A Mockery of the Law: IRS and DOJ Fail to Enforce Laws Against Dark Money Groups


Neither the IRS nor the Department of Justice have prosecuted flagrant violations of campaign finance and related tax laws, despite both agencies’ authority to take legal action against those who stealthily funnel dark money into our elections. At a hearing of the Senate Judiciary Committee’s Subcommittee on Crime and Terrorism yesterday, Senator Whitehouse, the subcommittee chair, made a compelling argument that under current law, the IRS and DOJ could be doing more to prosecute those who willfully misuse their tax-exempt status to influence our elections. Instead, both agencies are, as he said, “complicit in the mockery that is made of these tax laws.”

With the exception of Sen. Whitehouse himself, Senators are also complicit in condoning violations of the law. Only one other subcommittee member—Ted Cruz—bothered to show up for the hearing, and he was there to channel dark money champion Mitch McConnell, blithely ignoring the corrupting influence of anonymous campaign contributions while disregarding the rights of voters to know who is influencing their elected officials.

Had they been in attendance, senators would have a better understanding of how enforcement of the laws that remain valid even after Citizens United could mitigate the impact of dark money on our elections. Specifically, laws that make it illegal to make false statements to the US government and laws that make it illegal to make campaign contributions in the name of another could be used to penalize those using shell organizations to hide their electioneering activity.

If the IRS or DOJ were serious about ensuring that so-called social welfare organizations are not abusing their tax-exempt status by engaging in political activities, they could start by taking a close look at IRS forms 990 and 1023, both of which have to be filed by groups claiming to be social welfare organizations. The 990—the return required by nonprofits—requires filers to provide a yes or no answer to the question, “Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?” The 1023—the application for tax exemption—asks, “Do you support or oppose candidates in political campaigns in any way?” and goes on to explain the answer should pertain to any past, present, and planned activities.

We don’t have to guess that many of the sham social welfare organizations that funneled money into the 2012 elections lied on either of these forms. Thanks to Propublica, we know they did. Its investigation on nonprofit spending on elections found many discrepancies between what groups said on their tax forms and what they actually did. In one example, the American Future Fund mailed its application for nonprofit status to the IRS, checking the “no” box on whether it planned to participate in politics. That same day, the group put an ad on YouTube, praising a Republican Senator. In 2012, the group reported more than $8 million in political spending.

Likewise, when Propublica compared applications from 72 501(c)(4)s with tax returns they filed later, they found that nearly half of the groups that initially said they would not participate in politics later filed tax returns showing they engaged in electioneering activities.

Forget what you think about campaign finance disclosure—these groups are lying to the federal government and, apparently, getting away with it.

Evidence also suggests that the prohibition against making campaign contributions in the name of another is being violated with no ramifications. As citizens, we are entitled to know who is contributing to our elected officials. Longstanding laws have therefore prevented contributors from using straw donors to make contributions. But, in the case of SuperPACs, which are required to disclose their donors, contributions—including possibly foreign contributions—are easily laundered through shell organizations set up for the purpose of disguising donors.

Representatives from DOJ and IRS testified at the hearing, but had little to say in defense of their apparent non-action. Mythili Raman, DOJ’s Acting Assistant Attorney General for the Criminal Division, did acknowledge that the Justice Department’s job is made harder due to the lack of disclosure since Citizens United and other cases were decided. Patricia Hanes, the IRS Deputy Chief, Criminal Investigation, on the other hand, would not even speak directly to election-related activity of nonprofits. Instead, she chose to limit her testimony to broader IRS enforcement issues and how the IRS interacts with DOJ. The agency’s failure to address the issue of violations of tax law by nonprofits engaging in politics should not come as a surprise, as it has never had much appetite to address the growing abuse by nonprofits engaging in political activity.

The Sunlight Foundation continues to support the enactment of strong legislation that would improve the disclosure of electioneering activities by outside groups. But as yesterday’s hearing made clear, there are tools already available to the enforcing agencies that, if they were enforced, would prevent some of the most flagrant violations of the law by dark money groups.