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New IRS Rules On Dark Money Likely Won’t Be Ready Before 2016 Election

New IRS Rules On Dark Money Likely Won’t Be Ready Before 2016 Election

by Theodoric Meyer,ProPublica.

The Internal Revenue Service says it won’t come out with new proposed rules for so-called dark money groups until late spring at the earliest, increasing the likelihood that no changes will take effect before the 2016 elections.

These groups — social welfare nonprofits that can engage in politics, but do not have to disclose their donors — have become a major force in elections, pouring at least $257 million into the 2012 elections. The Wesleyan Media Project estimates that dark money paid for almost half the TV ads aired in the 2014 Senate races.

The IRS originally issued a draft version of the rules for dark money groups more than a year ago, but withdrew them for revisions after receiving intense criticism from both ends of the political spectrum.

Some advocates of campaign finance reform have touted tighter IRS controls as the best shot of reining in the influence of such groups ahead of the 2016 presidential race.

Under the current IRS rules, social welfare nonprofits are allowed to spend money on politics as long as they are “primarily engaged in promoting in some way the common good and general welfare of the people of the community.” But it’s unclear exactly how much revenue groups can put toward politics, and which activities count as political.

As ProPublica has reported, social welfare nonprofits have sworn under penalty of perjury that they would not engage in politics and then spent heavily to influence campaigns. Some have spent much or all of the money they raised on elections. Others have reported campaign expenditures to the Federal Election Commission, then told the IRS that the spending was not political.

IRS Commissioner John Koskinen said in June that the agency expected to have revamped draft rules out early next year, but spokeswoman Julianne Breitbeil now says it will take longer. Even the late spring deadline is hardly firm: Marcus Owens, a Washington lawyer who used to run the IRS’ exempt organizations division, said the agency “regularly misses its self-appointed deadlines” for releasing new rules.

If the IRS issues a proposal in late spring, it’s possible new rules could be finalized before the 2016 election, said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who is an expert in nonprofit tax law.

But the agency needs to clear several hurdles to pull this off.

Once the new draft comes out, the agency will accept comments from the public—figure 60 to 90 days for that. The IRS is also required to hold a public hearing, which typically follows the comment period. After that, the agency will revise the rules again or move to finalize them, said Nancy Ortmeyer Kuhn, a former senior attorney for the exempt organizations division in the IRS chief counsel’s office.

“I would guess at a minimum it would be a year before they’d be finalized, but that’s optimistic,” she said.

John Pomeranz, a Washington lawyer who has advised politically active social welfare nonprofits, said he thought it would be “almost impossible” for the IRS to have the rules in place in 2016.

“I would buy you lunch if these rules go into effect before Jan. 1, 2017,” he said.

Even if the IRS manages to finish the rules next year, there may be other roadblocks.

Republicans, who will control both the Senate and the House next year, could propose legislation blocking or postponing any new strictures on dark money. The House passed a bill introduced by Rep. Dave Camp, a Michigan Republican, earlier this year that would have delayed the implementation of new IRS rules on nonprofits, but the measure didn’t make it out of the Senate. A spokeswoman for Camp declined to comment on whether he would introduce a similar bill next year.

“This is going to be a bitter battle,” said Gary Bass, the executive director of the Bauman Foundation, who has called for clearer regulations. Lawsuits filed by those who think the rules don’t go far enough or those who think they go too far could delay the rules further, he added.

It’s unknown how aggressive the IRS’ new proposal will be in attempting to rein in political activity by social welfare nonprofits. Some observers expect the agency to set a hard limit on how much of groups’ spending can be devoted to politics, perhaps 40 percent or less. Others think the limit will be higher — close to 50 percent — or that there won’t be a numerical limit at all.

David Keating, president of the Center for Competitive Politics, which has called for less restrictive campaign finance regulations, said he doubted the rules would significantly affect the social welfare nonprofits that spend the most on elections, such as Crossroads GPS on the right and Patriot Majority USA on the left.

“For the people who are pinning their hopes on IRS rules changing how these groups operate, I think they’re kidding themselves,” he said. “I don’t think it’s going to happen.”

