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...a statewide alliance of over 10,000 organizations that brings nonprofits together to advocate for the communities we serve.
 
 

Latest News for Nonprofits

Breaking news: The US Supreme Court ruled earlier this week that politically active nonprofit groups will have to disclose the identity of certain donors (those giving more than $200) when these organizations advertise for or against a political candidate.

In this article, we explain why a nonprofit may want to form a separate C4, and we look at the growing and controversial role C4s are playing in our elections.

"C4s" -- short for 501(c)(4) nonprofits -- “are going to play a very large role in electoral politics," commented nonprofit attorney Rosemary Fei in an interview for this article. There are frequently valid and compelling reasons for 501(c)(3) nonprofits to start their own C4s, but at the same time, C4 organizations are also vulnerable to abuse in elections, so having a C4 affiliate can raise concerns for some.

What the heck is a C4 anyway?

C3s . . . C4s . . . sounds like we're talking in code? We are: the Internal Revenue Code. For most people, the term "nonprofit" refers to a corporation described in the Internal Revenue Code Section 501(c)(3). These are the tax-exempt "charities" and donations to them are tax-deductible to individuals. For short sometimes people say "C3s."

But to lawyers and regulators, "nonprofit" can mean one of many different types of corporations. For instance, labor unions are C5s; chambers of commerce are C6s; cemeteries are C13s. All of these other 501(c) corporations are exempt from corporate income tax, but donations to C3s are the only ones that are tax deductible.

Okay so what is a 50(c)(4) and why are we hearing so much about them lately?

A 501(c)(4) is a "social welfare" organization, and "it's a mushy term," says Rosemary, "a catch-all for many types of organizations that serve the public yet don’t quite qualify as 501(c)(3) charities." Traditional examples of C4s are volunteer fire departments and service clubs such as Rotary, while C4s formed recently are more likely to be politically involved. An important distinction is that donations to C4s are not tax deductible (whereas donations to C3s are).

We're hearing more about them in an election year for two key reasons:
  • C4s can endorse candidates (which C3s can't)
  • C4s may not have to disclose their donors (which C3s do -- although only to the federal and state government) (note: this requirement is changing in some circumstances as we noted earlier).
As a result of these two attributes, unfortunately C4s have become a favored conduit for "dark money" -- vehicles for which large sums of money can be used to support or oppose candidates.

How will this affect the 2018 election?

We don't know yet. But we do know that election funds through C4s are substanial: in the 2012 election, just over $80 million was spent; $48.5 million was spent in 2016, and $43.9 million has been spent thus far in 2018. (Center for Responsive Politics).

From a public policy standpoint, the non-transparency of 501(c)(4) organizations goes in the opposite direction of campaign contribution limits and disclosure laws. While it's clear that such laws have not prevented dark money, there are still limits such as those in California, where individuals cannot give more than $4,400 to an election campaign for a state senate seat and their contributions must be disclosed. But there are no limits to what an individual can spend to support or oppose a candidate if it goes through a C4.

Should our nonprofit start a C4?

Despite the abuses, the C4 framework also has a valuable role to play for many nonprofits. Many nonprofits exist as two (or more) corporations: one is a 501(c)(3) and one is a 501(c)(4). For example, the Sierra Club endorses candidates through its C4 incorporation, and raises tax-deductible funds for research and education through its C3 incorporation.

We asked Maricela Morales, executive director of CAUSE in Ventura County, why they created a C4:

By 2012 we had been doing organizing for ten years -- on immigrant rights, environmental justice, education. And naturally people would ask us: "Who's good in this race for school board?" And we were silent, limited in what we could say.

But that led us to asking ourselves: if we had a C4 we could add to our toolbox [for example, endorsing a candidate for the school board], be able to engage and educate our base on questions they were asking anyway.

Since 2013 (when we got the C4) for example, in Oxnard through our C4 work we actively worked for district elections. Through our C3 we proposed maps, and the city unanimously chose our map. And now it's time for us to follow-up through our C4 to find candidates to run in those districts who will be leaders and advocates.

We don't just want a say in what policies are in place. We want a voice in who is going to implement those policies!

Like CAUSE, the key reasons for nonprofits creating C4s are because you want to be able to do more lobbying, to endorse candidates, and "and to raise money for the person-to-person work of engaging voters, particularly voters that no one else is speaking to."

