New IRS regulations should focus on worker centers

It’s interesting – though not entirely surprising – that the IRS has launched an effort to tighten the regulatory noose around 501(c)(4) organizations leading into this year’s midterm elections.  The use of these issue advocacy groups came into vogue after the Supreme Court struck down limits on political speech in its Citizen United ruling.  But if regulators were really interested in targeting the abuse of tax status, then 501(c)(3) worker centers would be the place to start.

Though the 501(c)(4) organizational structure is a favorite of conservative groups that are decidedly not friends of the Obama Administration, the suggestion that political maneuvering exists only within “c4’s” is a politically driven fallacy.  Blatant political activities are occurring within the ostensibly non-political world of 501(c)(3) non-profits.

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Unions and their political allies are doubling down on 501(c)(3) organizations, which are charities that can receive tax-deductible contributions but are prohibited from electioneering.  Late last year at the AFL-CIO’s quadrennial convention, Big Labor took the unprecedented step to allow 501(c)(3) worker centers to affiliate with the union through a new, dual membership structure.

The primary drivers of the President’s agenda on many fronts are, in fact, union-backed worker centers.  For instance, the Voter Outreach Director from the SEIU-backed Mi Familia Vota was a guest of the first lady at the State of the Union; and in state and local markets across the country, groups like the Restaurant Opportunities Center (ROC) are pushing minimum wage campaigns heralded by the president in his State of the Union address ("you don’t have to wait for Congress to act," he exhorted).

In Michigan, a ROC employee (and county Democratic party chairman) is treasurer of a labor coalition promoting a minimum wage ballot measure. In Seattle, ROC is working with the SEIU local (whose president is co-chair of the Seattle mayor’s minimum wage advisory committee) on a campaign to hike the minimum to $15 an hour.

ROC has even participated in White House strategy sessions to coordinate action on the minimum wage, and we can expect to see it driving minimum wage measures in other states.  Late last year, ROC posted a job listing to hire someone to direct a "multi-million dollar" drive to "coordinate 4-5 state-based campaigns in advance of congressional midterm campaigns that would 1) pass state minimum wage initiatives...."

If tightening up the regulatory framework rather than political targeting was the true goal, then beginning with 501(c)(3)’s would also make sense.  C3’s are granted the greatest privileges because they supposedly face the tightest requirements.  They pay no federal taxes, can accept tax-deductible contributions, and can leverage their charity designation to seek foundation and government grants.  In exchange, c3’s are strictly prohibited from electioneering activity, and lobbying activities must be limited, reported and have taxes paid on those activities. 

ROC has made a mockery of these requirements.  For years, ROC actively and openly lobbied while reporting to the IRS that it did no lobbying.

What’s more, when the union-founded worker center first applied for tax-exempt status, the IRS responded that it did not appear to have a legitimate charitable purpose and should instead apply under section c5 for labor unions.  ROC quickly lawyered-up and filed an amended application with a letter from its counsel, and was ultimately granted c3 status.

ROC’s questionable activities have drawn the attention of two Congressional committees, including for ROC’s short-lived tenure as an Obamacare Navigator.

We have submitted comments to the proposed IRS Rulemaking urging the IRS to take a closer look at the misuse of tax-exempt status by 501(c)(3) worker centers.  But given the Administration’s roots in community organizing, where the President and his allies earned their stripes using 501(c)(3)’s to drive political outcomes, it may be a stretch to expect them to turn the spotlight on themselves.

Paranzino is communications director for ROC Exposed, a consumer watchdog supported by restaurants and others concerned about ROC’s campaigns against America’s restaurants.