Do you contemplate free speech and churches? Do you think the benefits and restrictions of a 501(c) (3) organization are beneficial to society?
There are two tax advantages for organizations that agree to meet the criteria for 501(c) (3) organizations:
1. Donations to the organization are tax deductible by the donors as charitable donations
2. Income (related to their tax exempt status) is not taxable
In order to get those benefits, certain rules need to be followed. At this IRS link is a summary of the rules:
Please note that some nonprofits choose to NOT meet all the criteria and therefore do NOT get both benefits. You will be able to note the verbiage on your receipt. If the organization chose not to qualify, the receipt will say that your donation is not tax deductible.
I posit that the restrictions are beneficial to society. The restrictions give us at least some confidence that our donations are going for activities for which the organization received its 501(c) (3) status. For example: if the charitable purpose is to feed the poor, the organization will lose its exempt status if all the money goes to enrich the founder. Of course, we would have to do our own research to see if we're happy with the percentage going to overhead vs. to the "good works.” But at least the rules give us a bit of confidence that our money is going for the "good works" which qualified the organization as a 501(c) (3).
Does the tax deduction encourage people to donate to 501(c) (3) organizations? I posit that it does. Some might argue that issuing tax incentives to encourage good behavior is a misuse of the tax code. I disagree with those people. I agree we need to tread carefully when offering tax incentives so that the long term consequences don't bite us where it hurts.
I know that in these economic hard times, people are screaming "close the loop holes." But if the nonprofits are truly doing good works that benefit our society, then it is a good idea to incentivize people to make donations to help the organization achieve its charitable goal.
In summary, I believe the restrictions and the tax benefits to 501(c) (3) organizations benefit our society. Both (restrictions and benefits) should stay.
The next question is "should organizations that try to influence elections be granted 501(c) (3) status”? Or stated another way, do we want to incentivize (via tax deductions) people to give to such organizations? I say no. There is already too much money being thrown at electioneering. Many people were sick of all the political ads. I don't see any need to incentivize that kind of giving. In my opinion, that would be opening a Pandora’s Box.
Then of course, we get to the subject of free speech. 501 (c) (3) organizations cannot use donations (that qualified as a tax deduction) to try to get someone elected. Is that restriction to free speech fair? I say it is. The donations were given preferred tax treatment because of specific charitable goals that qualified the organization.
I realize that laws (aimed at trying to prevent elections from being corrupted) create a quandary for free speech. But it doesn’t seem to me that the area of the 501 (c) (3) is the problem. If you want to influence elections, then don’t elect to be a 501 (c) (3) organization. It seems an easy option. 501 (c) (3) status should be limited to organizations doing charitable work.