"While having a C4 affiliate can significantly expand how a 501(c)(3) nonprofit can accomplish its objectives, if it’s not done properly, the C4 can get the C3 in trouble," Rosemary cautions. Board and staff will need to take into account the additional, sometimes complex bookkeeping and accounting that will be required to ensure that C3 and C4 activities are being tracked and paid for separately. Working with an attorney experienced in advising C3/C4 nonprofits is of course a good idea, as is working with your auditor to set up the right controls and charts of accounts.

"There are legitimate ways to make good use of both," Rosemary says. "And if you're part of a social movement and see your role as influencing policy in an ongoing way -- not just around an election -- it could very well be the right next step for you."

Note: Regulations affecting C4s are constantly being examined, challenged, and changed. Not only do individual nonprofits need to be informed about how new rulings may affect them, but the nonprofit community must also participate in how C4 law is changed.

Further resources and reading:

Attorney Gene Takagi has an excellent Step-By-Step guide to forming a C4

IRS: Social Welfare Organizations

Photo credit:illustration at top of article is by Dale Glasgow for HR Magazine

PS: The election is in 46 days!


Is your nonprofit "Voting with Its Mission?" Join us next Tuesday, Sept. 25th at 11AM for a fast-paced (free) webinar where we'll talk about easy-to-implement strategies for nonprofits who want to engage their communities, colleagues, board, and volunteers in voting in the upcoming election.

Who will you meet at CalNonprofits Convention: Nonprofits Standing Up for California?

Join 300 nonprofit leaders from around California for panels and conversations about nonprofits and policy in this new political and social reality on October 18th in Los Angeles.  We will engage in thought-provoking discussions, get a behind-the-scenes peek at how policies get made in Sacramento, and learn from each other and experts in our field.
Check out the speakers we’re excited to hear from and register online for the convention.

Vu Le (“voo lay”) is a writer, speaker, vegan, Pisces, and the Executive Director of Rainier Valley Corps, a nonprofit in Seattle that promotes social justice by developing leaders of color. Vu gets rave reviews from nonprofit audiences, who appreciate his no-BS approach, and irreverent sense of humor. Vu’s passion to make the world better, combined with a low score on the Law School Admission Test, drove him into the field of nonprofit work, where he learned that we should take the work seriously, but not ourselves. Vu has been featured in dozens, if not hundreds, of his own blog posts at NonprofitAF.com.

Tamika Butler, known as the bike-riding lawyer of Los Angeles, serves as the Executive Director of the Los Angeles Neighborhood Land Trust, a nonprofit organization that addresses social and racial equity, and wellness, by building parks and gardens in park-poor communities across greater Los Angeles. Tamika has a diverse background in law, community organizing, communications, and nonprofit leadership.


Ditas Katague is Director of the California Complete Count – Census 2020 for the State of California -- an important effort with large and lasting impacts on California. Previously, Ditas served as the Director of Governor Schwarzenegger’s Census 2010 project. In 2000, as Chief Deputy Campaign Director for the Governor’s Census 2000 California Complete Count campaign, she led a groundbreaking multi-lingual, multi-media outreach effort that resulted in a mail-in return rate that outpaced the entire nation.


Tania Ibañez is the Senior Assistant Attorney General in charge of Charities. As the Section head, Tania leads a team of lawyers and auditors in Los Angeles and San Francisco who investigate and bring appropriate legal actions against fundraisers, trusts, and organizations to protect the public from fraudulent or misleading solicitations, and to recover the loss of charitable assets. As Senior Assistant, Tania also oversees the publication of training and educational guides, including the recently released Attorney General's Guide for Charities. Tania also serves on the board of directors of the National Association of State Charity Officials.

Gene Takagi is the managing attorney for the NEO Law Group and author for the Nonprofit Law Blog. At NEO, Gene has represented over 600 nonprofit organizations on corporate, tax, and charitable trust law matters. He has been published by the New York Times, Nonprofit Quarterly, Chronicle of Philanthropy, and more. Gene is a recipient of multiple awards for his work, including Outstanding Nonprofit Lawyer (American Bar Association, 2016), and Northern California Super Lawyer (2015, 2016, 2017, 2018).

2018 Policy Convention: Nonprofits Standing Up for California

Thursday, October 18
Los Angeles
Registration: $175 Members / $195 Not-yet-members
Discounts available for multiple staff from same organization

And don't miss the sweetest networking event of the year!

