Proposed IRS Rules on C4s a Mixed Bag Likely to See Lobbying from Right and Left

4730557336_taxes_irs_building_xlargeNew Orleans   The IRS announced that it is proposing clearer rules to regulate the “social welfare” practices of C4 tax exempt nonprofits.   I should start with a disclaimer.   I’ve never operated a c4 organization, though I recognize the fact that they have recently become the rage, largely among lawyers and CPAs I would argue, but the mayhem that mass volumes of anonymous political money has brought to tax exempt nonprofits, largely from the Koch Brothers and Karl Rove, has muddled the mess past rational discussion.   The craziness may have infected the IRS as well.

The early blurbs say that the IRS wants to claim that voter registration and voter guides are “political” activity which besides being yet another example of voter suppression efforts and the politicization which has dramatically chilled nonpartisan voter registration efforts, have long been classified as tax exempt as long as they are demonstratively nonpartisan.   501c3 tax exempt organizations have long been permitted to do voter guides as long as they are nonpartisan and objectively present all candidate responses.   Additionally multi-state nonpartisan voter registration efforts have long tax exempt under a special section of the code, so why this slap down on the mildest of activities both of which have long proven civic value?

The heart of the rule making seems based on establishing a bright line test for the percentage of overall expenditures that would define an organization as not existing for a “social welfare purpose.”   Reports indicate that lawyers have been using a rough rule of thumb that organizations need to spend less than 50% on arguably political expenditures and that the IRS might be talking about as little as 10 to 15% in the new rules.  Hmmm.  The IRS has never definitively established a bright line test for c3’s which are much more numerous and instead has allowed lawyers and tax exempt managers to guess whether it might be 7 or 8% or whatever.   The notion that somehow the IRS is suddenly going to beef up its severely depleted exempt organizations branch to really police a number is somewhere between a fabrication and a fantasy.  It won’t happen and it can’t happen, if not no other reason that it’s a lead pipe cinch that Congress is not going to budget for an expansion of IRS capacity especially in this area.

Much of this seems to be more about the headlines and firing a warning shot at donors, both right and left, than about real guidelines and real enforcement.   There are huge loopholes, and they need to be closed, but the best way to close them may not be more toothless rules, but straightforward taxation.   If donations are disallowed for social welfare and simply taxed as political, then money will run like crazy away from c4’s even faster than the IRS can make the rules.   It’s probably running right now! This has never been about the freedom of speech for the rich, but only about tax evasion for such speech.

The wave of progressive community organizations that have also succumbed to c4 fever will be impacted as well.   Sadly, as I said earlier, there will be more curtailment of voter registration and voter education work, if the IRS tries to misclassify such work as political.   Lawyers and accountants will suck even more resources from desperately depleted nonprofits trying to hold onto c4 tax status.   The only silver lining in their cloud is the fact that most of their work is so clearly in pursuit of “social welfare” that they may become temporarily more popular while big money looks for new vehicles.

I think I’ll just stick with the plain vanilla nonprofit structure without worrying about the IRS, which has served us so well for so long, fads and fashions notwithstanding.

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Community Organizing and Social Welfare?

Seoul International Welfare Forum 2012

Seoul  The exciting goal set by the Mayor and the City of Seoul was to increase the utilization of community organizing methodology from 5% to 20% in its social welfare delivery system in order to both increase services and sustainability through its “community welfare centers.”  Visiting some of their model projects before the Seoul International Welfare Forum 2012 gave me a much clearer view of the task at hand than I had when I was preparing my remarks.  It was clearer, once we were on the ground, that the real mission for the Seoul Welfare Foundation and the proposed 200+ pilots for the next year was probably how to increase the level of “social enterprises” as a tool for delivering welfare objectives.

The colleagues at the dais spoke about their work in various countries as well, some of which was undoubtedly responsive to conference’s intentions, but in other cases may have been off the mark, and “lost in translation,” as they may have realized from our field visits as well.  My fellow keynoter, Ed Shurna, told the story of the great victory in Chicago to block an arrogant and unresponsive stadium construction, and we had heard of efforts in the community welfare centers to protect the environment and campaign against intrusive developments, but was this really what these governmental centers were willing to embrace?  Both Ed and I certainly lobbied aggressively for the development of strong, autonomous organizations, but we were also both clear that that would take training, supervision, and development.

A dynamic sister from Indonesia who is on the cutting edge of aligning what may seem to some as a contradiction, Muslim feminism, was stirring in her remarks, and we had visited a coffeehouse and alternative space developed by a community feminist that was categorically embraced by the community welfare center.  Would there be more of this in the future?

Other speakers questioned the value of institutions in delivering these services from case studies in Japan or advocated various savings schemes to provide more social “security” in the Thailand experience.  Are these movements away from any “state” responsibility for on-going delivery of support progressive steps at poverty reduction or a more subtle embracing of neo-liberalism?

Examples of voluntary efforts in Seoul and Busan, a large city in the south of Korea, demonstrated robust voluntarism and support of cooperative endeavors.  Likely the community welfare centers were embracing this notion of social enterprises more than anything else, but how can we scale and expand these efforts through wider, mass community organizing techniques so that these are not one-off, precious pilots?

A good forum raises as many questions perhaps as answers, so as we pulled out of the hotel and headed for the airport, we could at least me confident that we had left our new friends with a lot to talk about in the coming months and year until their next forum.

 

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