A Michigan attorney has confirmed she filed an Internal Revenue Service (IRS) complaint against Moms for Liberty, the parental rights group with positions against racially inclusive and LGBTQ+ education in schools. The complaint, which is private but was obtained by the Guardian, alleges that the rightwing organization is in violation of its 501(c)4 non-profit status.
Experts in tax law say an IRS investigation into the Moms for Liberty, named an extremist group by Southern Poverty Law Center, would take at least two years. If their non-profit status is revoked, it would most likely cause the group to re-characterize as a private organization, further decreasing transparency about how money is flowing into it.
Representatives for Moms for Liberty declined to comment, saying they would be unable to respond to questions without seeing a copy of the complaint.
The eight-page complaint questions whether Moms for Liberty is a political educational organization and notes public posts endorsing Republican candidates, the group’s campaigning for Republican candidates, and links to partisan training materials.
“It would be a permissible educational purpose if there were advocating to remove gender discussions from classrooms and schools if there was a balanced presentation of benefits and drawbacks of using a person’s preferred pronouns, supporting LGBTQ youth, impacts on children of being ‘exposed’ to LGBTQ supportive environments,” the complaint states. “There is not.”
The complaint cites a landmark case, American Campaign Academy v Commissioner, in which a school for Republican candidates was ultimately denied its non-profit status because it was providing partisan-only education.
Admission to local chapters is through private Facebook pages and controlled by the national organization, the complaint continues, obscuring the ability to determine how the group’s educational activities benefit the public.
The IRS complaint also examines if Moms for Liberty is an action organization, raising questions about its participation in political campaigns and active recruitment of school board candidates.
“The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office,” the complaint reads. “However, a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity.”
Many of the elements of the complaint – the issues raised about Moms for Liberty’s private memberships and websites and questions about it being a political educational organization – will not pass muster, Phillip Hackney, associate professor of law at University of Pittsburgh said, though Hackney said he does think the complaint is correct in bringing up the group’s intervention in political campaigns. 501(c)4 groups, the most common type of dark money organizations, are allowed to endorse candidates and participate in an unlimited amount of lobbying. Hackney warned the group’s campaigning and promoting candidates can theoretically get into “a damage area” if it exceeds 25% of their group’s activities.
If it stretches past that to 25 to 50% of the group’s activities, it reaches “a real danger zone”, he said. Once campaigning becomes more than half of what the group is participating in, they can lose their non-profit status. With continuing budget resolutions, Hackney said Congress has made it hard for the IRS to give clarity in this space.
Additionally, Hackey calls 501(c)4 groups “charitable-organizations lite”, formed exclusively for social welfare purposes with the goal of doing something broadly in the public interest. Social welfare is a hard-to-define term, he said; as a result, the organizations that don’t quite fit the standards for a charitable non-profit will instead go into the “trash bin” of a 501(c)4.
A wide range of organizations can fit into the gray-area definition of social welfare. An Urban Institute study found that the majority of 501(c)4 groups are community service clubs, but also include sports leagues, veterans organizations, health providers and insurers, and homeowner and tenant associations.
More people are familiar with 501(c)3 non-profit, tax-exempt charitable organizations that do not need to pay taxes on earnings or donations, a benefit that makes this type of non-profit “superior” to 501(c)4 social welfare organizations, Hackney said. Charities can do a small amount of lobbying, though the exact amount of activities and expenses they’re allowed to contribute according to IRS law remains unclear. They are nonetheless prohibited from “intervening in a political campaign directly or indirectly”, such as endorsing a presidential candidate, Hackney said.
“That same prohibition does not apply to a (c)4. A number of charitable organizations will set up a charity, then have a sister social welfare organization that conducts lobbying,” Hackney said, calling it a “troublesome space”.
The charity will not be able to intervene with a political campaign, while the sister organization will. The organizations need to ensure the money coming in through the charity does not get mixed in with the 501(c)4 sister organization.
Social welfare organizations do not receive the same type of far-reaching tax benefits as charities. For example, they do not need to pay taxes on their goods and services if they further the organization’s purpose. If that standard isn’t met, a business tax applies. Nevertheless, this type of non-profit structure contains a tremendous boon for wealthy donors: tax exemption on gifted securities.
Barre Seid, a Chicago billionaire, donated $1.65bn in securities to the Marble Freedom Trust, a rightwing 501(c)4 run by Federalist Society leader Leonard Leo. Marble Freedom and Seid did not need to pay taxes on the stock transfer, which represented 100% of Seid’s ownership of the electrical goods manufacturing company Tripp Lite. If the securities had appreciated during the time frame Marble Freedom Trust owned the stock, it wouldn’t have been required to pay taxes on those gains. However, the conservative fund ultimately sold the stock; the power management company Eaton Corporation acquired it in March 2021.
Within a month, Marble Freedom Trust used the proceeds from the sale to funnel tens of millions of dollars into other conservative groups advocating for rightwing judges and greater privacy protections for libertarian and conservative donors, CNN reported.
Currently, charitable organizations and social welfare organizations do not need to disclose their donors. IRS rules about non-profit donor disclosures changed during the Trump administration, opening the tap for dark money to flood election politics without the public knowing about it. Hackney argued that disclosure is “a reasonable thing” that is “part of the democratic fabric”, but social welfare organizations are able to operate in a way that resists it, particularly when they are doing issue advocacy.
IRS investigations into a 501(c)4 like Moms for Liberty would be “heavily fact intensive”, Hackney said, with an agent reviewing materials and going back and forth with attorneys for 18 months. The IRS has a statute of limitations to complete an investigation within three years, he said. If the group’s status is revoked after that time, it probably would not owe back taxes but would reorganize as a taxable, private organization with even less transparency and no prohibitions on political campaigning.
