Last spring, news that the Internal Revenue Service used keywords like “Tea Party” and “Occupy” to select groups applying for nonprofit status for extra scrutiny prompted media outrage, resignations, internal investigations and a series of congressional hearings. There was comparatively little fury about the fact that many of these “social welfare” organizations were getting tax breaks in exchange for flooding elections with anonymous cash.
The power these dark money groups wield in future elections could be undercut by a new proposal from the IRS, which would put clearer boundaries around the political activities of 501(c)(4) nonprofits. Released just before Thanksgiving, the guidelines lay out some specific definitions of “political activity,” that social welfare groups would have to limit in order to retain their tax-exempt status, such as expressing an opinion about a particular candidate.
Watchdogs are encouraged that the Obama administration has affirmed the need for clarity on the laws governing social welfare groups and their influence in elections. But the rules as written are broad, limiting activities like voter registration drives, get out the vote campaigns and candidate debates. Many groups see these as critical civic engagement programs, and essentially nonpartisan.
“Though the new definitions attempt to clarify existing rules, they also create a danger to citizen participation in our democracy,” a progressive coalition called Alliance for Justice warned in a statement. “These regulations will not run 501(c)(4)s out of politics. Rather, the big players will hire lawyers and accountants to help them avoid the rules. Small players can’t afford this kind of assistance.”
Dark money groups are the legacy of the Supreme Court’s ruling in Citizens United, which permitted unlimited campaign spending by corporations and nonprofits. The latter may advertise for or against candidates without disclosing their donors, making them perfect fronts for individuals wanting to peddle influence anonymously. Crossroads GPS, a 501(c)4 founded by conservative Karl Rove, spent more than $74 million in 2012, exceeding all but two Super PACs.
To keep its tax-exempt status, a group like Crossroads GPS has to prove that “it is primarily engaged in promoting in some way the common good and general welfare of the people of the community.” Lacking firm criteria, tax lawyers have interpreted that to mean that no more than 49 percent of their budget can support political activities.
The problem is, until now the IRS hasn’t defined political activity, leaving agency employees to evaluate “all the facts and circumstance” of an organization’s actions to determine which are political or for the social good. The murkiness of facts and circumstances has made it easier for groups whose main purpose is really to influence elections to get tax exemptions, and the cover of anonymity for their donors. With so many loopholes, it’s no wonder a flood of applications for 501(c)(4) status followed Citizens United.