Kuhn, the former IRS senior attorney, said she expected the agency to come up with rules that are “bland and hard to attack.”

“The whole controversy of dark money — I really don’t think that’s going to be solved through the IRS regulatory process,” she said.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

Photo: Tobym via Flickr

Secret Donors Behind Some SuperPACs Funneling Millions Into Midterms

Secret Donors Behind Some SuperPACs Funneling Millions Into Midterms

by Theodoric Meyer,ProPublica.

In the final weeks before this year’s elections, a SuperPAC called Key Questions, Key Answers started buying TV ads across Pennsylvania attacking Tom Wolf, the Democratic candidate for governor.

“Don’t vote for a wolf in sheep’s clothing,” the narrator says in one of the ads as a sheep with Wolf’s face bleats the word “taxes.”

Like all SuperPACs — outside groups allowed to take unlimited amounts of money from individuals, corporations and unions — Key Questions must disclose its donors.

But last week, Key Questions told the Federal Election Commission it had just one, a social welfare nonprofit called Let Freedom Ring. Since social welfare nonprofits — sometimes called dark money groups — aren’t required to identify their donors, it’s impossible to say who’s really behind Key Questions’ last-minute ad blitz.

Outside groups, including SuperPACs and nonprofits, have spent more than $539 million on politics in this election cycle, according to the Center for Responsive Politics, a nonprofit that monitors money in politics. That’s almost twice as much as such groups spent during the 2010 midterm elections.

SuperPACs alone have shelled out about $332 million so far in this cycle, mostly from donors who are disclosed.

But Key Questions is one of a handful of SuperPACs, liberal and conservative, funded entirely or almost entirely by dark money groups, FEC records show, obscuring the origin of the money they are putting into 2014 races.

A SuperPAC called the Government Integrity Fund Action Network, which has spent more than $1 million on ads supporting Tom Cotton, the Republican Senate candidate in Arkansas, is entirely funded by the Government Integrity Fund, a dark money group.

And Alaska SalmonPAC, a SuperPAC that’s spent more than $1.4 million to support Democratic Sen. Mark Begich and oppose his opponent, has received almost all of its funding from the League of Conservation Voters, which doesn’t disclose its donors.

It’s not illegal for SuperPACs to be funded entirely by dark money unless a nonprofit is effectively acting as a straw donor, helping the real source of a contribution avoid disclosure, said Paul S. Ryan, senior counsel for the nonpartisan Campaign Legal Center. Otherwise, such donations are kosher at the federal level, he said, even if “voters are getting no useful information about where the money’s coming from.”

Nonetheless, Ann Ravel, an FEC commissioner and the former chairwoman of the California Fair Political Practices Commission, said she saw such maneuvers as troubling end runs around disclosure requirements for SuperPACs. “It creates a difficulty in determining whether there’s corruption in the political system,” she said.

Key Questions and Let Freedom Ring are closely connected.

Let Freedom Ring’s president, Colin Hanna, is also the chairman of Key Questions. JC Callahan, another Let Freedom Ring staffer, is Key Questions’ treasurer. Both groups are run out of the same office in Hanna’s home in West Chester, PA.

The ads funded by Let Freedom Ring’s $200,000 donation started airing earlier this month in the Harrisburg, Philadelphia and Pittsburgh markets.

Hanna said he came up with the commercials to help counter the millions that Wolf has poured into his own campaign against Republican Gov. Tom Corbett. Wolf has been leading Corbett in the polls. “I felt the prevailing wisdom that Tom Wolf had the race sewed up was suspect,” Hanna said.

Let Freedom Ring was one of the earliest dark money groups to spend heavily on political ads.

Hanna started the group back in 2004 with the help of a $1 million donation from John M. Templeton Jr., a surgeon whose father was a wealthy philanthropist and investor. Let Freedom Ring spent millions on ads attacking Barack Obama in 2008, two years before the Supreme Court’s Citizens United decision helped spur a massive rise in political spending by social welfare nonprofits.

Hanna decided to create Key Questions this year in addition to the dark money group on the advice of his lawyer, he said. “I think the difference between the two may have more utility in the future than at present,” Hanna said. He declined to elaborate.

