Why 501(c)(3)s are the biggest conspiracy no one ever talks about

Introduction

A favorite recurring theme of discussion here at ATS is the myriad ways by which our governments and powerful financial interests work to sow dissension between any form of social unity threatening to the status quo. Ideas such as controlled opposition within a two-party system are bandied about with good cause, but an even more fundamental division is never explored: the legal and financial separation forced between those who wish to undertake charitable activities and those who want to lobby for legislation. This is not a natural division; it is an artificial separation that has been created for a number of different specific purposes, but with the larger goal of preventing the rise of a truly popular political movement on the one hand, and creating a culture of silence amongst charities.

What is a 501(c)(3)?

The IRS Definition (excerpted for brevity)

To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.

Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.

Why does this matter?

Amongst charities and nonprofits, having this particular IRS status is absolutely crucial because of the tax benefits it provides. Not only does the organization not pay taxes, but it also is eligible to receive contributions that are fully tax exempt for the donor.

While people are certainly free to donate to any cause they like, whether it has this particular status or not, the expectation that donations, especially those of substantial size, will be considered tax deductible has basically forced most charitable organizations into this constraint. While some accept it without any question, what about an organization that works for a given cause? Whether it be education, environment, health, or any particular policy area, the people who are most knowledgeable in these areas are deafening by their silence.

The same restriction also applies to churches, synagogues, mosques, or any other house of worship. The freedom of speech for a pastor to say he not only opposes killing, but opposes those who support it (whether it be abortion, war, the death penalty, or any other issue) will actually see his church bankrupted if reported to the IRS. The institutions in our society that have traditionally been vested as moral leaders are made silent.

From the flip side of the equation, political parties in the United States become nothing more than debating societies or fundraising mechanisms because they adopt a policy position for the government without ever considering the possibility of providing a program independent of the existing system. Since charity can do it better, the political class makes no effort to build meaningful relationships with their community beyond seeking their votes and dollars. For those things charity won’t do, there are taxes, but the end game is political parties become just policy think tanks.

This is an intentional and created division between those who best understand the impact of policy in society and those who are creating policy. What would be called lunacy in any other business, is called a good idea thanks to the Internal Revenue Service. Politics remains intentionally and purposely divorced from being able to reach to charities, locally rooted organizations, and churches where no similar restriction exists on corporations, lobbyists, and industrial interests. The end result is the system we have awash in money and devoid of commonsense and any resonance with the people.

An insight into psychology

A poisonous thing happens with the tax code. When people who give expect to get something back in exchange for it, the truly generous part of the experience is often lost. Our brains actually function differently when undertaking an altruistic act versus a calculated one. Unfortunately, much of charity has become a numbers game, calculated and strangely indifferent.

When an individual, a business, or a corporation makes a large contribution, they do so in the expectation that it will be tax-deductible. While there is a benefit in that businesses probably give more than they would otherwise due to this system, what it also has done is made charity itself just another financial mechanism. Businesses don’t give because they care (though they like the appearance and though certain individuals who work within one may care deeply), they do it because it saves them money and it is good marketing.

Coupled with the already existing opinion that many people hold where they feel charity is unnecessary because of the amount of money taken in tax revenue for theoretical use for various social issues, it is a two pronged attack against not just charity, but the idea that people should find solutions for one another and the problems they face. This quintessential idea for any free society has been under assault through division and delusion, but few people see the extent to which these tax laws have contributed.

When charity itself becomes corrupted into a tax mechanism, what happens is people view taxes and charity as two sides of the same coin, abrogating any personal responsibility for others. From a purely legalistic and individualistic sense, that’s fine, but the social consequences are many.

No society exists based on laws and governance alone. It is the bonds of people and fellowship which transcend policy that provide for the civil society that allows everything else which we enjoy, and with the division of the people working on problems from those writing the laws from them, the fabric is being stretched ever more thin.

Resolutions

If our society is one based upon freedom of speech, then I see no harm in letting these organizations say their piece. While we will certainly find some messages better than others, the choice to become active or not should be given to the organizations themselves as their knowledge and their support could have a real, positive, and lasting impact on politics at every level. If their donors are unhappy with how they choose to present that message, they can choose not to contribute. This would be the first step.

But it needs to go further. Charitable contribution need to stop being a tax deduction, and need to become a moral act of principle where the reward is not claimed on a 1040, but is instead in the good act itself. It would be far more genuine, far less restrictive, and would reveal in a much truer form who and what is invested in these good works. If you’re doing something good to get paid, it is the wrong reason.

There’s nothing wrong with making money off something useful. That’s business, and I support fully those who follow that path. But charity is supposed to be about something larger, about taking care of problems for human concerns or some higher purpose, and if we let it stand on its own, I think we’d learn something positive about ourselves.

Just as importantly, if charities stop being the beneficiaries of this tax scheme, what will happen is any organization will be just as able to do their own good works as the charities. There will be no discrimination about who gets funding based on accounting, but rather based on the quality, organization, and presentation of the suggested effort.

I could see more businesses, more individuals, and yes, political parties taking on charitable functions on their own. And that spirit, the idea that you don’t need an expert or some extra motivation to do this, is what we need to find. It’s what built America and most other societies in their beginning, and it is what we’ve lost.