Join us for an ice cream social at the end of the day and enjoy a delicious treat while you chat with new connections and catch up with long time friends.
Thank you to our sponsors! If you're interested in sponsoring, check out the available packages online.

CalNonprofits board announces positions on ballot propositions

“‘Advocate for sufficient public investment in our communities,’ is the very first principle in our Policy Framework,” comments CalNonprofits Policy Chair Cindy Duenas. “This election we are focusing our attention on two propositions that set important precedents for public funding.”

Proposition 2: No Place Like Home Act of 2018 

CalNonprofits position: VOTE YES

In 2004, seeing a desperate need to fund mental health services, California voters approved the Mental Health Services Act (MHSA) (Prop 63). Nicknamed the “Millionaire’s Tax,” this law added 1% in taxes on incomes of $1 million or greater per year, generating $1.5 billion to $2.5 billion per year for mental health. Now in 2018, Proposition 2 affirms that up to $140 million in MHSA funds each year can be used to finance supportive housing for those with mental illness.

CalNonprofits spoke with nonprofits in mental health about Prop 2, asking for their input, with many of them explaining that they were supporting Prop 2 because connecting people to mental health services and housing is more effective in meeting their mental health service needs. CalNonprofits urges you to vote YES on Proposition 2 to make sure these funds can be used to help address the housing needs of people suffering from mental illness.

See also:

Proposition 5: Changes Requirements for Certain Property Owners to Transfer Their Property Tax Base to Replacement Property.

CalNonprofits position: VOTE NO

Under Proposition 13 (passed in 1978), older and disabled individual homeowners can keep their longstanding property tax rate if they downsize to a less expensive house. Prop 5 would allow them to keep their property tax rate even if they buy a more expensive home. This measure would decrease state revenue by $100 million per year at first, growing to $1 billion per year. The Legislative Analyst’s Office notes that most of this funding currently goes to schools and local government, meaning the state would likely need to replace these lost funds with comparable amounts. This measure would not create the new housing we sorely need, and it would benefit a very small group of people to the serious detriment of local governments and schools — both of which are important funders and partners to the nonprofit community. Proposition 5 would hurt the missions of nearly all California nonprofits. We cannot afford to allow such a limited benefit to wreak such widespread damage.

See also:

Is your nonprofit Voting with Your Mission? We can help!

Join our free Vote with Your Mission webinar next Tuesday, Sept. 25th at 11AM.

During this fast-paced presentation, Jan Masaoka and Nancy Berlin will talk through easy-to-implement strategies at your nonprofit to engage your colleagues, volunteers, board, and community in voting.

Want to help spread the word about your nonprofit engaging in voting?
Check out our free materials you can download, including our new guide: 12 Quick Tips for Helping People Vote, “I Work at a Nonprofit and I vote” stickers, a poster you can put up at your office reminding people to vote, and much more.

Think about it: If everyone who worked or volunteered in the environment voted, we’d have better environmental policies. If everyone who worked or volunteered in the arts voted, we’d have better arts funding. Nonprofits: which ballot propositions would support your mission and which would create obstacles to your mission? Let your employees, board members, volunteers and constituents know!
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Webinar: How California Nonprofits Can Vote With Their Missions
Join Jan Masaoka and Nancy Berlin for this free, fast-paced webinar on voter engagement, recent changes to California voting law, and tips for voter engagement at your nonprofit.
Tuesday, September 25th
Click here for more information
San Bernardino: Listening Session: Census 2020-A Complete Count for the Inland Empire
Nancy Berlin will be speaking at this event about the important role of nonprofits in achieving an accurate and complete Census count in the Inland Empire.
Thursday Sept 27th
Click here for more information
San Bernardino: Inland Empire Community Collaborative Conference
Jan Masaoka is keynoting this conference and speaking at a breakout. CalNonprofit member? Contact us for a discount registration code.
Friday, October 5th
Click here for more information
Los Angeles: CalNonprofits Policy Convention
Thursday, October 18th, Los Angeles
Join with 300 nonprofit leaders, funders, and supporters.
For more information, visit our conference page 
Pasadena: Executive Roundtable
Jan Masaoka will be speaking on the topic of rethinking boards
Wednesday, Nov 7th
Click here for more information.