Social welfare nonprofits like Let Freedom Ring are required to devote the majority of their efforts to “the promotion of social welfare,” not politics, and to report how much they spend to influence elections to the Internal Revenue Service.

But Let Freedom Ring’s annual filings to the IRS seem to conflict with its reports to election regulators. In 2008, 2010 and 2012, Let Freedom Ring reported spending money on politics to the FEC. But on tax forms for each of those years, signed under penalty of perjury, the group told the IRS it had spent no money on politics.

This appears to violate the tax code, said Brian Galle, an associate professor at Boston College Law School who specializes in nonprofits and political activity. “It’s very hard to argue that you didn’t know you were engaging in political activity when you’re telling another government regulator that you’re engaging in political activity,” he said.

Hanna referred questions about the tax forms to the group’s lawyer, Cleta Mitchell.

Mitchell declined to comment on Thursday, saying she did not have time so near the election.

Let Freedom Ring may not be Key Questions’ sole donor for much longer.

Hanna said the SuperPAC had received contributions from another contributor since filing its most recent FEC report, but declined to identify the source.

Pennsylvania voters won’t find out who it is before they head to the polls. The SuperPAC’s next FEC report isn’t due until more than a month after Election Day.

Robert Maguire, a Center for Responsive Politics researcher who has investigated SuperPACs funded by dark money groups, said the practice runs counter to the Supreme Court’s ruling in the Citizens United case. Justice Anthony M. Kennedy wrote in his majority opinion that voters would be able to “whether elected officials are ‘in the pocket’ of so-called moneyed interests,” thanks to disclosure requirements.

“This effectively nullifies that,” Maguire said.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for their newsletter.

Photo: “kaje_yomama” via Flickr

Cuomo Has Raised Millions Through Loophole He Pledged To Close

Cuomo Has Raised Millions Through Loophole He Pledged To Close

by Theodoric Meyer,ProPublica.

When he ran for office four years ago, New York Gov. Andrew M. Cuomo pledged to close a loophole in the state’s campaign finance regulations allowing corporations and individuals to pour unlimited amounts of money into politics.

Instead, he’s become the loophole’s biggest beneficiary.

New York State forbids corporations from giving more than $5,000 a year to candidates and political committees. But limited liability companies — businesses that share attributes of corporations and partnerships — are allowed to give up to $60,800 to a statewide candidate per election cycle and up to $150,000 a year to candidates and committees overall. What’s more, corporations and individuals can set up an unlimited number of LLCs through which to donate, making the caps effectively meaningless.

Cuomo took contributions from LLCs while running for governor in 2010, but said at the time that he was only accepting them so that he could get elected and change the law. He has twice proposed legislation that would eliminate the LLC exception, most recently in his budget proposal in January, but it hasn’t been enacted. He told reporters Wednesday that there was little chance any campaign finance reforms would pass before the legislative session ends next week.

Cuomo has accepted more than $6.2 million from LLCs in the three and a half years since he took office, according to a ProPublica analysis of state campaign finance filings. That’s more than double the amount his two predecessors, Eliot Spitzer and David Paterson, took in during their combined four years in office. The contributions make up a sizeable chunk of the $33 million Cuomo has reported raising for his re-election campaign. (The data reflects contributions reported through mid-January, when candidates last filed disclosure reports.)

In a statement, Cuomo spokesman Matthew Wing offered this to explain the apparent contradiction: “The Cuomo campaign is following existing campaign finance laws, while the governor is leading the charge to reform them, including closing the loophole for LLCs.”

That’s of little consolation to campaign finance watchdogs concerned that those who have — or are seeking to have — business with New York are continuing to use this wrinkle in the state’s contribution rules to exert their influence. Much of the money coming to Cuomo through LLCs appears to be from real estate developers, with cable companies and liquor distributors among those also providing healthy cash infusions.

“This is a gaping hole,” said Dick Dadey, the executive director of Citizens Union, a New York good-government group. Getting rid of it is “an easy fix that would turn the spigot down a bit of the flow of money from big contributors.”

