October 24, 2025
It appears the US Government, via the IRS, is going to begin investigating various 501c3 organizations for violations of the tax code. What is a 501c3 and why is this going to be a big deal?
Here is a summary, I have put in bold what I believe will be relevant in the Next Big Thing:
The most common type is a 501(c)(3), which includes:
- Charitable organizations
- Religious organizations
- Educational institutions
- Scientific organizations
- Organizations that prevent cruelty to children or animals
Key benefits of 501(c)(3) status:
- The organization doesn’t pay federal income tax on donations and revenue related to its mission
- Donors can deduct their contributions on their tax returns
- Eligible for grants that many foundations only give to tax-exempt organizations
Requirements:
- Organized for exempt purposes (charitable, religious, educational, etc.)
- Cannot distribute profits to individuals
- Limited political activity – can’t participate in political campaigns
- Must serve the public interest, not private interests
There are actually many types of 501(c) organizations beyond (c)(3), including social welfare organizations (501(c)(4)), labor unions (501(c)(5)), and social clubs (501(c)(7)), each with different rules and tax treatments.
So, a 501c3 can donate money to a Palestinian children’s relief fund, but it can’t pay for a street protest condemning/praising Israel or condemning/praising Hamas.
The bright line is drawn around political activities.
From time to time, some pundit would show a picture of a protest with a dozen identical buses lined up and would ask, “Who paid for the busses?” Or everyone would have professionally printed protest signs. “Who paid for the signs?”
Well, like everything else, this gets involved in Constitutional rights (another issue…gun rights…2nd Amendment). Here is what the Constitution says:
“Congress shall make no law… abridging… the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”
The operative word is peaceably. Once you turn rowdy and violent, Constitutional protection no longer exists. In addition, the government can impose reasonable restrictions…you probably can’t protest at rush hour shutting down a major artery. Private property must be honored and there are also restrictions allowed for safety reasons.
Now once the money gets involved, gloves come off and there will be endless investigations of various organizations. Those on the far Left will cry “Fascism” and those on the Right “Pay your taxes!” You get it.
I think there is a legitimate interest in knowing who is funding protest in the national political realm. First, we need to know if it has a foreign aspect…Iran, Russia, China. But more, we need to be sure the law is being obeyed and specifically that the tax code is being followed. Left or Right.
So, the money works like this. I have $10,000. I donate it to a 501c3 and as a charitable contribution, I can deduct the contribution on my tax return and save $3,700 in taxes (my top bracket is 37%). That is…you paid for my contribution to the tune of $3,700. In turn, the 501c3 doesn’t pay any income taxes on the $10,000 because it is sheltered from income tax as a charitable organization. So, it in turn saves, say, $3,000 in income taxes on the revenue. Thus, the $10,000 creates tax benefits amounting to $6,700.
As a country, we’re OK on tax benefits as long as the money is being spent in true charitable endeavors. You know them…Heart, Diabetes, food kitchens, Salvation Army and a dizzying array of charities that Americans support.
But if I claim that Working Profit is a 501c3 engaged in something like “social awareness and health amiability counseling” you are going to have trouble processing that one. Thus, you are not surprised that people will try to gin the tax man by shenanigans and small-minded schemes to defraud.
Donor: Let me pay for the buses
501c3 Person: No! Put it through my charity and get a deduction.
Whenever you offer a tax benefit subject to interpretation and allow the benefit to go mostly unexamined for a long time, turning over rocks will illuminate interesting critters scuttling about.
Well, that’s what is coming. The IRS is going to step into those 501c3’s beginning with Mr. Soros and his Open Foundation charity and poke around.
And after decades in the money business, my sense is they are going to find things. Not saying Mr. Soros particularly (I just don’t know and like all of us, he gets the benefit of the doubt), but in a general sense.
I’ve managed money for real 501c3’s over my career. I’ve been in the meetings, and I never worked for one that skirted the rules, but in the process of working on them, I could see how an aggressive (and less than upright) donor/sponsor might try to bend rules.
Now one thing that makes me believe the investigative ground will be fertile are things like this (Source AI):
We all get that as well. You take your mostly useless family members, give them a title and a paycheck, all subsidized by the taxpayer.
But the political aspect is something that just hasn’t been covered, I don’t believe. You may be interested in a specific charity. Here’s a great site you can use:
https://www.charitynavigator.org
OK, so here in the center, I’m torn as per normal on these aspects of the issue:
The underlying idea, investigating charities who may be abusing the tax code is something I can easily support. I obey the tax code, why can’t they? Just be fair in your target selection.
The way to do it, via the IRS is the most efficient and effective way to do so…they get the tax returns which have the tax benefits so they should be the ones to analyze their use.
The penalty, loss of 501c3 status is something I support, including back taxes and penalties and penalties personally to the perps.
The weaponization of the IRS against political opponents, to settle scores, is not something I support.
The line between legitimate use of government power and abuse of government power is once again in the forefront.
It wasn’t too long ago that the Dems funded a major increase in IRS compliance funding, and the Reps accused them of weaponizing the IRS to go after taxpayers. You’re ahead of me here…this is like listening to both sides argue about gerrymandering. They both do it.
But I have to say that if you spend your time and money going after the President and the Republicans, in a take no prisoners campaign, you’ve opened the door to this being turned back on you. What do they say…turnabout is fair play?
And so, while I’m sure the far Left will get all animated (look for Mark Ruffalo to think of something cringe-worthy to say), and the far Right will relish the ‘get even gotcha’ moments, those of us in the center will probably say: OK, keep me posted, let’s see how this actually plays out.
But for sure, its all coming and the drip-drip-drip nature of the revelations will be a daily thing once it all gets rolling.
Can I say it again? I am very frustrated by the endless leaks and innuendoes from Reps and Dems about various investigations that go absolutely nowhere. In the end, they don’t appear to have the goods and it’s wasting the country’s time, money and energy. So, when Left or Right media blares that “Social media is erupting/exploding/going nuts over (take your pick)” I make it a point to not click on that.
Meanwhile, I put an incorrect deduction amount on one line on my 2024 tax return. Actually, my accountant crossed wires and picked up the wrong number, but I’m responsible for hiring him. Anyway, my new accountant has been in touch with IRS and considering that I’ve been filing returns for 60 years, I’m not on their bad guy list and they’re being very reasonable. We’re talking about perhaps $7,000 in additional tax but I’m thinking of turning myself into a 501c3, avoid future hassles.
Thoughts, questions, or reflections? I’d love to hear them. You can reach me anytime at anthony@workingprofit.com
