Aiming at Dark Money, but Hitting Nonprofits

by Gary Schuster, Jacoborwitz and Gubits, LLP

Governor Cuomo has just signed into law a measure intended to shine light on so-called “dark money” contributions to political candidates by some nonprofit organizations. The law was immediately criticized by a wide array of nonprofit and other groups as both overbroad and inadequate.

The law applies to all nonprofit organizations operating in New York that are recognized as tax-exempt under section 501(c)(3) of the Internal Revenue Code (hereafter, a “charity”).

The law applies when a charity makes any kind of contribution (gift, loan, advance, deposit, or financial support of any kind) or provides in-kind services or value (offices, office supplies, equipment, staff or other personnel) to a so-called “social welfare” organization recognized as tax-exempt under section 501(c)(4) the Internal Revenue Code (hereafter, a “(c)(4)”). In recent years, these (c)(4)s have been used to collect large amounts of funds from wealthy donors on behalf of political candidates while maintaining the confidentiality of those donors and often appearing to violate the spirit, if not the letter, of election finance laws.

Under the new law, if a charity makes a cash or in-kind contribution to a (c)(4) having a value exceeding $2,500, then the charity must file a report with the New York State Department of Law covering a 6-month reporting period including the following:

– The names of the managers of the charity

– The name and address of the (c)(4)

– Identify all donations to the charity of more than $2,500 during the 6-month reporting period including the identity of all the donors.

Some critics of this law believe this is a very indirect and ineffective way to limit campaign contributions. Other critics believe the law will have harmful unintended consequences to nonprofits that are not involved in elections. Reportedly, nonprofit groups were not consulted in the drafting or passage of this law, and many are preparing statements in opposition and perhaps even lawsuits.

It has been suggested that one way a nonprofit can steer clear of this law is to avoid making any contribution, cash or in kind, to a (c)(4).

Nonprofit managers who are concerned about running afoul of this new law should consult attorneys experienced in nonprofit law.

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