Dark Money Groups to Get Clarity From the IRS; Outrage Ensues

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The Internal Revenue Service building at the Federal Triangle complex in Washington, Saturday, March 2, 2013.  (AP Photo/Manuel Balce Ceneta)

The Internal Revenue Service building at the Federal Triangle complex in Washington, Saturday, March 2, 2013. (AP Photo/Manuel Balce Ceneta)

The IRS is considering new rules that would clarify what political activities 501(c)4 “social welfare” organization can participate in. Unlike traditional political action committees (PACs), c4 organizations aren’t required to disclose their donors. As a result, these organizations have become increasingly popular among wealthy donors who want to keep their influence out of public view. According to the Center for Responsive Politics, these groups spent about $300 million during the 2012 election, about 85 percent of it on the conservative side.

Social welfare organizations are allowed to influence elections to a degree, but can’t make electoral politics their “primary focus.” The problem is that standard hasn’t been well defined.

That lack of clarity was at the heart of the IRS’s Cincinnati field office using “inappropriate criteria” to examine these groups’ applications for tax-exempt status. In its report on the “scandal,” the IRS Inspector General’s office wrote, “We also believe that Determinations Unit specialists lacked knowledge of what activities are allowed by” the tax code.

Richard Rubin reported this week for Bloomberg that the rules under consideration “would give some of the biggest players from the 2012 campaign, including Crossroads Grassroots Policy Strategies, greater certainty to run ads in ways that don’t risk their tax-exempt status going forward.”

They could run issue-based ads that mention candidates’ names months before an election, and then switch to a direct pitch closer to the vote.

“If I were sitting in the chair of a conservative political operative, I would be rubbing my palms together hoping that these (c)(4) rules would be adopted,” said Greg Colvin, an attorney at Adler & Colvin in San Francisco who specializes in the political activity of nonprofit groups.

But while deep-pocketed dark money groups on the right should be happy with the proposed rules, that isn’t the case. Rubin writes that the “prospect of benefits for big-money political nonprofit groups — which are mostly Republican-leaning — runs counter to the message from Republican lawmakers, who call the IRS rules a political maneuver by the Obama administration to restrict groups favoring smaller government.”

That’s because despite the fact that the Inspector General found that the extra scrutiny given to 501(c)4s was a result of incompetence rather than politics — and that there was no outside pressure from Washington on the field agents — it’s become an article of faith among conservatives that the IRS tried to suppress groups opposed to Obama’s re-election. Wall Street Journal columnist James Taranto went so far as to suggest that it swung the election in Obama’s favor — he called Obama “President Asterisk.” And that narrative survived even after the AP obtained internal IRS documents showing that “terms including ‘Israel,’ ‘Progressive’ and ‘Occupy’ were used by agency workers to help pick groups for closer examination” — in other words, that conservative groups weren’t the only ones targeted for extra scrutiny.

Nonetheless, reports Rubin, “the IRS has received more than 38,000 comments on the rules, most in opposition. Some commenters have accused the tax agency of shredding the Constitution and others compared the limits to speech restrictions in China.” (Update: There are now over 64,500 comments.)

You can add your own voice to the mix with a comment here. In December, Sheila Krumholtz, director of the Center for Responsive Politics, told BillMoyers.com, “At a minimum, their stated goal is to achieve clearer guidelines about political activity by nonprofits. That is plainly necessary.”

While that’s true, this may be a case of fighting the last war. As Justices O’Connor and Stevens wrote  in a landmark campaign finance case, “money, like water, will always find an outlet.” And it’s possible that the next outlet will be 501(c)6 organizations — ostensibly trade groups like the Chamber of Commerce. Last September, almost a year after the 2012 election had drawn to a close, Politico revealed that a massive and previously unknown pile of dark money had been spent by the Koch brothers-linked Freedom Partners, which had been organized as a c6.

Joshua Holland is a senior digital producer for BillMoyers.com. He’s the author of The Fifteen Biggest Lies About the Economy (and Everything Else the Right Doesn’t Want You to Know about Taxes, Jobs and Corporate America) (Wiley: 2010), and host of Politics and Reality Radio. Follow him on Twitter or drop him an email at hollandj [at] moyersmedia [dot] com.
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  • Anonymous

    I read through the proposed rules that have been presented for comment, and it is no wonder that people are confused. They are written in such a way as to be confusing. They need to go back to school to learn expository writing.

    The wording of the law in question is that 501(c)(4) organizations must be “operated exclusively for the promotion of social welfare.” The standard that had been used to determine if this was the case said that such organizations must operate “primarily” for the promotion of social welfare. This standard leaves a lot of wiggle room, not to mention that it is totally inconsistent with the actual wording of the law. In this proposal they appear to be equivocating as to whether the “primarily” standard is going to be changed to the “exclusively” standard, which it must be in order to be compliant with the law. To change to exclusively is critical for these groups to be held accountable based on law.

    They also attempt to clarify what is “candidate-related” activity. From their description it is not clear whether an add claiming to advocate for an issue, but which essentially blames sitting representatives for those issues would be precluded. For example, these groups ran ads about things like Obamacare purporting to tout some social ill and then end by saying things like “tell the president to stop this attack on the American people.” Such an ad may not be construed to be “candidate-related” according to the new standard, but is clearly intended to be political in nature. These are the main types of things that must be stopped by the new rules. It must be made clear to the people writing these rules that there can be no ambiguity in that if these organizations run ads specifically referencing any candidate or public official that it would be immediate cause to lose their tax exempt status.

  • nnyl

    There used to be a movement to write government documents in “plain English,” so that anyone could understand. Seems that idea was dropped.

  • JJ042804

    Suppressed is probably more like it.

  • JJ042804

    It’s time to stop the Koch Brothers from undermining Democracy and send them to Prison, where they belong.

  • GregoryC

    They’re only the tip of the iceberg. I think there are many people running the Military-Industrial-Intelligence-Corporate-Congressional Complex whose names we’ve never seen in the press.

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  • Anonymous

    Personally if they are non-profits no political advertising for parties, issues, etc is banned. Those activities are banned absolutely they are not social welfare. Voter registration non partisan voter pphlet probably okay as no party – political direction work at all ever.

  • Anonymous

    Some should just go get a writ of mandamus. No political means no political. Nada, nothing. If needed, even the League of Women Voters non partisan pamphlets & meet the candidates must transition to taxed status if needed. The proliferation of faux tax exempt organizations. And that includes all tax exempt operations.