New Rules

The Treasury Department’s New Crackdown on Dark Money Groups

Anonymous donors, disclosure reports filed late, activities shrouded in secrecy—and it’s all legal. But now the Treasury Department is moving to shed some light on political nonprofits.

The Daily Beast

Six months after news broke that IRS staffers had spent more than two years reviewing Tea Party groups’ efforts to register with the government as tax-exempt organizations, the Treasury Department announced Tuesday that it is planning to change the rules governing nonprofits’ political activities altogether.

The department said it plans to create a new definition of “candidate-related political activity” to clarify which activities do and do not count toward a group’s work on social welfare, the key measurement for determining an organization’s tax-exempt status. Treasury also will open the process up for the public to comment on how much political activity a group can be engaged in and still be considered a social welfare organization, and thus tax-exempt.

Included in the department’s new definition of what would not count as social welfare work would be things like voter registration drives, communications, and events that identify a specific candidate and occur within 30 to 60 days of an election; and grants to outside groups that participate in campaigns and elections.

Treasury’s announcement came after blistering criticism from Republicans, who complained that the IRS has been singling out conservative and Tea Party groups for unreasonable scrutiny, as well as Democrats, who wondered aloud why Tea Party groups or any other political groups should be deemed “social welfare” organizations by the IRS, and thus freed from tax liabilities, in the first place.

The move also comes after years of complaints, as well as more recent lawsuits, from watchdog groups that said federal law clearly says nonprofits should be involved “exclusively” in social welfare activities, while the IRS has interpreted the law to mean groups should be involved “primarily,” or 51 percent, in social welfare and can spend the rest of their time on just about anything else, including politics.

Mark Mazur, Treasury’s assistant secretary for tax policy, called the plan “a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations.”

It is that lack of clear-cut definitions for rules governing 501(c)(4) organizations that watchdog groups blame for creating a dark corner of American elections, where donors remain anonymous, disclosure reports often come more than a year after the fact, and the activities of quasi-political groups can legally remain shrouded in secrecy as long as the groups in question can show 51 percent of their activities are not directly related to elections.

From Crossroads GPS to the Tea Party Patriots to the Koch brothers-aligned Americans for Prosperity and the liberal Priorities USA, the number of nonprofit groups involved in politics has exploded in recent years. The expansion came as laws such as McCain-Feingold have restricted the amount of money that could go to political parties, while court decisions such as Citizens United v. FEC made it possible for corporations and unions to give unlimited donations to nonprofits involved in politics, which would keep their donations private, or dark.

The changing legal landscape also altered the political landscape. While nonprofit organizations spent just $5.2 million on federal elections in 2006, that number rocketed to more than $300 million by 2012.

Robert Maguire, the political nonprofits investigator at the Center for Responsive Politics, says 501(c)(4) organizations have become a “growing blind spot” in modern-day campaigns.

“These groups are spending more than $300 million on elections. It’s not as though they’re a small part of the process of how our Congress and president are elected,” he said. But he cautioned that the new rules the Treasury Department is considering will only be as effective as the IRS’s ability to implement them.

“It would certainly be better than the current system, where nobody has any idea what political spending actually is,” Maguire said. “But it’s a start, not a conclusion.”

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By all accounts, the current system is a patchwork of heavily regulated, publicly disclosed donations to candidates, political parties, and super PACs overseen by the Federal Election Commission, and loosely regulated, often non-disclosed donations to nonprofits overseen by the IRS. While the FEC posts disclosures of political donations to campaigns and PACs on its website nearly every day, the IRS uses nonprofits’ tax returns, which can legally be filed more than a year after federal elections, to disclose nonprofits’ political activities.

Even then, watchdog groups say getting a nonprofit’s IRS form, called a “990,” can require a trip to the nonprofit itself, which may turn out to be a post office box; a faxed request to the IRS, for which a response takes 30 to 60 days; or a monthly bulk disclosure from the IRS, which includes up to 15,000 groups’ 990 forms and costs more than $2,000 a year for delivery.

Adam Rappaport, senior counsel for Citizens for Responsibility and Ethics in Washington, said nonprofits’ 990 forms are rarely an accurate reflection of their political activity, but they are the only piece of information the public can access. Even then, that access is difficult.

“It is certainly inadequate to tell you what they’re doing, what they’re spending their money on,” he said. “It’s not infrequent that we look at their 990s and then look at what they’re doing, and the two are not the same. That being said, what we get from them is certainly better than nothing.”