It’s not always immediately apparent who controls the LLCs making the contributions. Some, like Time Warner NY Cable LLC, have familiar names. But many LLCs don’t give much of a clue as to who’s behind the money. Some controlled by real estate interests are named for streets or addresses — Arwin 88th Street LLC or 134 W 58 LLC — that require some digging to connect the dots.

Cuomo has also taken far more from LLCs since his election than any other New York State politician or committee. Attorney General Eric Schneiderman has accepted about $1 million from LLCs since 2011, according to ProPublica’s analysis. The Senate Republican Campaign Committee has received about $851,000, while the Democratic Senate Campaign Committee has totaled about $172,000.

New York’s rules for political giving by LLCs are among the loosest in the nation.

Federal regulations generally bar LLCs, along with corporations and unions, from giving directly to federal candidates. The rules vary at the state level — at least six states allow unlimited contributions from all types of donors, while others ban donations from corporations and other businesses entirely. But few states have carved out exceptions for LLCs as generous as New York’s.

Maryland and the District of Columbia passed legislation to close their versions of the LLC loophole last year.

Cuomo has repeatedly called for tightening New York’s campaign finance limits since his election. After lawmakers failed to pass the ethics reforms he proposed last year — including closing the LLC loophole — Cuomo formed a Moreland Commission to investigate corruption and recommend new campaign finance laws.

The commission’s preliminary report, released in December, illustrated how companies use LLCs to avoid contribution limits. A “representative string of emails” subpoenaed by investigators included “a lively discussion among members of an organization about which of the organization’s LLCs should be used to make a round of outsized contributions, based upon which ones had already given outsized contributions in the past,” the report said. The commission recommended closing the loophole, among other reforms.

Instead, the loophole survived when Cuomo announced in March that he was shutting down the Moreland Commission. Lawmakers had agreed to adopt new bribery and anti-corruption measures, he said, so there was no longer a need for it.

But that halted the panel’s investigation into potential campaign finance abuses by LLCs.

“The commission was not given the time to accomplish what it was charged with doing,” said Richard Briffault, a Columbia Law School professor who served on the commission. “None of the investigations had time to be completed.”

Of the LLCs giving to Cuomo, the most generous are controlled by Glenwood Management, a real estate development company headquartered on Long Island. Headed by Leonard Litwin, a reclusive 99-year-old magnate, Glenwood has given $800,000 to Cuomo since he took office using 19 separate LLCs. Glenwood’s LLCs have also given millions of dollars to other New York candidates and committees, both Democratic and Republican.

Another real estate developer, the Extell Development Co., has also given extensively to Cuomo through LLCs, including two donations last year that were flagged by the Moreland Commission.

Two LLCs affiliated with Extell gave the governor a total of $100,000 on Jan. 28, 2013 — two days before Cuomo signed legislation that granted a tax break to Extell’s One57 skyscraper in Manhattan, as well as properties owned by four other developers. Two other LLCs with ties to Extell gave Cuomo another $100,000 six months later. (The contributions were first reported last year by The Daily News.)

“While we do not comment on any specific campaign contributions, we categorically deny any quid pro quo between contributions and legislation,” Anna LaPorte, a spokeswoman for Extell, said in a statement to ProPublica. “Any suggestion to the contrary is an attempt to inhibit our constitutional right to have our voice heard on public policy issues.”

There is no evidence that Cuomo played any role in inserting the tax breaks. Without naming Extell or Cuomo, however, the Moreland Commission called out the developers’ donations, saying they created “the appearance of a relationship between large donations and legislation that specifically benefits large donors.”

“Our investigation continues and we draw no premature conclusions” about whether the tax breaks were improper, the commission wrote in its December report, “but it is clear that the combination of very large campaign contributions and very narrowly targeted benefits to those same donors creates an appearance of impropriety that undermines public trust in our elected representatives.”

Real estate interests may take advantage of the LLC loophole partly because of the way their businesses are structured. Developers typically keep each of their properties in a separate LLC to limit their legal liability, giving them plenty of LLCs with which to write checks to politicians.

“There is a lot of business they have before Albany,” said Bill Mahoney, the research coordinator for the New York Public Interest Research Group, “and this is one way for them to buy more access than other folks.”

