In a letter sent to newly confirmed Treasury Secretary Janet Yellen last Wednesday, Senators Sheldon Whitehouse and Elizabeth Warren called for renewed efforts to “rein in abuse by ‘dark money’ organizations” and urged Secretary Yellen to bolster the IRS’s “woefully inadequate” regulation and enforcement related to the political activity of 501(c)(4) social welfare organizations.  As the new Congress begins to consider legislation to force the disclosure of donors to 501(c)(4) organizations, prospective donors to these groups should be aware of emerging new risks of disclosure of their identities to the IRS—both over the longer term, should the proposed legislation pass Congress, and more immediately, should the IRS heed the Senators’ urging and shift its enforcement priorities with regard to these contributions.

New regulations issued by the IRS near the end of the Trump Administration, which we previously discussed in May of 2020, limited reporting obligations for 501(c)(4) social welfare organizations and allowed these groups to report only the amounts received from each substantial contributor in their filings, and to keep donors’ names and addresses secret except in the event of an IRS examination.  The IRS is unlikely to overturn these regulations quickly in the new Biden Administration: as Senators Whitehouse and Warren discussed in their letter to Secretary Yellen, “Republican appropriations riders have tied Treasury’s and the IRS’s hands, preventing promulgation of new regulations regarding 501(c)(4) organizations.”  But the new Congress has already taken the first steps to override these regulations and expand disclosure obligations through legislation.  Also last Wednesday, Representative David Price introduced the Spotlight Act in the House, which would repeal the IRS’s regulations and require reporting to the IRS of certain donors to 501(c)(4) organizations. Senators Jon Tester and Ron Wyden introduced a companion bill in the Senate on the same day.  Senators Whitehouse and Warren in their letter also called for passage of the more comprehensive For the People Act (H.R.1/S.1), which among other provisions would strengthen disclosure requirements for political giving, including contributions to 501(c)(4) groups.

As that legislation works its way through Congress, Senators Whitehouse and Warren have urged Secretary Yellen to implement a “more robust 501(c)(4) enforcement regime.”  The Senators, both of whom are members of the Senate Finance Committee which oversees the IRS, specifically encouraged Treasury and the IRS to investigate groups who have made “open and notorious inconsistent statements” by reporting to the IRS that they do not engage in political activity while at the same time reporting to the Federal Election Commission and state election agencies that they make political expenditures.  They also called for cooperation with the Department of Justice and other law enforcement agencies investigating the attack on the U.S. Capitol on January 6, 2021, to identify whether any “dark money organizations” were involved in organizing and funding the rally that preceded the attack and review the tax-exempt status of any organization that may have been involved.  The latter enforcement priority has also been promoted by Senator Wyden, the new chair of the Senate Finance Committee, who has deemed it a priority of the Committee to identify “whether tax-exempt organizations were involved with planning or inciting the insurrection,” and noted that the Committee is “going to make sure the IRS moves on this promptly.”

Donors interested in contributing to a 501(c)(4) organization should be aware of these potential changes to the IRS’s enforcement efforts under the new Administration, as well as the potential for the passage of legislation changing disclosure obligations: there is no guarantee that donations to these groups will be kept confidential in perpetuity and the effective date of the Spotlight Act, if enacted, would be “the taxable year ending after the date of” its enactment.  Donors should carefully vet recipient groups before donating, including identifying whether the recipient has previously reported election-related expenditures to the FEC or a state election agency, to understand the group’s political activities and the potential risks of future disclosure that may accompany a contribution to a 501(c)(4) organization that engages in political spending.

Photo of Robert Lenhard Robert Lenhard

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice…

Robert Lenhard has helped guide decision makers in corporations, trade associations, and advocacy groups on complying with the laws regulating political activity for over 20 years. As a senior member of the firm’s Election and Political Law Practice Group, he provides compliance advice relating to federal and state campaign finance, lobbying, pay-to-play, and government ethics laws. As an advocate, counselor, and regulator, Mr. Lenhard brings a depth of experience on matters that involve legal as well as political risk.

Bob led Covington’s representation of the Biden for President campaign, the Super PAC supporting President Obama’s re-election, as well as several prominent professional sports leagues, pharmaceutical manufacturers, technology companies, advocacy groups, and trade associations.

Prior to joining the firm in 2008, Mr. Lenhard served as Chairman of the Federal Election Commission (FEC) in 2007 and Vice Chairman of the agency in 2006, during which time the agency handled over 10 major rulemakings, had among its most productive years in enforcement and audit, and adopted several reforms to the enforcement process. Mr. Lenhard also led the Presidential Transition Team that reviewed the FEC for the incoming Obama administration in 2008-2009.

Mr. Lenhard is frequently quoted in the press, has lectured at major law schools, and Before his service to the FEC, Mr. Lenhard provided legal advice to labor organizations active in the political process at the federal, state, and local levels. Mr. Lenhard also was involved in litigation in the Florida trial and appellate courts over the counting of absentee ballots in Seminole County, Florida in 2000.

Robert Lenhard is a member of the firm’s Election and Political Law Practice Group and advises corporations, trade associations, not-for-profit organizations, and high-net-worth individuals on compliance with federal and state campaign finance, lobbying, and government ethics laws.

Mr. Lenhard routinely assists clients in establishing and operating federal and state PACs, compliance programs associated with campaign finance and pay-to-play laws; advises advocacy groups and their donors; conducts compliance trainings and audits of federal and state lobbying and political programs; and counsels clients on compliance with congressional gift and travel rules. According to Chambers, sources report: “He is strategic and always sees the big picture. He is a great person who provides excellent non-legal counsel as well.”

Photo of Susan Leahy Susan Leahy

Susan Leahy has advised tax-exempt, nonprofit organizations on tax and corporate governance matters for over 25 years. She assists organizations in obtaining and maintaining tax-exempt status and advises boards and senior executives on a range of governance policies and procedures.

In her work…

Susan Leahy has advised tax-exempt, nonprofit organizations on tax and corporate governance matters for over 25 years. She assists organizations in obtaining and maintaining tax-exempt status and advises boards and senior executives on a range of governance policies and procedures.

In her work with tax-exempt organizations that operate in the United States, as well as internationally, Susan regularly:

  • Counsels clients on the tax implications involving:
  • Self-dealing, inurement, and impermissible private benefit to individuals and for-profit companies;
  • Lobbying, and political activities;
  • Unrelated business income tax;
  • Excess benefit transactions and compensation of executives;
  • Joint ventures and relationships with for-profit organizations;
  • Mergers of tax-exempt organizations and the acquisition or donation of assets; and
  • Corporate sponsorship.

Advises nonprofit boards of directors, board committees, and management with respect to:

  • Corporate formation and good governance principles;
  • Preparation for board and committee meetings; and
  • Conflicts of interests.
  • Provides guidance on state corporate and tax compliance for nonprofit organizations.

“Susan has been my ‘Go-To’ attorney for adept legal strategy and guidance for over 20 years. Susan skillfully led our organization’s volunteer leadership through a needed transition with compassion and sensitivity. Her legal assistance remains invaluable!” a nonprofit organization client noted.

“I highly value Susan’s expertise, responsiveness, and pragmatism,” said another client. “Her insight and advice have proven invaluable time and time again and remain integral to our ability to operate quickly and nimbly.”

Susan is the past chair of the Exempt Organizations Committee of the District of Columbia Bar and a member of the American Bar Association. Susan received her J.D. from Catholic University of America, Columbus School of Law and a B.B.A. from St. Bonaventure University.