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The IRS Should Stop Ignoring Dark Money

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For voters disgusted by nasty campaign ads and frustrated that they don’t know who is paying for them, there is plenty of blame to go around. The Supreme Court for allowing the dark money takeover of our elections, Congress for failing to enact the DISCLOSE Act, the Federal Election Commission for its failure to enforce laws already on the books. Add to that list the IRS, for its apparent willingness to look the other way while millions of dollars are laundered through fake nonprofit organizations whose only purpose is to influence elections.

In a comprehensive piece, Politico outlined how the IRS failed to demonstrate leadership in the dark money arena by allowing overtly political groups to keep the names of their donors secret by claiming “501(c)(4)” status, a tax designation that is supposed to be granted only to organizations whose mission it is to promote social welfare. The agency seems to have chosen not to engage in any oversight or investigation to determine whether such status is legally appropriate for the many organizations spending hundreds of millions of dollars to influence the outcome of the 2012 elections.

It is not as though the IRS doesn’t have the tools to act. There are at least two approaches the agency could take to curtail dark money and uncover its true sources. First, it can investigate, under its current rules, organizations like Crossroads GPS and Priorities USA. Evidence strongly suggests that the purpose of these groups and many others like them is to influence elections, not to engage in “social welfare” activities. If the IRS determined the groups were political organizations, they would be required to disclose their donors.

Second, and probably far more important if there is to be any positive lasting impact, the IRS can reform its rules to prevent the misuse of a 501(c)(4) classification in the first place. Currently, donors to 501(c)(4) organizations can remain anonymous even if as much as 49% of the organization’s total expenditures are made for political, rather than social welfare purposes. This “rule of thumb” must be replaced with a rule of law that creates a bright line making clear that only a small percentage of a 501(c)(4)’s expenditures may be used for political purposes. Anything beyond a very small percentage of political activity must trigger disclosure requirements.

The IRS has abdicated its responsibility to address dark money in the 2012 elections. The damage is already done. But by using its rulemaking and enforcement powers the IRS can stem the misuse of 501(c)(4) status and stanch the flow of dark money in the future.