Indeed, other businesses with huge stakes in New York have used LLCs to write outsized checks to Cuomo.

Since the governor took office, Time Warner Cable has contributed more than $60,000 to him through its LLC; LLCs affiliated with Cablevision have given $110,000. Two liquor distributors, Empire Merchants LLC and Empire Merchants North LLC, have given over $120,000. And two LLCs affiliated with the Ultimate Fighting Championship have contributed $115,000 to Cuomo, plus tens of thousands of dollars more to state legislators and political committees.

Cuomo has not proposed any legislation to legalize professional mixed martial arts events in New York, the only state that bans them. But almost a year after he received a $50,000 check from one of the LLCs, Cuomo seemed to come out in favor of overturning the ban.

“I think we need economic activity, especially in upstate New York,” he said in a radio interview in 2013. “I think this is a major endeavor that is televised, that is happening all over the country at this point. You’re not going to stop it from happening. And I’m interested in the potential economic potential for the state.”

Wing, the Cuomo spokesman, said there was no connection between the governor’s comments and the contributions.

Photo: Pat Arnow via Flickr

Who Controls The Kochs’ Political Network? ASMI, SLAH And TOHE

Who Controls The Kochs’ Political Network? ASMI, SLAH And TOHE

by Kim Barker and Theodoric Meyer,ProPublica.

Libertarian billionaire brothers Charles and David Koch were among the first to grasp the political potential of social welfare groups and trade associations — nonprofits that can spend money to influence elections but don’t have to name their donors.

The Kochs and their allies have built up a complex network of such organizations, which spent more than $383 million in the run-up to the 2012 election alone.

Documents released in recent months show the Kochs have added wrinkles to their network that even experts well versed in tax law and campaign finance say they’ve never seen before — wrinkles that could make it harder to discern who controls each nonprofit in the web and how it disperses its money.

A review of 2012 tax returns filed by Koch network groups shows that most have been set up as trusts rather than not-for-profit corporations, an unusual step that reduces their public reporting requirements. But that’s only the beginning. Each nonprofit has in turn created limited liability companies or LLCs, through which money can be funneled. Some also have a separate LLC that has the power to replace the nonprofit’s leader.

It sounds complicated and arcane because it is. Some of the nation’s top nonprofit experts said they could only speculate on the reasons for the network’s increasingly elaborate setup.

“My guess is that we’re looking at various forms of disguise — to disguise control, to disguise the flow of funds from one entity to another,” said Gregory Colvin, a tax lawyer and campaign-finance specialist in San Francisco who reviewed all the documents for ProPublica.

Four other leading nonprofit experts and three conservative operatives with knowledge of the Koch network said the most likely reason that the Kochs and their inner circle are using this arrangement was to exert control over the groups without saying publicly who was in charge. In particular, they said, the Kochs likely wanted to prevent any of the groups that they help fund from going against their wishes — as happened with the Cato Institute, the libertarian think tank the Kochs had long supported before they got into a dispute with its president, Ed Crane.

After a top Cato official ridiculed Charles Koch in a 2010 New Yorker article, the brothers pushed to put allies on the think tank’s board. The following year, they pressed Cato to provide “intellectual ammunition” for their oldest politically active nonprofit, Americans for Prosperity, Cato officials later alleged. The dispute was settled in 2012, with the departure of Crane and the installation of a traditional board. (Cato previously was controlled by four private shareholders, including the Kochs, an unusual setup for a nonprofit.)

Robert Levy, Cato’s board chairman, told ProPublica that while he didn’t disagree with the Kochs’ aims, Cato’s leaders were uncomfortable with serving as advocates for their political agenda.

“The Kochs had their notions about what they wanted to focus on, and those tended to focus on intellectual ammunition for what their political ambitions were,” Levy said in an interview last fall. “We didn’t disagree with that, but we didn’t want to operate at the direction of the Kochs. We’re not involved in electoral politics. We are strictly nonpartisan.”

The Kochs have disputed the allegation that they tried to force Cato to do their political bidding.

