible contributions.

• "Educational purposes" are defined in the regulations implementing the statute. Reg. 1.501(c)(3)-1(d)(3) defines education as follows: "The instruction or training of the individual for the purpose of improving or developing his capabilities; or the instruction of the public on subjects useful to the individual and beneficial to the community."

  With regard to education as it relates to social issues, the regulations further provide that "An organization may be educational even though it advocates a particular position or viewpoint so long as it presents a sufficiently full and fair exposition of the pertinent facts as to permit an individual or the public to form an independent opinion or conclusion. On the other hand, an organization is not educational if its principal function is the mere presentation of unsupported opinion."

• In determining whether an organization that advocates a particular point of view is educational or not, IRS examiners are supposed to follow Revenue Procedure 86-43, 1986-2 C.B. 729. These guidelines further clarify the distinction between education and propaganda. They provide that the presence of any of the following factors in presentations made by an organization is indicative that the organization is not educational:
  1. The presentation of viewpoints unsupported by facts is a significant portion of the organization's communications.
  2. The facts that purport to support the viewpoints are distorted.
  3. The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of strong emotional feelings than of objective evaluations.
  4. The approach used in the organization's presentations is not aimed at developing an understanding on the part of the intended audience or readership because it does not consider their background or training in the subject matter.

• For a detailed discussion of the law on what constitutes impermissible propaganda by a 501(c)3 organization, see the IRS's discussion brief Education, Propaganda, and the Methodology Test.

• An organization whose methods are educational does not qualify as an educational organization if its principal objectives are legislative and it advocates in any way for them. Even if the group does not engage in direct or grassroots lobbying of legislators, it still violates the law if it publicly advocates its position and that position can only be attained through legislation.

  Reg.1.501(c)(3)-1(c)(3)(iv) provides that an organization is not an educational organization, but rather an "action" organization (which cannot qualify for exemption as a 501(c)3 organization) " if it has the following two characteristics: (a) Its main or primary objective or objectives (as distinguished from its incidental or secondary objectives) may be attained only by legislation or a defeat of proposed legislation; and (b) it advocates, or campaigns for, the attainment of such main or primary objective or objectives as distinguished from engaging in nonpartisan analysis, study, or research and making the results thereof available to the public."
  
  

  
  
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