A Surprise Court Ruling Might Be Bad News for Dark-Money Groups

At first glance, the case has nothing to do with politics. The legal dispute centers on Memorial Hermann Accountable Care Organization, or MHACO, a Texas-based nonprofit founded in 2012. “Accountable care organizations” like MHACO are a product of the Affordable Care Act’s changes to certain Medicare programs. They are formed by health care providers and are designed to reduce costs by coordinating care for certain groups of patients. In exchange for reducing costs for Medicare and commercial insurers, ACOs receive a share of the savings.

Congress has enacted a variety of tax-exempt statuses into the Internal Revenue Code. Among them is 501(c)(4) status, which is reserved for an organization that is “not organized for profit but operated exclusively for the promotion of social welfare.” Generally speaking, the Internal Revenue Service defines a social welfare organization as one that works toward benefiting society as a whole, instead of a business or an entity that benefits only a certain group of people, like shareholders.

Charities and civic groups are perhaps the archetypal example of a 501(c)(4) group. But the IRS’s prevailing standard is that such groups can also spend funds on political and electioneering activities so long as that is not their “primary purpose”—in other words, so long as a bare majority of their expenditures go towards something that would qualify for the exemption. As a result, in recent years, 501(c)(4) groups have become the preferred vehicle for wealthy Americans to shape political discourse, elections, and more.