Blog — Campaign Finance Reform
Taking the first serious step toward addressing abuses of tax and campaign finance law by 501(c)(4) "dark money" groups, Sen. Sheldon Whitehouse (D-RI) yesterday at a congressional hearing pressed the Internal Revenue Service (IRS) and the Department of Justice (DOJ) to start prosecuting at least the most blatant and straightforward violators of those laws.
We applaud Sen. Whitehouse for identifying one of the biggest problems in this area, the lack of any effective enforcement by the IRS, DOJ, and the Federal Election Commission (FEC), which has allowed a stream of anonymous money into our elections.
Yesterday’s hearing focused on the failure of the IRS and DOJ to prosecute violations of two laws that have been routinely flouted since the Supreme Court’s disasterous ruling in Citizens United. The Tax Code grants tax-exempt status only to 501(c)(4) groups that are operated exclusively for the promotion of social welfare.
Some dark money groups have made false statements in their applications for 501(c)(4) status, telling the IRS they would not engage in any political activity, then running political ads as soon as they get tax-exempt status. In addition, some super PACs and their supporters have violated the law forbidding conduit contributions by using shell corporations to conceal the donor’s identity.
Despite the blatant nature of these violations, the IRS and DOJ aren’t prosecuting anyone, and would not even say at the hearing if they are conducting any investigations. As Senator Whitehouse said, by failing to prosecute these violations, the IRS and DOJ appear to be “complicit in the mockery that is made of these tax laws.”
Sen. Whitehouse identified an even larger problem caused by the IRS’s regulations implementing section 501(c)(4) of the Code. While the Code provides tax-exempt status for groups “operated exclusively” for social welfare purposes, IRS regulations provide such groups need only be “primarily engaged” in social welfare. This has created an enormous loophole that many groups have exploited, reasoning they still meet the definition of a 501(c)(4) group if they spend up to 49 percent of their annual revenue on political activities.
In Sen. Whitehouse’s words:
“the IRS has taken one of the clearer statutes passed by Congress and through its regulations has so defanged and confused the law as to make it virtually unenforceable by the agency.”
CREW agrees, and has taken steps in recent months to close this loophole. In February, CREW and former congressional candidate Dr. David Gill sued the IRS for flouting the statute, and just yesterday, CREW filed a petition for rulemaking calling on the IRS to amend its regulations.
We are heartened by Sen. Whitehouse’s first steps, and look forward to more oversight hearings and hopefully legislation that will prohibit 501(c)(4) groups from using anonymous funds to engage in political activities – activities the Tax Code, but not IRS regulations, now ban.
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