Editors’ Note: Bringing historical context to the NAACP’s decision in 2017 to change its tax status from a 501(c)3 to 501(c)4, HistPhil co-editor Maribel Morey argues that the NAACP’s announcement “should be understood as yet another move by an organization long deciding between accepting political silence and financial viability as a 501(c)3 or gaining political voice and financial vulnerability as a 501(c)4.”
In October 2017, the NAACP simultaneously announced a new president, Derrick Johnson, and its decision to change its tax status as a nonprofit organization. The NAACP would be leaving behind some 501(c)3 status benefits—particularly donors’ ability to claim contributions to the group on income tax returns and easier access to private foundations’ wealth—in order to attain greater space for political activity as a 501(c)4. Indeed, the NAACP’s new tax status would provide it with greater room to participate in political life, in ways that are more highly regulated or prohibited by a 501(c)3 status: from making partisan comments as an organization to attempting to influence legislation.
Reporting on the announcement, NPR relayed that NAACP President Johnson “said the decision was in line with one of his organization’s top priorities: promoting candidates and issues in local and Congressional elections ahead of next year’s midterms. He added that the change could also allow the NAACP to speak to the needs [of] African-Americans across the country in an increasingly political climate.” By being more vocal about legislation and holders of public office, the organization also seemed to hope that it would prove its relevance to younger generations of Black Lives Matter activists, some of whom had never even heard of the NAACP.
A year later, it is still too soon to know whether the NAACP has met its goals for greater public relevance by transforming into a 501(c)4. What can be said, though, is that the NAACP clearly and publicly expects that its transformed tax status is both a novel and critical key toward a better future for the organization.
And yet, what is missing from the NAACP’s public pronouncements is recognition that the organization had long been a 501(c)4. And by analyzing this history, it becomes clear that the NAACP should moderate expectations on what its recent tax status change means for its freedom as an organization. This is because the NAACP’s prior identity as a 501(c)4 restrained rather than liberated the organization in many important ways. Specifically, the NAACP’s 501(c)4 status became a financial liability in the 1960s and 1970s precisely at the moment of time when the organization was—as the NAACP again hopes to become today—absolutely effective as a political force toward racial justice in the United States.
And so, rather than an original avenue toward greater freedom, I argue that the NAACP’s relatively recent decision to rescind its 501(c)3 status and revert to a 501(c)4 should be understood as yet another move by an organization long deciding between accepting political silence and financial viability as a 501(c)3 or gaining political voice and financial vulnerability as a 501(c)4.
Founded in New York City in 1909, the National Association for the Advancement of Colored People (NAACP) preceded the passage of the Sixteenth Amendment to the U.S. Constitution. Ratified by Congress in 1913, the amendment instituted the federal income tax in the United States. That said and reflecting a long-standing distinction between for-profit and nonprofit endeavors (and increasingly too, distinct corporate forms for nonprofit and for-profit objectives), the U.S. Congress exempted charitable organizations from federal taxation. Part of the Tariff Act of 1913, legal scholar Laura Chisolm noted in a 1988 law review article, “Exempt Organization Advocacy,” that Congress also exempted “‘civic and commercial’ organizations which could not qualify as charitable, educational, or religious, but whose activities somehow benefited the general public.”
In 1925, the Internal Revenue Service recognized the NAACP as exempt from federal income taxation under this precursor to current section 501(c)4; a tax status that the IRS reconfirmed for the NAACP in the 1960s. In fact, the NAACP did not transform into a 501(c)3 organization until 1981. This is to say that for the greater part of the NAACP’s existence—except for the years between 1981 and 2017—the IRS treated the organization as a 501(c)4 and it was officially so after the passage of the Revenue Act of 1954 which introduced the section 501(c) category for exempt organizations.
With this 1954 Act, the IRS more clearly began to associate (c)4s with politically-active charitable organizations. In this spirit, the IRS would expect that the NAACP—a 501(c)4—would engage to some degree in political activity related to its exempt purposes. This was an expectation that the IRS did not extend to the NAACP’s sister-organization, the NAACP Legal Defense and Educational Fund (LDF), which was a 501(c)3 “organized and operated exclusively” for religious, charitable, or educational purposes.
