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The IRS Moves to Limit Dark Money – But Enforcement Still a Question

The proposed regulations could dramatically limit how nonprofits spend money. But the proposals aren’t a done deal, and it’s not clear whether groups would comply.

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(Getty Images)

The IRS and Treasury Department announced proposed guidelines clarifying the definition of political activities for social welfare nonprofits Tuesday afternoon, a move that could restrict the spending of the dark money groups that dumped more than $254 million of anonymous money into the 2012 elections. Read the guidelines here.

However, the guidelines, which finally define what constitutes “candidate-related political activity,” aren’t a done deal. They will take some time for public comment and debate, and more time to finalize. (The IRS asks that all comments and requests for a public hearing be submitted by Feb. 27.) Experts also cautioned that the real test of oversight on the political spending by nonprofits will be how these regulations are enforced, something that the IRS has been so far reticent to do.

The proposed regulations “are only as good as the extent of compliance with them, which history would indicate requires a realistic threat of enforcement and significant sanctions on the groups involved and probably the individuals running those groups,” said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance.

Social welfare nonprofits are allowed to spend money on election ads without reporting their donors, as long as they can prove that social welfare – and not politics – is their primary purpose. But the IRS guidelines for political spending have been vague. They state that the agency will apply a “facts and circumstances” test to each ad, meaning that if an ad walks and talks like a political ad, it’s a political ad.

ProPublica and others have written extensively about how many social welfare nonprofits have exploited loopholes in Federal Election Commission and IRS rules since the Supreme Court’s 2010 Citizens United ruling opened the door to unlimited election spending by corporations and nonprofits.   

Some of the groups spend more than political action committees. GOP strategist Karl Rove’s group Crossroads GPS, for example, told the IRS it spent more than $74.5 million on election activities in 2012, more than any other dark money group and all but two super PACs, which are allowed to raise and spend unlimited amounts of money from reported donors.

The proposed regulations could dramatically change how the nonprofits spend money. The proposal defines political activity as including any expenditures reported to the FEC and any grants to other tax-exempt organizations that do candidate-related political activity. (We wrote yesterday about one such grant from Rove’s group.) Political activity would also include voter-registration drives and “get out the vote” drives — even for nonpartisan groups. It would also include holding events featuring candidates within two months of a general election.

“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Mark Mazur, Treasury’s assistant secretary for tax policy, in a statement. “We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently.”

Until now, many groups have counted some ads reported to the FEC — those that stop short of telling people how to vote—toward their education mission. Some groups have also counted direct political spending reported to the FEC as part of their social welfare mission. Most nonprofits have counted grants to politically active social welfare nonprofits as part of their social welfare mission.

The regulations represent the first time the IRS has pushed back against political activity by these groups since revealing that the agency targeted the applications of conservative groups for extra review in May, kicking off a political firestorm. (Conservative groups accounted for about 85 percent of the spending by social welfare nonprofits in 2012.)

The proposed regulations appear similar to ones used by the IRS last summer for groups that wanted to expedite approval of their applications. However, the new regulations don’t propose a limit on spending, unlike last summer’s rules, which said no more than 40 percent of a group’s expenditures could be made on political activities.

If adopted, the rules would also make social welfare nonprofits operate much differently than unions and trade associations, nonprofits that are also allowed to spend money on political activity. If that happens, it’s likely trade associations like the U.S. Chamber of Commerce will become the vehicle of choice for anonymous money in politics, experts said. 

It has been my personal experience at the local level to see this in action.  Without fail money is funneled to the least knowing candidates or the most corrupt.

The money that filters down to the local campaigns is particularly harmful.
Thanks for the great article.
And email me ProPublica if you ever need help in Los Angeles. Great journalism!

It is time to eliminate the purchase of politicians and elections. Right now several politicians are the best that money can buy. Many of the elections have nothing to do with the preferences of most voters and are disproportionately influenced by TV and other ads by dark moneyt groups..

A couple of things come to mind, here.

First, I admit that I only skimmed the “guidelines,” but I don’t see anything substantial in them.  Page after page is about how the IRS previously had these laws and did nothing about them, then gives blunt common sense (bordering on tautological) definitions to all the obvious words and then acts like this changes the nature of things.

So, I don’t see what the big deal is.  I don’t see anybody complaining that they don’t know what a “candidate” is, with respect to the law.  The complaint is that these non-profits are using taxpayer subsidization and secret donations to support or oppose candidates.

Beyond that, I’ll still only believe it when I see it.  Even if the definitions are perfect, the IRS has yet to make a move against non-profits who claim that status under penalty of perjury.  Those should be slam-dunk cases and have people put in jail and their status revoked with very little trouble, and they don’t.  Expecting them to do so now that we know that a candidate is someone who identifies himself as running for office…?  Ha!

But it’s also worth pointing out that, when the IRS did try to get this under control, it was a scandal.  Why would they try it again, when the last director was forced into retirement for it?

Betsy Jacobson

Nov. 27, 2013, 1:12 p.m.

The League of Women Voters’ Voter Guides which simply list the names of current candidates for election and their legislative history have been tax deductible.  Are they still?

bj/
Sandy Hook, CT

“Experts also cautioned that the real test of oversight on the political spending by nonprofits will be how these regulations are enforced, something that the IRS has been so far reticent to do”


Making sure regulations aren’t being enforced is probably the job of some of those social welfare producing, nonprofit loving, dark millions.

I will say it was an impossible task for the IRS.  Legislators make law not the IRS.  If the law is clear I suspect the IRS will do the job.

maybe I’m not reading this correctly but shouldn’t anonymous big donors to nonprofits be treated as a “disqualified person” ? and being anonymous, illegal, because the IRS can’t enforce that rule?

(links can take awhile to show up here, google “disqualified person-intermediate sanctions)

Those who cannot change their minds cannot change anything.

since hierarchical often times multinational, if not international corporate entities are now given individual rights, protected by the first amendment spending money cannot legally be protected free speech because most of us wont ever have anywhere near their ‘amount of speech’

And you don’t get to be anonymous and sneak millions to finance your agenda through nonprofits. We the people, who can’t compete with those from anywhere in the world who have millions to spend on our elections, have a right to know who you are, what your agenda is and how you’re spending your money to try to influence opinions. IT’s irresponsible not to know.

There is no working around it with guidelines. The Citizens United ruling, the abuse of anonymity in nonprofits, the poison in our media, plus all of the secret and privatized military/intelligence organizations in this country is a gaping huge security breach for this country. Enjoy the show.