Is the IRS Abandoning Its Duty to Stop “Dark Money” From Ruling the Election?

Part of the Series

Beyond the Sound Bites: Election 2016

A federal appeals court Tuesday upheld a ban on government contractors contributing to federal election campaigns, saying the ban was originally put in place to prevent government corruption. However, in deciding the case, the court didn’t address such contractors’ anonymous contributions to “dark money” nonprofit groups, organizations that abuse the rules of their tax exempt status to engage in political spending, such as Karl Rove’s infamous Crossroads GPS.

Another entity that’s not addressing these anonymous contributions? The Internal Revenue Service (IRS). According to former agency analysts, the IRS is expected to simply ignore these types of nonprofit groups, whose growing abuse of tax laws will continue shielding the identities of their donors in the 2016 race.

These dark money groups are expected to increase their political spending in the 2016 election, even though such nonprofits, including 501(c)(4) and 501(c)(6) organizations, are supposed to be dedicated to social welfare initiatives under the terms of their tax exemption. The terms of exemption explicitly preclude participation in political campaigns. According to the IRS, a social welfare nonprofit must operate “to further the common good and general welfare of the people of the community.” Further, social welfare nonprofits must not restrict the use of facilities and resources to employees or members of private groups or corporations.

While candidates’ affiliated super PACs must disclose the sources of their donations, nonprofit social welfare groups can perform many of the same campaign activities as a super PAC — like organizing advertising campaigns — while allowing complete anonymity for campaign donors. It’s a dark money strategy many candidates are already embracing in the run-up to 2016.

According to The New York Times, Jeb Bush, Marco Rubio and six other Republican presidential candidates have already set up such social welfare nonprofits to raise hundreds of millions for their presidential campaigns in 2016, while Democratic contender Hillary Clinton is currently considering a similar approach.

Since the 2010 Citizens United ruling paved the way for dark money groups to mete out millions from corporate donors into federal elections, the IRS has done little to enforce limits on nonprofit groups’ political activity.

The repercussions have been tracked in an analysis by the Center for Responsive Politics, which shows that spending by dark money groups has increased from about $5.2 million in the 2006 midterm election cycle, to more than $300 million in the 2012 election cycle, and more than $174 million in the 2014 midterms. Overall, social welfare nonprofits have spent more than $470 million from undisclosed donors in political campaigns.

“In 2015, it seems like we’re going to see 501(c)(4)’s operating with impunity. It looks like their political spending is not going to be watched very carefully by the IRS — the cops on the beat — and as a result, it’s possible that many of them will be possibly pushing the definition of what’s political beyond where it’s been before,” said the Center’s Viveca Novak. “It’s much more freewheeling than it was four years ago.”

The IRS remains reluctant to address issues with certain types of nonprofit groups, according to some former agency analysts, due to the continuing backlash over the agency’s alleged targeting of nonprofits tied to the Tea Party and other conservative causes, as well as some liberal groups. (Applications for tax-exemption by groups whose names included words such as “Progressive” and “Occupy” in their applications were also subjected to added review.) The IRS did not respond to Truthout’s request for comment.

According to the Times, agency officials have called the tax laws governing exemption status for social welfare nonprofits “vague and difficult to enforce.” The IRS rarely audits such nonprofits for excessive campaign activity and remains slow to respond to complaints regarding abuses of tax law. Earlier this year, IRS Commissioner John Koskinen said social welfare nonprofits were allowed to spend 49 percent of their budget on political activities.

That would appear to be in stark contrast to the IRS law’s wording for nonprofits seeking social welfare exemptions that, “The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”

Common Cause, a political advocacy group that works to limit the influence of money in politics, celebrated the recent D.C. District court’s ruling upholding a ban on government contractors contributing to federal election campaigns, while calling on the IRS and President Obama to take additional action to enforce tax law and limit campaign spending.

“The fact that this law was upheld as emphatically as it was is a real victory for campaign finance reform and for laws that curb money in politics,” said Stephen Spaulding, who is policy counsel with Common Cause, referring to the D.C. District court’s ruling. “At the same time, we were really disappointed … that the IRS seems willing to give the green light to continued abuse of our tax laws by partisan political operatives who want to set up sham nonprofits to hide political donors.”

Spaulding is calling for President Obama to issue an executive order requiring disclosure of political spending by federal contractors who anonymously contribute to nonprofit dark money groups. Additionally, Common Cause President Miles Rapoport wrote a letter to IRS Commissioner Koskinen noting that, “With the explosive increase in campaign-related spending after Citizens United, now is precisely when we need the IRS to do its job and enforce the law.”

The IRS drafted an initial proposal to regulate nonprofits’ political activities in 2013 but let the draft rules languish after both liberal and conservative political advocacy organizations attacked the agency for chilling political speech amid the scandal over its alleged targeting of Tea Party groups. Many groups feared they would be targeted by the agency not over campaign contributions but simply for engaging in advocacy around social causes. The Treasury Department and the IRS have since worked to revise a new set of rules to govern nonprofits in how they conduct political activity, but the Treasury Department has indicated the new rules will not be put into effect anytime soon.

Republicans on the Federal Election Commission (FEC) have continually blocked Democratic commissioners’ efforts to force dark money groups to disclose their donors. If the FEC remains at a stalemate and the IRS neglects to enforce its own tax rules regarding nonprofits’ political spending, Spaulding says the Department of Justice could still step in to hold violators to account.

“The Department of Justice has jurisdiction over willful violations of our campaign finance laws, and we would hope that, at a minimum, they would appoint a special counsel to monitor compliance with the law given the kind of flagrant flouting of the law we’ve already seen this cycle,” Spaulding told Truthout.

Earlier this year, the Justice Department announced its first criminal prosecution for a violation of federal laws prohibiting PACs from coordinating their activities with political campaigns they support. Former Republican political operative and political consultant Tyler Harber was sentenced to two years in prison for creating a super PAC and arranging for it to buy $325,000 in ads to help a congressional campaign. Spaulding hopes the Justice Department will take on more cases like this, especially if the IRS abdicates its duty to enforce tax law in the 2016 cycle.

According to a ProPublica investigation , the IRS division responsible for tax-exempt organizations, including social welfare nonprofits, has long been plagued by mismanagement, financial constraints and an unwillingness to determine clear rules for nonprofits. Former analysts and tax lawyers told ProPublica that the former system of checks and balances that had been place at the division disappeared when the agency restructured in 1998. As campaign spending by social welfare nonprofits skyrocketed after the 2010 Citizens United decision, numerous requests for the agency to clarify the rules for such groups went completely unanswered by the IRS.

“We need to continue the conversation [regarding the new draft rules for nonprofits], but at the same time, we just can’t see the IRS get intimidated with threats from political actors and bullying from deep-pocketed donors who refuse to step out of the shadows,” Spaulding told Truthout. “Apparently it’s going to get worse before it gets better.”