The misuse of 501(c)(3) non-profits

If taxpayer subsidized, we deserve disclosure.

By Jack E. Lohman

The 501(c)(3) non-profit corporate structure works well when contributing money to charities like the Salvation Army, because your contribution comes off the top of your income before you pay taxes. Thus if you are in the 20% tax range and give $100, you are effectively giving $80 and the taxpayers are paying the other $20 (because the government never receives the $20).

Unfortunately, it also works well for fat cats like George Soros and Rupert Murdock when they want to support their Left- or Right-wing fringe groups. The taxpayers help them in their personal cause, no matter how extreme, and even if it works against the best interests of those same taxpayers.

And it helps corporate CEOs and unions that want to invest in so-called non-partisan (yet biased) “think tanks” like Cato or Heritage, when they want to develop slanted studies that support their agendas and block others (like blocking legislation that would increase their tax liability but increase yours).

Think tanks are often “taxpayer-supported propaganda machines” and I support some of them myself (like Public Citizen and other good-government groups).

Who is “Americans for Prosperity,” for example, and other apple-pie-sounding organizations? Oh, tobacco industry involvement? I didn’t know that. Getting taxpayer subsidies? I didn’t know that either!!!

But that’s the way the non-profit game is played.

This has clearly gone too far and the taxpayers deserve better. We at least deserve disclosure of who we are funding and who we are thus getting in bed with if we send a check.

We deserve to know if a particular propaganda group is working for us or against us; or if they are a front group with a deceptive name that does exactly opposite its appearance.

If our taxes are used to subsidize these propaganda machines, we have a right to know who’s behind them. Business, labor, or the health insurance bad guys.

  • Require a disclosure page on their web site.
  • Mandate disclosure of the top 20 contributors, whether corporations or individuals.
  • If those contributors are also tax-exempt, require disclosure of their top 20 contributors.
  • Mandate disclosure of all of their contributions to politicians or political action committees or other tax-exempt organizations.

Yes, I would apply this to ALL tax-exempt organizations, even the ones I support.

As well, tax-exempts can be used to enhance for-profit corporate salaries, and this must stop!

How? By having the 501(c)(3) collect exorbitant surpluses (“profits” in lay terms) and passing them on to external executives in the form of “management fees” to a for-profit company. This can be done by non-profit hospitals, as an example, and these pass-throughs must be forbidden.


— For-profit corporate law must also be reformed.  Shareholders, the owners of the corporations, are often at the total mercy of Boards of Directors with incestuous ties to the CEOs.

— Board members are often CEOs of other corporations and have this CEO also sit on their board, and they vote in favor of each other’s salaries.

— Shareholders must have 100% control over their CEO’s salary and benefits, as opposed to the zero control they currently have.

7 Responses to The misuse of 501(c)(3) non-profits

  1. So, Bob, now we also have “Wisconsin Prosperity Network” to add to the list? Are they both (with AFP) Gingrich/Beck/Limbaugh front groups? My point is, which I’m confident you already get, is that I want to know who are funding these groups?

    And I don’t stop there. Who are funding the left-wing groups too? We have a right to know if we taxpayers are subsidizing them!

    Conservatives call that “taking personal responsibility.” You know: the “Transparency” you claim Obama has declined to give us.

  2. Truth says:

    Jack, I am sure you are as upset about One Wisconsin N ow, Progressive Majority, Greater Wisconsin Committee and Citizen action all taking union money which is deducted from payroll checks pre-tax?

  3. Truth, I don’t give a damn where they get their money as long as they disclose it. I fully recognize that we have propaganda contests, I’d just like to see a little honesty and transparency, on BOTH sides of the spectrum.

  4. But let me also say that I think both union members and shareholders should be able to opt out of the cash disbursement of political activities.

  5. Silence Dogood says:

    You are mistaking “tax-exempt” organizations for those to which contributions are “tax-deductible”. Many thinktanks are themselves tax-exempt, including the 527 groups engaged in political activity, however contributions to these groups are not tax-deductible. George Soros spent millions but he didn’t get a tax deduction.

    Both 527 and 501c groups file a Form 990 Most 990’s are available online through – these can be fascinating reading since the salaries of officers and key employees are disclosed.

    We disagree on the wisdom of requiring disclosure of contributions. Anonymous charitable donation deserves protection while anonymous political speech has been protected since America’s founding. For good reason since persecution of those voicing unpopular positions has occurred throughout human history. Why do you think Ben Franklin used so many pseudonyms?

  6. I think the reason Soros’ contribution was not tax-free was because many of these groups also have 501(C)(4)’s which provide them a greater latitude on lobbying, and he gave to that arm instead. But my point is that if any public money is subsidizing the group, disclosure should be required. That does not hinder political free speech; that can still move forward. It only says that such speech (bribes) must be disclosed.

    But that aside, I don’t think politicians should be able to take bribes from anyone, not even Soros. I know they call their money “speech,” the form, but the “substance” is that it is simply payola.

    And the cynical part of me thinks there are certain non-profits that have been set up because (a) the cause sounds good, and (b) whether they accomplish anything or not, it creates jobs. Especially for the founder. If they accomplish something, that’s an added bonus.

    But I think “mandated disclosure” could certainly include things that would help the consumer decide if this is a real charity or a gimmick. Like number of employees, yearly budget, etc.