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IRS Should Bar Dark Money Groups From Funding Political Ads, Lawsuit Says

A former Illinois congressional candidate joins forces with Citizens for Responsibility and Ethics in Washington to challenge IRS oversight of social welfare nonprofits.

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David Gill answers a question during a debate with Rodney Davis for the 13th Congressional District in Normal, Ill., in October 2012. Gill, who lost that election, joined forces with Citizens for Responsibility and Ethics in Washington to challenge IRS oversight of social welfare nonprofits. (Carlos T. Miranda, The Pantagraph/AP Photo)

A former Illinois congressional candidate and a government watchdog organization have teamed up to sue the Internal Revenue Service, claiming the agency should bar dark money groups from funding political ads.

The lawsuit, filed on Tuesday by David Gill, his campaign committee and Citizens for Responsibility and Ethics in Washington, or CREW, is the first to challenge how the IRS regulates political spending by social welfare nonprofits, campaign-finance experts say.

As ProPublica has reported, these nonprofits, often called dark money groups because they don't have to identify their donors, have increasingly become major players in politics since the Supreme Court's Citizens United ruling in early 2010.

Gill, an emergency room doctor who has advocated for health-care reform, including a single-payer plan, was the Democratic candidate for the 13th district in Illinois last year. After a tight race, Gill ended up losing to the Republican candidate by 1,002 votes — a loss the lawsuit blames "largely, if not exclusively," on spending by the American Action Network, a social welfare nonprofit.

It's impossible to say for certain why Gill lost. He had lost three earlier races for a congressional seat.

But the American Action Network, launched in 2010 by former Minnesota Republican Sen. Norm Coleman, played a role. It reported spending almost $1.5 million on three TV commercials and Internet ads opposing Gill, mainly in the weeks right before the election. That was more than any other outside group spent on the race, and more than Gill's principal campaign committee spent on the entire election, according to Federal Election Commission records.

Though Gill had never held public office, the American Action Network ads described him as "a mad scientist" who supported sending jobs to China, channeling money to the failed green-energy company Solyndra, and making a mess out of health care and Medicare.

Gill said he ran into people every day who said they weren't voting for him because of claims he would destroy Medicare.

"I think that certainly the money put forward — they saw that they could have an impact here," Gill said of the American Action Network. "They wanted to put their money where it could make a difference between victory and defeat."

Dan Conston, spokesman for the American Action Network, described CREW as a "left-wing front group" in an email. He said Gill was a "failed candidate with an extreme ideology, looking to blame anyone but himself for losing his fourth-straight congressional election."

Nonprofits like the American Action Network have poured hundreds of millions of dollars into political ads in the last two election cycles. Like super PACs, these groups can accept unlimited donations. But super PACs must identify their donors, allowing voters to see who is behind their messages.

The Gill lawsuit, filed in U.S. District Court in the District of Columbia, alleges the IRS failed to properly regulate the American Action Network, citing seemingly contradictory definitions the agency has applied to such groups for years.

The statute governing social welfare nonprofits says they should be operated "exclusively" for promoting social welfare. But the IRS paved the way for political spending by these groups by interpreting "exclusively" as meaning the groups had to only be "primarily" engaged in promoting the public good. Some groups have taken this to mean they can spend up to 49 percent of their money on election ads.

The lawsuit claims the IRS' interpretation of the law "is arbitrary, capricious, and contrary to law," and asks for an injunction prohibiting the agency from using it.

Melanie Sloan, CREW's executive director, blamed the IRS for sitting on its hands as social welfare nonprofits have been formed specifically to run negative ads paid for by anonymous donors.

"Now the IRS can explain its deplorable inaction in federal court," she said.

The IRS didn't respond to requests for comment Tuesday. It typically doesn't comment on issues related to individual taxpayers.

The American Action Network has been one of the more controversial dark money groups active in politics. Conston said the American Action Network's primary focus was on non-electoral activities and called the dispute over the group's election spending a "tired long-since settled argument."

In filings to the IRS, the group said it spent $25.7 million in its 2010 tax year. In separate filings to the Federal Election Commission, it reported spending about $19.4 million over the same period on political ads, or about 76 percent of the total expenditures reported to the IRS.

If the group stays on its current schedule, American Action Network won't file its taxes covering the 2012 election until May 2014.

It’s about time!

Wish him well.

Good luck, but a suit like that would seem to run up pretty quickly and squarely against Citizens United.  To the extent that AAN is a corporation and corporations are considered persons for tax purposes under the law, blocking or even monitoring their spending would be a violation of their Freedom of Expression.

I don’t like it, but I don’t see any angle that isn’t just asking a lower court to overturn the existing Supreme Court decision.  I don’t imagine it’ll end well, on that basis.

John, AAN is a nonprofit social welfare organization. That is a fundamentally different creature than a non regulated corporation. I don’t believe they have the right to funnel money given to super PACs which can claim no exemption, so they are on very shaky ground. Probably walking on air.
There’s no question that a lot of these inconsistencies resulting from the effective political deadlock of the FEC need to be resolved this year.

Hm.  Could be, Daniel.  I’m not as familiar with the business end of things, but my understanding has been that every non-human legal entity is a corporation.  Those that we don’t think of as corporations are corporations that filed for some special tax status.

Does their tax status make them less of a legal “person”?  I wouldn’t think so, since the non-profit still exists to shelter the administrators from tax ramifications.  And if a non-profit is still a person, it’s going to be an uphill battle.

Again, this is very much not my field, but it might be more feasible to attack from the opposite angle:  Since they’re donating to political campaigns, they are not social welfare organizations, and therefore should not be tax exempt.

But that appears to be a very different aim than what the article seems to be reporting.

Even smarter would be the argument that, irrespective of whether corporations are people, they’re certainly not citizens.  And since we explicitly ban non-citizens from contributing to political campaigns, so too can/should we ban corporations.

This article is part of an ongoing investigation:
Buying Your Vote

Buying Your Vote: Dark Money and Big Data

ProPublica is following the money and exploring campaign issues in the 2012 election you won't read about elsewhere.

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