Lujan Grisham Introduces 501(c)(4) Reform Act of 2013

Statement

U.S. Rep. Michelle Lujan Grisham (NM-01), a member of the House Committee on Oversight and Government Reform, has introduced the 501(c)(4) Reform Act of 2013, which would prohibit tax-exempt social welfare organizations, known as 501(c)(4)s, from engaging in political campaign activity. The bill, the first Rep. Lujan Grisham has introduced, would help eliminate "dark money" in politics and increase transparency by ensuring that the public is aware of the source of campaign spending.

"This common-sense legislation would prevent tax-exempt social welfare organizations from taking advantage of a loophole that allows them to operate as political campaign organizations," Rep. Lujan Grisham said. "Instead of working to promote social welfare causes such as early childhood education, environmental protection and veteran's assistance, these groups are funding political attack ads while hiding the source of their donations. Conservative groups do it, liberal groups do it, it's wrong, and it needs to stop."

Congress created tax-exempt 501(c)(4) organizations to "operate exclusively for the promotion of social welfare." A 1959 IRS regulation, however, grants 501(c)(4) status to groups "primarily engaged" in promoting social welfare. This clear misinterpretation of federal law has had disastrous consequences, allowing 501(c)(4)s to spend up to 49 percent of their total expenditures on political campaign activities while hiding their donors. In the 2012 presidential campaign, 501(c)(4)s--across the political spectrum--spent hundreds of millions of dollars of "dark money" on campaign activities.

Under the 501(c)(4) Reform Act, tax-exempt 501(c)(4) organizations would have to follow the same restrictions on campaign activity that govern charities. They would have to set up a separate political action committee (PAC), and donations to that PAC would have to be disclosed in accordance with federal campaign finance law. The legislation will also help streamline the application process for 501(c)(4) status -- not only for groups applying for tax-exempt status, but also for IRS employees reviewing applications.

"The current system is broken. It's secret and subject to abuse by organizations, donors and the government itself," Rep. Lujan Grisham said. "Bureaucratic rules should not circumvent the original intent of federal law or interfere with the public's ability to hold these organizations accountable. Exclusively should mean exclusively, and money used for campaign purposes should be disclosed and kept separate from money used for the promotion of social welfare."

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