Editor’s note: This commentary was first published in The Conversation.
When someone mentions nonprofits, chances are you picture homeless shelters, free medical clinics, museums and other groups that you believe are doing good one way or another.
Most of these organizations are legitimate. But not all nonprofits are principled or embrace missions everyone considers worthy of the tax-exempt status that the government grants some 2 million organizations.
You might presume that the government would automatically refuse to grant tax-exempt status to white nationalist and anti-government groups. Yet as a scholar who has researched nonprofit accountability, I’ve seen the authorities struggle to draw the line between which organizations deserve to operate as nonprofits and those that don’t.
8 purposes allowed
The wide array of U.S. nonprofits includes many media outlets, chambers of commerce and political parties. But the term usually refers to the organizations that meet the requirements of Section 501(c)(3) of the tax code. Officially designated as charities, these groups don’t pay income taxes and can accept tax-deductible donations.
All 501(c)(3)s must apply to the Internal Revenue Service for tax exemption unless their revenues are less than US$5,000 or they are a church, synagogue, mosque or other house of worship.
The IRS usually grants this status to any applicant with at least one of eight purposes, including being charitable or educational.
Figuring out if food banks deserve exemption is generally straightforward, as they engage in an obviously charitable activity.
Determining whether organizations are truly religious or educational is harder.
Oath Keepers Educational Foundation
Some groups with ties to the Oath Keepers — an extremist group with leaders who were found guilty of seditious conspiracy connected to the Jan. 6, 2021, attack on the U.S. Capitol — were granted this status.
Until recently, the Oath Keepers had chapters scattered across the country, and the main group never became a 501(c)(3) organization. But the Oath Keepers Educational Foundation and several smaller affiliated groups did obtain that status.
The foundation told the IRS when it sought charitable status that its primary purpose was “to give veterans an opportunity for continued involvement in community service.”
The Oath Keepers network has largely collapsed amid the prosecution of its members who engaged in the Jan. 6 attack. Most notably, founder Stewart Rhodes was found guilty in 2022 of seditious conspiracy for helping plot the insurrection. He is expected to be sentenced around May 25, 2023, and could spend more than two decades in prison. Rhodes was also listed as the foundation’s president when it was established.
When the Oath Keepers’ former spokesman Jason Van Tatenhove testified before Congress in 2022, he revealed that the group was radicalizing its followers and spreading violent messaging.
The Three Percenters, another extremist group with ties to people who were convicted for their role in the Jan. 6 attacks, was a charity at that time. Its leadership subsequently dissolved the organization.
Unite the Right ties
Other white nationalist groups, such as Identity Evropa and the National Policy Institute, have received 501(c)(3) status over the years.
Both of those groups were among the organizers of the Unite the Right rally in Charlottesville, Virginia, in 2017, where participants attacked progressive counterprotesters, killing one of them and injuring many others.
Policing tax exemption
Although it’s a crime to lie on the application, some groups seeking to become charities do. The IRS doesn’t verify those statements, however, presumably because the threat of prosecution generally prevents misrepresentations, and the cost of verifying what every group says is very high.
Small groups can use a simplified version of the required form, but it is so poorly designed that the IRS has granted exemption to many ineligible organizations. In one extreme case, a scam artist set up 76 fake charities using this form, as The New York Times discovered in 2022.
Another obstacle is that applicants are usually forming new organizations, so the IRS examines their intentions rather than their actions.
Respecting free speech
Because Americans prize the right to free speech, the IRS treads carefully when determining which nonprofits don’t deserve tax-exempt status.
Big Mama Rag, a radical feminist nonprofit magazine, lost its tax exemption in the late 1970s. The IRS revoked its charitable status upon seeing that the magazine refused to publish views contrary to its own. When the magazine fought back, an appeals court determined that the criteria the IRS and a district court had used to deny exemption were unconstitutional because they were based on the organization’s constitutionally protected views.
This case set an important precedent: The government considers charities advancing unpopular views to be educational enough to keep their tax-exempt status.
The IRS now evaluates educational methods, not content. Educational charities must support their assertions with facts and without inflammatory language.
The only reported court case of a group failing this test was a blatantly racist organization, the Nationalist Movement.
That organization sought to “favor Caucasian, Christian, and English-speaking Americans of Northern European descent.” The IRS revoked its 501(c)(3) status in 1994 after determining that the Nationalist Movement was a propaganda organ.
Revoking charitable status is complicated
And it is not always easy to revoke tax exemption, either.
The IRS has historically been underfunded. In 2013, when the Republican-led Congress decided that the IRS was biased against conservative nonprofits, lawmakers penalized the agency by cutting its budget and explicitly forbidding it from creating rules that would draw sharper lines between political and charitable purposes.
It turned out that the IRS was also subjecting progressive groups to an extra layer of scrutiny — and official government reports found inappropriate criteria but no anti-conservative bias. In any case, because it hampered IRS enforcement, this dust-up made it harder for the IRS to root out charities that didn’t deserve the designation.
Unfortunately, the $80 billion added to the IRS budget from 2022 to 2031 is unlikely to increase the scrutiny of charities, because there are too many other priorities, like updating software and making tax scofflaws pay up.
The Oath Keepers Educational Foundation appears to have lost its 501(c)(3) status. The government, which makes it hard to tell why a former charity has lost its tax-exempt status, has not clearly indicated whether this was a voluntary decision on its part or the result of a negotiated settlement with the IRS.
It’s also possible that the organization simply failed to file required annual paperwork with the IRS for three years in a row. That omission automatically causes charities to lose their tax-exempt status, although it can be restored.
While the fact that the white nationalist groups mentioned above ever got charitable status is disturbing, a search of the IRS database of tax-exempt organizations shows that none of them have it today.
In my opinion, a large part of the strength of the nonprofit sector lies in its diversity of causes and viewpoints. For this reason, I think it’s better for the government to err on the side of authorizing too many tax-exempt organizations than to quash free speech or meddle with trying to determine which faith traditions are deserving.
But it should be clear that charities that encourage violence and cheer on extremism are not contributing to society with any of the purposes the IRS allows.