For the NAACP, one of these moments of engaged political activity were the Mississippi Boycotts of the 1960s. In March of 1966—some 12 years after the NAACP LDF’s landmark win in the U.S. Supreme Court, Brown v. Board of Education (1954)—black citizens in Port Gibson, Mississippi sent two official letters to their mayor and board of aldermen, the local county board of supervisors, and the local board of education and sheriff. In both letters, the signatories shared their expectations for black citizens’ equal rights in the area. Among the demands, they called for all public schools in the area to be desegregated by the beginning of the school year; for greater numbers of blacks to be included in the police force, juries, board and commissions, as well as employees in stores; and, for whites’ denigrating treatment of blacks to cease in public spaces such as sidewalks, stores, bus stations, and courtrooms.
When the addressees failed to respond to the two missives, black citizens gathering at an NAACP meeting subsequently initiated a boycott of white businesses in their community. The boycott was so successful—in the words of the Mississippi Supreme Court, “a definite success”—that in 1969, white merchants filed suit against several groups and individuals, though most prominently the NAACP. The white business owners claimed actual damages of over $3.5 million dollars between 1966 and 1972. In 1980, the Mississippi Supreme Court in NAACP v. Claiborne Hardware Co. confirmed lower courts’ decisions in favor of the white merchants, singling out the NAACP for principal responsibility.
In 1982, the U.S. Supreme Court would overrule the Mississippi courts’ decisions, emphasizing the peaceful and nonviolent nature of the boycotts, their protection under the First Amendment, and subsequently reasoning that the state could not legitimately impose civil damages for the boycotts.
However, before the Supreme Court’s 1982 ruling, and while NAACP v. Claiborne Hardware Co. traveled through courts in Mississippi in the 1970s, the NAACP confronted the very real possibility of having to pay an overwhelming bond simply in order to appeal the case. Looking to raise $1.5 million within the span of three weeks in September of 1976, NAACP Executive Secretary Roy Wilkins organized a “crisis meeting” in New York City. As Wilkins explained to a group of fifty individuals including private foundation leaders, the Mississippi Chancery Court had ruled in favor of white merchants to the amount of $1.25 million. The Ford Foundation subsequently noted in its own memorandum how this ruling led to a bond of $1.5 million: “Under Mississippi law, a bond representing 125% of the judgment must be posted before the decision can be appealed.”
During the next days, the Ford Foundation did not question whether it would help the NAACP, but simply how. On this point, the Foundation sought legal counsel on three questions, with the first one being: “What is the legal rationale to justify private foundations providing financial assistance to the NAACP, a non-charitable Section 501(c)4 organization?”
This was a relevant question for Ford (as well as the Rockefeller Foundation which joined the effort) because the two organizations were and remain private foundations that, alongside public charities, are tax-exempt organizations under section 501(c)3 of the Internal Revenue Code. And as 501(c)3 private foundations, the Ford and Rockefeller organizations are limited in their ability to provide grant support to non-501(c)3 organizations such as 501(c)4s. Explaining this Tax Code limitation, Chisolm furthermore noted in “Exempt Organization Advocacy” that: “Foundations may not direct support specifically to lobbying activity without incurring a heavy excise tax liability and cannot provide general operating support for a section 501(c)4 organization which lobbies, since grants made to noncharitable organizations must be limited to use for charitable purposes.”
Indeed, later that month in September 1976, the IRS issued a negative ruling to the Ford and Rockefeller Foundations’ request that they be allowed to commit toward the $1.5 million bond needed by the NAACP. Presenting the ruling to the board of trustees, Ford Foundation general counsel Howard Dressner explained that the organizations had “argued that the charitable purpose of [their] proposed action was, in accordance with pertinent Treasury Regulations, to advance civil rights and to eliminate discrimination… Our arguments notwithstanding, the Service ruled the other way.”
With the Internal Revenue Service tying the hands of private foundations, the NAACP was left alone to achieve the impossible task of fundraising within a few days the $1.5 million bond needed to appeal the Mississippi boycott decision. A month later, a most welcome surprise judgment saved the organization at the eleventh hour. In October, a preliminary injunction granted by U.S. District Court Judge Orma R. Smith in Oxford, Mississippi reduced the bond to $100,000 and enjoined the white merchants from seizing NAACP property while the case was under appeal. Since the NAACP had been able to fundraise approximately $800,000 in cash from individual supporters, it was able to meet the decreased bond.
