Obama Targets Dark-Money Groups

Proposed regulations would declare "candidate-related political activity" as not promoting social welfare

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David Goldman / AP

Karl Rove at the Republican National Convention in Tampa, Fla., on Monday, Aug. 27, 2012.

The Treasury Department and the Internal Revenue Service announced a proposed revision to federal tax code that would disrupt the loosely regulated world of dark money in political campaigns.

Under current regulations, 501(c)(4) tax exempt groups must be primarily focused on promoting social welfare. But confusing regulations have allowed political groups like Crossroads GPS and Priorities USA to shield their donors even as they engage primarily in political activity. The new rules would declare “candidate-related political activity” as not promoting social welfare and would specify a range of such activities, thereby restricting so-called “(c)(4)s” from spending more than 50 percent of their money on them.

“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Treasury Assistant Secretary for Tax Policy Mark J. Mazur in a statement.  “We are committed to getting this right before issuing final guidance that may affect a broad group of organizations.  It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently.”

Under the proposed guidelines, candidate-related political activity includes:

Communications

  • Communications that expressly advocate for a clearly identified political candidate or candidates of a political party.
  • Communications that are made within 60 days of a general election (or within 30 days of a primary election) and clearly identify a candidate or political party.
  • Communications expenditures that must be reported to the Federal Election Commission.

Grants and Contributions

  • Any contribution that is recognized under campaign finance law as a reportable contribution.
  • Grants to section 527 political organizations and other tax-exempt organizations that conduct candidate-related political activities (note that a grantor can rely on a written certification from a grantee stating that it does not engage in, and will not use grant funds for, candidate-related political activity).

Activities Closely Related to Elections or Candidates

  • Voter registration drives and “get-out-the-vote” drives.
  • Distribution of any material prepared by or on behalf of a candidate or by a section 527 political organization.
  • Preparation or distribution of voter guides that refer to candidates (or, in a general election, to political parties).
  • Holding an event within 60 days of a general election (or within 30 days of a primary election) at which a candidate appears as part of the program.

Correction: An earlier version of this story referred to American Crossroads, the affiliated super PAC, rather than the 501(c)(4), Crossroads GPS.

8 comments
RobertNguyen
RobertNguyen

Throw the book at them - make a few high level examples...

BruceS78
BruceS78

Why is this so hard to fix? The law says no political activity, no some or a bit or less than 50 percent.  Few if any of these organizations should be tax exempt.  My political contributions aren't tax deductible, neither should these.

Hermione
Hermione

This whole tax-exempt nonsense is getting out of hand.

These non-profits need to pay their fair share of taxes, just like the rest of us.

PaulDirks
PaulDirks

That's why the whole IRS scandal was a non-starter and should have been called out from the start. These organizations have been tax cheats all along. 

mantisdragon91
mantisdragon91

Good that maybe we can put an end to stuff like this.


New Tax Return Shows Karl Rove's Group Spent Even More On Politics Than It Said 

On its 2012 tax return, GOP strategist Karl Rove's dark money behemoth Crossroads GPS justified its status as a tax-exempt social welfare group in part by citing its grants of $35 million to other similarly aligned nonprofits. (Here's the tax return itself, which we detailed last week.)

The return, signed under penalty of perjury, specified that the grants would be used for social welfare purposes, "and not for political expenditures, consistent with the organization's tax-exempt mission."

But that's not what happened.

New tax documents, made public last Tuesday, indicate that at least $11.2 million of the grant money given to the group Americans for Tax Reform was spent on political activities expressly advocating for or against candidates. This means Crossroads spent at least $85.7 million on political activities in 2012, not the $74.5 million reported to the Internal Revenue Service. That's about 45 percent of its total expenditures.  

The transaction also provides a window into one way social welfare nonprofits work around the tax code's dictate that their primary purpose cannot be influencing elections.  Grants sent from one nonprofit to another may be earmarked for social welfare purposes, but sometimes end up being used to slam or praise candidates running for office.

DeweySayenoff
DeweySayenoff

@reallife Contrary to rightist-inspired and fallacious rumor, Unions don't spend 50% or more of their money promoting political candidates or causes.  If they did, under these rules, then that would make them taxable organizations.

What this targets are the PAC's that hide behind the concept of promoting political candidates as a form of "social welfare" when, in fact, it isn't.  Those groups spend significantly more than 50% of their money promote to candidates directly, either with attacks against their opposition or directly promoting their choice. Under these rules, that makes them taxable and not non-profits.  Therefore, they will require more transparency in tracking where the money came from.

Note, too, that unions don't usually heavily donate to candidates as much as they do propositions that favor workers.  Propositions aren't candidates, and this rule is specifically geared toward keeping money influence away from candidates.

Also note that non-profits which were politically geared toward promoting candidates in intention and action while trying to retain their non-profit status were breaking the law in the first place, which makes the IRS targeting "scandal" a lot more justified in how they went about their thing.  Rightist, by FAR, tend to hide who their candidate's owners are (I figure they paid for the candidate to win, so they own them if their guy does) and engage in this kind of "dark money" activity than do leftists (though the leftists do it, too).  

Overall, these proposed changes only clarify the definitions of tax exempt non-profit, making both the reason to exempt them or why they'd get taxed clear enough for even rightists to be able to understand.