Conclusion

Some will say all this is an unintended consequence, and the benefits outweigh the costs. From a numbers sense, you can make the argument. But from the sense of how we see our world, I don’t buy it. What we have here is an artificial split between those who make a difference in people’s lives and those who write the laws that govern them, keeping them apart. I can’t see that as a good thing, and I hope we one day see the repeal of the IRS for many reasons, but especially this.

Summary please? Not too much time I can be on

Summary: What section 501(c)(3) of the tax code does is silence many organizations throughout society who could have a positive impact on the political process for fear of losing their tax-exempt status. It creates political parties who don't have any meaningful social interaction, the expectation that donations should be rewarded, and generally degrades the idea of self-reliance as it contributes to the idea that people need not find their own solutions for the issues in their communities.

Well said and a correct point of view.

Star & Flag

In order to add to the discussion let it be said that the use of the 501.c.3 status has created the climate you refer to, it is a well designed Divide & Conquer strategy.

However this strategy would NOT succeed if organizations did not try to use the protection of the 501.c.3.

There is a place and need for some organization to have this protection, but many organizations that attempt to use this protection are NOT the organization for who it is expedient to do so.

So, it is CHOICE, once again. The organization’s Choice. Some have not chosen wisely.

Far be it for me to defend any IRS law or policy, and this is not what I am doing. My argument stems from the Choice of the Organizations to tie their own hands in their activities just for the ability to allow a tax deduction for contributors.

Carrot and Stick mentality.

I agree with your comments. Some organizations force themselves into this hole against their interest, but it's a little trickier than that.

When you have to explain to donors who don't understand that their contribution is not tax deductible (which is the case for any entity doing charity work outside this status, and they can and they do), there are some people who look at that wondering if it isn't corrupt.

Trusting a government label is another mistake. But you're definitely right that people could, if they so chose, overcome this as is.

reply to post by cassandranova

When you have to explain to donors who don't understand that their contribution is not tax deductible (which is the case for any entity doing charity work outside this status, and they can and they do), there are some people who look at that wondering if it isn't corrupt.

This is exactly the position that the organization finds itself in, people think that it is just a scam or it's corrupt. Failing to notice that most charities that bring in substantial donations also have a large overhead. CEO's that in some cases receive over a million dollars a year for their time. Thus between the salaries, materials and cost of operation little goes to those in need.

Due to the IRS and its codes regarding 501 status, which is not limited to the (c) 3 section, organizations are forced into a less than charitable function. The OP is quite correct in saying that the IRS and government will dictate as to what the organization can say or do.

Thus our organization refused to seek IRS 501 (c) 3 status in the US. We are a non-US humanitarian aid organization operating solely with volunteers. Remove the paycheck and your staff are there because they truly want to help.

Personally I agree with the OP that the tax incentive should be removed from the donation. However, in today's society, people are are all about what they can get for their giving, not that its ever really changed. Even Jesus pointed out that the rich man that went and slowly poured his purse into the charity chest so all could see, did so for recognition (corporations and wealthy people do the same today). Yet the poor widow that only had 3 pennies gave it all and put it in the poor box at the back of the temple while no one was looking was said to have given the most (helping those less fortunate than herself). They should give because they desire to aid their fellow man and not themselves.

People and corporations that give only so they can get are not giving anything and could care less about those in need. The IRS's 501 (c) 3 status does nothing but promote this behavior and should be removed. Though thru the 501 (c) 3 status the IRS and government can effectively silence organizations that could influence the population against their activities plus regulate the organizations ability to operate.

I will have to come back to this, but found it interesting that in a different thread another poster and I started talking about 501c(3) and the relations to voluntary abridgement of First Amendment rights.

Good research and presentation. You will never hear from me....I am too busy (read:lazy) to read what you presented. S&F OP.

reply to post by pstrron


I did some work with a 501(c)(4), for instance, because it was involved in political lobbying. If memory serves, you don't pay all the same taxes, but what makes the (3) the gold standard is that it is the only time the donors get the tax exempt donations.

Anyway, I wanted to say good for you for bucking the trend and going your own way.

I'm also not surprised this would come up under a free speech discussion. I've worked as a campaign manager and aide before and I can't tell you how many times I've heard an organization say, "We agree with everything you're doing, but can't risk getting involved." Instead, they take the money from the donors, and use their rage against bad policies to keep going. I hate to say there are many like that in the nonprofit sector, but I've met some.

reply to post by cassandranova


So here is a question. In the Citizen United v. FEC case, in the Majority they stated:

The First Amendment does not permit Congress to make these categorical distinctions based on the corporate identity of the speaker and the content of the political speech.

Pg. 49

-- and --

No sufficient governmental interest justifies limits on the political speech of nonprofit or for-profit corporations.

Pg 50.

Barring any discussion on the much lauded and debated "corporate personhood" in regards to that case, do those Opinions of the Court contradict the current tax-code of 501c(3)?

If 501c(3) defines a company, for tax purposes as "non-profit" and the Court does not find "sufficient governmental interest" to limit political speech, how is the IRS can revoke a company's 501c(3) status if they engage in political activities barred via the tax-code?

There are plenty of examples of 'non-profits' that take political stands ...in the public good of course. PETA? Media Matters?
All they do is try to define themselves as for/against various 'causes' like a free press or some environmental concern. Not their fault if it happens to fall in some political camp or the other.
As long as they don't actually 'name' the party or candidate they can get away with it, and they do.