At the time, the NAACP’s leadership likely experienced a combination of emotions: Most immediately, they likely felt gratitude for Judge Smith’s decision, though likely too bewilderment on how to exist as a politically effective and financially viable 501(c)4 well into the future. Because as the NAACP’s leadership likely realized, if the organization once again was blessed enough to become politically significant and effective, it might easily become vulnerable to white backlash in the form of another comparably threatening civil litigation. And as before, the IRS could restrain private foundations’ ability to rescue the NAACP, with the organization seeing itself once again at the brink of bankruptcy.
It seems that the organization kept in mind these lessons from the Mississippi boycott case. Because just three years later, it appealed to the IRS to transform its tax status to a 501(c)3. Particularly after a 1976 tax reform act opened up the opportunity for 501(c)3s to engage in a “sliding scale of permissible [legislative] lobbying” based on nonprofits’ incomes, the NAACP saw an opportunity both to remain engaged in transforming legislation and to gain access to the greater financial benefits of a 501(c)3 status.
In 1981 and without public announcement, the IRS sent a letter to the NAACP ruling in favor of the organization’s request. The NAACP was then exempt as a “501(c)3 (not section 501(c)4).” Celebrating this moment, The New York Times foresaw the financial benefits for the organization: “Although officials and other fund-raisers said it was too early to determine the extent of the impact, the change could conceivably attract many contributors who heretofore would not give to the association because their gifts were not tax-deductible.”
As The New York Times acknowledged, the NAACP’s 501(c)3 status came with greater potential financial benefits for the organization; but as the organization itself very well knew, it also came with greater limitations on its political activities: As provided by the 1976 tax reform act, a 501(c)3 could dedicate a nominal amount of its expenditures toward influencing legislation. But this did not mean that these organizations were then free to engage in all forms of political activity. For example, as a 501(c)3, the NAACP was absolutely prohibited from engaging in political campaign activity. And it was precisely for such behavior that the organization came under investigation by the IRS in 2004, after then-NAACP chairman Julian Bond delivered a speech critical of then-U.S. President George W. Bush and U.S. Vice President Dick Cheney.
After a two-year investigation, the Service concluded in 2006 that the NAACP had not violated its tax-exempt status with Bond’s speech. But the organization’s days as a 501(c)3 were coming to an end. Because relatively recently in 2017, the NAACP decided to transform into a 501(c)4. Considering the organization’s experience as a 501(c)3 under the Bush Administration and that it once again is confronting a White House which it will most likely criticize in the process of advocating racial justice in the U.S., it seems reasonable that the NAACP would make such a choice.
And yet, while the NAACP today maintains hopes that its transformed tax status will come with greater freedoms to speak and act politically in the United States, this history on the NAACP’s tax identities over the years suggests that its (re)new(ed) status as a 501(c)4 is far from being a silver bullet toward greater political freedom for the organization.
A 501(c)4 tax identity indeed can encourage the organization to feel comfortable as a forceful and visible political actor on behalf of black Americans, as it did when it spearheaded the impactful series of boycotts in Mississippi. And yet, as this history also shows, it could make the organization ever more financially vulnerable, threatening its very existence as a political actor. For starters, white backlash to black advancement—to black protest—is not simply part of the U.S. past, but continues to the present. This backlash, as historian Carol Anderson notes in her award-winning book White Rage: The Unspoken Truth of Our Racial Divide (2016), manifests itself both in visibly violent forms as well as more subtle ways in legal and political institutions.
Taking into consideration Americans’ longstanding and continued commitment to white supremacy and black subordination and the NAACP’s own history as a 501(c)4, it would be fair to say that white pushback likely will meet the organization’s increasingly visible, active, and successful presence in public. And as Anderson’s work suggests, such a public reaction can manifest itself in litigation and unfavorable judgements in courts. Confronted with such financial strains, the organization’s tax identity can become a liability. Because now, as in the 1970s, restrictions in funding from 501(c)3s to (c)4s are part of the Internal Revenue Code. And thus, then as now, the IRS easily can conclude that the NAACP’s identity as a 501(c)4 is reason enough to limit private foundations’ ability to fund the nonprofit organization, and thus, to save it financially from the (white) public to which it has exposed itself as an increasingly visible political actor.
