Curbing (or Not) Foreign Influence on U.S. Politics and Policies Through the Federal Taxation of Charities

Johnny Rex Buckles

The 2016 presidential election spawned journalistic accounts igniting great concern across the political spectrum that foreign actors had been interfering with America’s democracy. Foreign engagement with politically active nonprofit organizations has contributed to the perceived problem. Although tax-exempt charitable organizations described in section 501(c)(3) of the Internal Revenue Code (the “Code”) are limited in how they can influence the political process, a close inspection of the tax laws governing charities reveals that a foreign actor can influence the political process in the United States through donations to, or other interactions with, a U.S. charitable entity in a number of ways. These methods include financially supporting an organization that already advances a mission aligned with the foreign actor’s interests, shaping the mission of an existing organization so that it better aligns with the foreign actor’s interests, funding new tax-exempt entities that will operate to achieve some purpose aligned with the foreign actor’s interests, exploiting the connections that an existing organization has with policymakers, and creating supporting organizations that engage in (limited) lobbying or (virtually unlimited) attempts to influence executive and administrative action. From the fundamental requirements for qualifying an organization for federal income tax exemption to complex excise tax provisions affecting charities and their managers, the Code imposes norms of fiduciary behavior on the managers of charitable organizations. Precisely how the discharge of fiduciary duties is affected by the tax system varies with the type of tax-exempt organization in question. This Article will explore the issue of how effectively the tax system’s regulation of fiduciary behavior prevents the possible exploitation of charities by foreign actors for purposes of influencing U.S. democratic processes and policies and will propose plausible legal reforms.