Chinese Nonprofits in NYC

Yesterday the New York Times reported that China has been using tax-exempt nonprofits in New York City to influence elections. The influence campaigns seem very explicitly to violate the Johnson Amendment. (Our own Lloyd Hitoshi Mayer is quoted in the article saying,”That’s totally out of bounds. That’s a clear violation of the limits that Congress has put on their tax-exempt status.”)

Some of these tax-exempt organizations have apparently endorsed the reelection of mayor Eric Adams, apparently the latest in this long history of the Chinese government using New York-based tax-exempts to try to influence New York elections. 

The journalists reached out to the IRS about why it’s not enforcing the Johnson Amendment here. The IRS declined to comment, but it’s not super surprising. The topline news on the Johnson Amendment is that the IRS doesn’t enforce it against churches, but honestly, it mostly doesn’t enforce it against non-church tax-exempts either.

Interesting, it also reached out to New York’s tax agency; New York’s sales tax exemption is almost identical to 501(c)(3), and provides that for a sales tax-exempt organization cannot “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office.”

When the reporters asked the state why it wasn’t enforcing that law, the agency responded that it didn’t have the resources necessary to look for violations.

For better or worse, this seems to be a major reason why the IRS is the first (and the last) regulator for a lot of charitable organizations–the state agencies that are charged with regulating nonprofits lack the resources to do so.

Samuel D. Brunson