Without the support of private foundations, the NAACP will need to work especially hard on its fundraising efforts in order to make its financial future bright as a 501(c)4. Thankfully for the organization, today’s social media outlets should make it easier for it to publicize fundraising campaigns and to secure necessary funds from the public. And individual donors of the NAACP, much as in the 1970s, might look beyond the fact that their contributions to a 501(c)4 are not tax-deductible and still come to the organization’s rescue. However, then as now, the NAACP will have one less financial resource as its disposal during a financial emergency: private foundations’ wealth.
One day, Americans hopefully will revise their tax policies so that nonprofits such as the NAACP will not need to oscillate between 501(c)3 and (c)4 status simply in their efforts to nurture financial stability and hone a political voice. But to arrive at that reality, Americans will need to resolve central and longstanding questions at the heart of the philanthropic and nonprofit sectors—whether charitable and political goals are indeed compatible in a democracy and whether they are willing to provide the same expansive political space for all philanthropies and nonprofits—and they will need to conclude in the affirmative on both questions. In the meantime, with this national debate far from over, it would be prudent for the NAACP to learn from its own history as a 501(c)4 and plan for its renewed financial vulnerability.
Maribel Morey is the co-editor of HistPhil and an Assistant Professor of History at Clemson University. Photo credit: “The Port Gibson Boycott Mural in Port Gibson, Mississippi” (Library of Congress).
Ford Foundation Papers, Rockefeller Archive Center, Tarrytown, New York (archival material on file with author).
Warren Brown, “NAACP Wins Round in Mississippi Case,” The Washington Post (Oct. 21, 1976).
Laura B. Chisolm, “Exempt Organization Advocacy: Matching the Rules to the Rationales,” Indiana Law Journal (Spring 1988).
Daniel Fears, “IRS Ends 2-Year Probe of NAACP’s Tax Status,” Washington Post (Sept. 1, 2006).
“Federal Judge Reduces NAACP Port Gibson, Miss. Appeal Bond,” Jet (Nov. 4, 1976).
Jacob Gershman, “The History of the 501(c)(4) Exemption,” The Wall Street Journal (Nov. 26, 2013).
Jack Greenberg, Crusaders in the Courts: How a Dedicated Band of Lawyers Fought for the Civil Rights Revolution (New York: BasicBooks, 1994).
Peter Dobkin Hall, “A Historical Overview of Philanthropy, Voluntary Associations, and Nonprofit Organizations in the United States, 1600-2000,” in The Nonprofit Sector: A Research Handbook (second edition) (eds. Walter W. Powell and Richard Steinberg) (New Haven: Yale University Press, 2006).
Michael Janofsky, “Citing Speech, I.R.S. Decides to Review N.A.A.C.P.,” New York Times (Oct. 29, 2004).
Richard Kluger, Simple Justice: The History of Brown v. Board of Education and Black America’s Struggle for Equality (New York: Vintage Books, 1975, 2004).
“The Macaroni Monopoly: The Developing Concept of Unrelated Business Income of Exempt Organizations,” Harvard Law Review 81(6) (April 1968).
Emanuel Perlmutter, “N.A.A.C.P. Bond in Boycott Case is Cut to $110,000 to Allow Appeal,” The New York Times (Oct. 21, 1976). (FYI: This New York Times headline, with mention of $110,000 seems off since Jet Magazine and The Washington Post both list $100,000 as the correct number).
Sheila Rule, “National N.A.A.C.P. Wins Tax Ruling on Donations,” New York Times (June 21, 1981).
Benjamin Soskis, “Happy Tax Day,” New Yorker (April 14, 2014).
Stephanie Strom, “Nonprofit Groups Question Motives for Federal Actions,” New York Times (March 21, 2005).
Patricia Sullivan, Lift Every Voice: The NAACP and the Making of the Civil Rights Movement (New York: The New Press, 2009).
Gilbert Ware, “The NAACP-Inc. Fund Alliance: Its Strategy, Power, and Destruction,” The Journal of Negro Education 63(3) (Summer 1994).