“Dark Money” Legislation in Texas

Senate Bill 346 passes, vetoed by Governor Perry

Washington IRS controversies regarding Section 501(c)(4) nonprofits parallel attention to the SB 346 debates in the 2013 Texas Legislature

The dramatic and troubling revelations exposing misconduct by the Internal Revenue Service (IRS) in considering applicants for Section 501(c)(4) tax exemption warrant a closer look at SB 346, vetoed by the Governor amidst debate and criticism surrounding this issue.

A Texas House committee hearing on April 24 regarding SB 346 exposed the ongoing discussions over permissible advocacy activities of a few Section 501(c)(4) nonprofit organizations and their receipt of substantial contributions that some say are directed primarily to political activity.

SB 346 essentially would have treated 501(c)(4) organizations as political committees under Texas campaign reporting laws if they acted as such under this standard: making one or more “political expenditures” that total $25,000 during a calendar year. If a group is determined to fall within SB 346 and thereby has to report as a political committee, the nonprofit would be required to observe the detailed requirements of the Texas Election Code—not a simple process and one with stout legal liability if violated. SB 346 provisions would be triggered if the donors/members or the recipient nonprofit organization(s) “…have reason to know that their payment may be used to make political contributions or political expenditures or may be commingled with other funds used to make political contributions or political expenditures.”

Finally, SB 346 would have required the nonprofit to disclose any donor whose contributions exceed $1,000 during the reporting period—a bit of a shock to nonprofit managers who are accustomed to the current laws and practices that generally do not require public disclosure of donor names or lists.

The Texas debate over SB 346 mirrored ongoing inquiries and investigations on the national level that has involved hearings before U.S. Congress, criminal investigations and considerable debate regarding IRS oversight of tax-exempt groups that engage in advocacy. Expect the entire exempt organizations scheme under Section 501(c) to be examined.

In the SB 346 discussions, its proponents have made it clear they are strictly observing the advocacy rights specified in the U.S. Supreme Court’s 2010 Citizens United case by merely requiring public disclosure of the Texas nonprofits’ funding activities and political expenditures while avoiding outright restrictions on the fundraising, advocacy activities or political expenditures. Transparency is the goal, the Senate and House sponsors emphasized. There are varying estimates of the total amount of nonprofits’ funds spent on direct advocacy by a range of nonprofit groups in the last Texas election cycle, but all agree it is not small and is growing.


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