IRS Revokes Sierra Club’s (c)(3) Status, in 1966

Earlier this month, there were rampant rumors that President Donald Trump was going to sign an executive order (EO) revoking the status of environmental organizations as charities under § 501(c)(3) of the Internal Revenue Code, perhaps among other such groups, which would mean financial contributors to them couldn’t deduct the donations from their own taxes. Reportedly, there was much consternation on the part of those groups, with emergency Zoom calls and doomsday planning, on the legal and public-relations fronts, likely among many others.

Since no president can really just revoke (c)(3) status by EO fiat—as the legal planners undoubtedly were saying, and planning to say in filings—a more-realistic rumor would probably have been about some order instructing the Internal Revenue Service (IRS) to, or suggesting that it, investigate environmental (c)(3) groups for engaging in activities outside the scope of charitable activity that the section is meant to incentivize.

The stories were that Trump would take the action on Earth Day, which would have been a dramatic “in-your-face” move consistent with his political style. It all seemed plausible, actually. On Earth Day—April 22—however, the White House told reporters that there were no orders being drafted or considered at this time.

Even earlier than Earth Day’s very creation in 1970, however, the IRS did take what would certainly now be considered aggressive action against an environmental (c)(3). It seems worth revisiting.

In 1966, the IRS suspended and then revoked the storied Sierra Club’s (c)(3) status after the Club placed high-profile, full-page advertisements in The New York Times opposing H.R. 4671, which would have allowed the Bureau of Reclamation to build dams that would stop the Colorado River and flood parts of the Grand Canyon. Because of the ways in which they described and framed the issue, the ads were considered farfetched by former Club president Richard Leonard and gauche by many historians, Michael P. Cohen notes in his 1988 book The History of the Sierra Club, 1892-1970, published by Sierra Club Books. In news stories covering the ads and their aftermath, the Times itself said the ads “militantly denounced” the dams’ construction.

Labeled the “Grand Canyon Battle Ads” by a top Sierra Club official, the initial ones contained coupons to clip and mail to the President, the Interior Secretary, the Chairman of the House Interior and Insular Affairs Committee, and/or the reader’s (and presumed clipper’s) own Representatives and Senators.

The day after the first ad appeared, the IRS hand-delivered a letter to the Club indicating “that the IRS could no longer guarantee the tax deductibility of contributions” to it, according to Cohen. “It was delivered at 4 P.M. by a Federal marshal, for dramatic effect, I suppose,” the Club’s executive secretary David Brower told The New York Times.

After an investigation of the Club’s activities and finances, the IRS notified the Club in December 1966 that it was engaged in substantial lobbying outside the scope of that which was meant to be incentivized by the (c)(3) section from which it was benefiting.

Cohen characterizes the IRS action as “a backfire of colossal proportions” that “turned a conservation issue into a civil rights issue and, at a time when the young American public was particularly receptive, took the ferment of Berkeley to the national stage.

“Nobody in the Club was surprised by a loss of tax status,” according to Cohen. “But many were surprised by the positive benefits … If the action of the IRS cut off large gifts and bequests, in compensation there was a flood of smaller contributions to the Club,” and its membership increased.

The Sierra Club transitioned to a social-welfare nonprofit under § 501(c)(4) of the Code in 1968. Section (c)(4) organizations can engage in unlimited lobbying, provided it is not their primary purpose, but contributions to them are not incentivized by tax-deductibility.

Precautionarily, a Sierra Club Foundation had already been established in 1960 as a separate (c)(3) entity to raise deductible contributions for and engage in charitable, non-lobbying activities. “Though the Foundation might now receive large bequests, the Club was going to be dependent in the future on grass-roots financial support,” Cohen writes.

To summarize, then, in this 59-year-old instance: 1.) There’s a nonprofit tax-law provision, the still-existing section (c)(3), that attached and attaches a constitutionally permissible condition on the benefit of a group’s (c)(3) status—which was that it “do” charity and not substantial lobbying, which can be done under other legal guises without the deductibility meant to incentivize the charity. 2.) The IRS observed, some might even say enforced, the principle of this condition in the context of a prominent environmental group. And, 3.) the group alternatively raised and spent its non-charitable and thus non-deductible lobbying funding through another, appropriate, easily available channel suitable for its purpose, (c)(4) status—to its benefit, according to its house history.

The Tax Reform Act of 1976 created a new Internal Revenue Code § 504 to disallow groups that lose their § 501(c)(3) status because of substantial lobbying from then becoming (c)(4) groups afterwards. In 1987, § 504 was amended to also disallow groups that lose their (c)(3) status because of political-campaign activity from just switching to become a (c)(4) group. New entities can be created and seek (c)(4) status at any time, of course—including ones affiliated with (c)(3)s, as is now common.

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This article first appeared in the Giving Review on April 29, 2025.

Source: https://capitalresearch.org/article/irs-revokes-sierra-clubs-c3-status-in-1966/