Skip to main content

By now, most people have heard the term super PACs and probably know that these are political action committees that can raise unlimited amounts of money to persuade voters to support or vote against political candidates.

Because super PACs aren't allowed to donate directly to candidates' campaigns or coordinate their strategies with those campaigns, their expenditures are a type of outside spending.

But many people don't know what a 501(c) group is.

These make up another kind of outside spending, and their donations are often referred to as "dark money" because they aren't required to disclose where they get their funding. They play an important role in political-advertising spending. 

The 501(c) moniker comes from a subsection of the Internal Revenue Code. When it comes to election finance, the groups to watch are non-profit organizations that promote "social welfare" and business groups such as chambers of commerce.

These are known as 501(c)(4)s and 501(c)(6)s, respectively. Also of importance are 501(c)(5)s, which are labor or agricultural associations, including labor unions.

Although super PACs have dominated the total outside contribution this election, 501(c) groups such as the U.S. Chamber of Commerce and American Future Fund aren't too far behind, with spending of $21.86 million and $11.85 million, respectively. 

The non-disclosure can shield the true description of even a highly political organization. After the U.S. Supreme Court's Citizens United ruling in 2010, outside groups such as super PACs and political non-profits legally started to raise unrestricted money for or against candidates on the condition that such advocacy is independent of candidates.

The Citizen United decision forbid the federal government from restricting political spending by non-profit organizations and by extension, for-profit organizations and unions. Democrats and other critics say that it has given large companies and wealthy individuals too much influence on elections, but supporters of the ruling, including most Republicans, say that it is a free-speech issue. 

501(c) groups have tended to be more conservative than liberal.

Image placeholder title

Last year, 501(c) groups were used as frequent vehicles for shadowy political funding during federal elections.

Total dark money spending by 501(c) groups (501(c)(4), 501(c)(5) and 501(c) (6)) was $67.46 million last year, according to the Center for Responsive Politics.

Here are three things to know about 501(c) groups this election season.

1. Not all 501(c) groups are dark-money groups. 501(c) groups can influence elections by raising unlimited sums of money.

These groups are divided into different types, and the amount of political spending depends on their individual tax codes. 501(c)(4) social welfare organizations and 501(c)(6) trade associations can keep their sources of funds 100% secret.

Scroll to Continue

TheStreet Recommends

But labor unions under 501(c)(5) have to disclose their financial activities, though, this can occur long after the transactions have occurred.

Most of the dark spending is done through 501(c)(4) and 501(c)(6), according to a joint study by the Wesleyan Media Project and the Center for Responsive Politics (WMP/CRP). 

These groups rarely disclose the sources of funds voluntarily. If the 501(c) groups disclose their donor list, then they can no longer be termed "dark-money groups."

2. The leading dark-money spenders this year are under 501(c) groups. Organizations under 501(c)(4) and 501(c)(6) are among the top dark-money spenders during elections.

Social-welfare groups 501(c)(4): According to the Center for Responsive Politics, 68 social-welfare groups had spent about $37 million as of Sept. 9. The leading spenders in this group are the American Future Fund ($11.71 million) and Americans for Prosperity ($3.23 million).

Under Internal Revenue Service rules, social-welfare organizations are allowed to engage in political activities as long as politics isn't their primary purpose.

However, under the rule, "any expenditure it makes for political activities may be subject to tax under section 527(f)".

But if these groups make an independent expenditure or any electioneering communications advocating for or against a candidate, then they must report that financial activity to the Federal Election Commission.

Many super PACs accept contributions from social-welfare groups, which gives them two advantages: partial disclosure of donors and unlimited sums of money. Groups that partially disclose their donors include Club for Growth and Service Employees International Union.

Image placeholder title

Unions 501 (c)(5): So far, 17 unions under 501 (c) (5) have spent $7.77 million. Labor unions under 501(c)(5) have to disclose their financial activities to the Department of Labor if they give more than $5,000.

Most of these unions partner with PACs and super PACs to remain undisclosed and spend big money in politics.

Business Leagues 501(c)(6): Just six trade associations have spent close to $22.63 million so far and remain a prominent spender these elections. The leading spenders in this group are the U.S. Chamber of Commerce and National Association of Realtors.

The U.S. Chamber of Commerce also tops the list of dark-money-group spenders. With a total contribution of $21.86 million this year, the conservative group has raised nearly $10 million for Republicans and $10 million against Democrats, keeping its donor list 100% secret to the FEC and public.

3. Contributions by 501(c) groups slowed this year. The total number of 501 (c) groups fell to 91 as of Sept. 9, from 266 in 2012. 

The total amount raised by 501 (c) groups has fallen to $67.46 million from $336 million in 2012.

The political influence of 501(c) groups continues through their links to super PACs.

The recent study by WMP/CRP found that much of the 501(C) spending is done outside the FEC reporting windows and the numbers may rise significantly.

The U.S. Chamber of Commerce has aired 81% of the ads outside the FEC window this year, according to the report

This article is commentary by an independent contributor.