H.B. NO.














relating to charitable organizations.





     SECTION 1.  The legislature finds that dark money is defined as funds raised for the purpose of influencing elections by nonprofit organizations that are not required to disclose the identities of their donors.  Dark money can come from organizations, like social welfare organizations granted tax exempt status under 501(c)(4) of the Internal Revenue Code that are not required to disclose their donors.  By doing so, there is a lack of transparency that fails to inform the public on who is trying to influence an election.  Although dark money can come in through different tax exempt organizations, this Act attempts to address one area of dark money through the 501(c)(4) organizations.

     The legislature further finds that to be tax exempt as a social welfare organization described in section 501(c)(4) of the Internal Revenue Code, an organization must not be organized for profit and must be operated exclusively to promote social welfare.  According to the Internal Revenue Service, to be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community, such as by bringing about civic betterment and social improvements.  The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.

     However, the Internal Revenue Service states that a social welfare organization may engage in some political activities, so long as that is not the organization's primary activity.  This means that an organization can use 49.99 per cent of its funds to engage in political activity and still maintain its tax exempt status, all while hiding its donors' involvement in political campaigning.  Furthermore, the Internal Revenue Service is not currently authorized to use any funds to investigate these activities in order to ensure compliance.  This allows 501(c)(4) organizations to engage in and spend unregulated amounts of money on political activity without any consequences or oversight, conceivably well above the political activity percentage threshold allowed.

     While the State does not have the authority to revoke federal tax exempt status by the Internal Revenue Service, the State should be given oversight into 501(c)(4) organizations that operate in Hawaii to ensure that the majority of each 501(c)(4) organization's operations and spending are focused on social welfare and not political activities.  The State may then submit its findings to the Internal Revenue Service and the public.

     The purpose of this Act is to promote transparency by tax exempt social welfare organizations by subjecting 501(c)(4) organizations to the same requirements of other charitable organizations regulated by the department of the attorney general.

     SECTION 2.  Section 467B-1, Hawaii Revised Statutes, is amended by amending the definition of "charitable organization" to read as follows:

     ""Charitable organization" means:

     (1)  Any person determined by the Internal Revenue Service to be a tax exempt organization pursuant to [section] sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code of 1986, as amended; or

     (2)  Any person who is or holds itself out to be established for any benevolent, educational, philanthropic, humane, scientific, patriotic, social welfare or advocacy, public health, environmental conservation, civic, or other eleemosynary purpose, or any person who in any manner employs a charitable appeal as the basis of any solicitation or an appeal that has a tendency to suggest there is a charitable purpose to the solicitation.  The term includes each county or other local division of the charitable organization within this State, if the division has the authority and discretion to disburse funds or property otherwise than by transfer to any parent organization.  The term does not include any federal, state, or county agency, or political parties and candidates for federal, state, or county office required to file financial information with federal or state election authorities or commissions."

     SECTION 3.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 4.  This Act shall take effect upon its approval.








Report Title:

Charitable Organizations; Solicitation of Funds from the Public; Social Welfare Organizations; Tax Exempt Nonprofit Organizations



Clarifies that social welfare organizations granted tax exempt status under 501(c)(4) of the Internal Revenue Code are subject to the same requirements of other charitable organizations that solicit funds from the public.




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