In this story, we define the Koch network as including 12 nonprofits active in 2012 — 11 social welfare nonprofits and one trade association. These nonprofits all shared the same attributes: They used LLCs, installed Koch allies at the helm and hired the same set of lawyers. (We did not include think tanks, foundations or other charities, nor the like-minded groups that are funded by the Kochs.)

Officials with Koch Industries and groups in the Koch network did not respond to calls or written questions from ProPublica.

When asked about his involvement with Americans for Prosperity in a rare interview with the Wichita Business Journal last month, Charles Koch downplayed his political activity, saying he and his brother did not have day-to-day involvement with the group.

“Listen, if I could do everything that’s attributed to me, I would be a very busy boy,” he told the Journal.

Here’s what we know so far about how the Koch network uses trusts and LLCs, as well as the advantages they may offer.

Disregarded Entities

As of 2012,all 12 Koch network groups had offshoots known as “disregarded entities” — LLCs that are “owned” by their parent nonprofits and are considered part of them for tax purposes.

The first such LLC sprang up in February 2010, when Sean Noble, the head of a Koch network nonprofit called the Center to Protect Patient Rights, formed SDN LLC, using the initials of his own name. (ProPublicawrote a story last month about Noble, the Koch network’s money man in 2010 and 2012.)

Koch network groups came to have a total of 19 disregarded entities, tax records show; Freedom Partners Chamber of Commerce, a trade association that distributed almost $236 million to other nonprofits in the year before the 2012 election, led the way with five.

Unlike corporations, LLCs set up in Delaware are not required to disclose who runs them. The only documentation available is the name of the person who creates them. In the Koch network, 11 of the disregarded entities were formed by the same Chicago trust lawyer, Jonathan Graber. Most had nonsensical strings of letters for names, like SLAH, ORRA or DAS MGR. All were set up in Delaware.

Charities typically use disregarded entities to protect themselves from liability. For instance, they’ll hold property in a disregarded entity to shield the nonprofit from lawsuits over anything from environmental pollution to slip-and-falls.

But these LLCs appear to serve different purposes for the Koch network, experts said.

Before the 2012 election, two groups sat at the top of the Koch money spigot. TC4 Trust, which has since folded, and Freedom Partners, which remains on top of the Koch pyramid, shelled out more than $204 million to the network’s 10 other nonprofits. But instead of giving the money directly to the nonprofits, TC4 and Freedom Partners gave those millions to the groups’ disregarded entities.

That made the money more difficult to follow.

Consider the case of the LLC with the inscrutable name of TOHE. (No, that’s not a typo.) Records for TC4 Trust show that it gave a $1,968,500 grant to TOHE between July 2011 and June 2012.

So what’s a TOHE?

You would think you could go to the Internal Revenue Service website, punch in the magic letters, and get an answer. But that’s not how it works.

Disregarded entities cannot be searched by name because their tax returns are filed as part of their parent nonprofit, which of course is exactly what you don’t know.

To solve the mystery, we searched IRS databases of recognized nonprofits by the names of lawyers known to work for the Koch network. We found one, Vets for Economic Freedom Trust, that seemed like a possible match for TOHE. Then we requested the group’s application from the IRS, which showed a leader, Wayne Gable, who had deep ties to the Koch brothers, earlier serving as a managing director at Koch Industries. But still, the application didn’t mention TOHE.

We had to wait for the group’s tax return, filed in August 2013, to become public, which took a couple of months. The return showed that Vets for Economic Freedom Trust was using a different name: Concerned Veterans for America. And it showed the group’s disregarded entity: TOHE. Concerned Veterans spent most of its money on ads criticizing the government for not doing more to help veterans vote and for the rising national debt.

A more recent tax filing by Freedom Partners gave the names of the disregarded entities and their parent nonprofits when listing grants, dispelling some of the confusion.

The Center for Responsive Politics and The Washington Post have also written about how the Koch network has used disregarded entities to hide the money trail. But disregarded entities offer other advantages.

Donors to social welfare groups and trade associations have only become public in a handful of cases, but some corporate and individual donors still worry about scrutiny from stockholders or the IRS. One operative told ProPublica he’d heard a Koch network official suggest that a donor with such concerns write checks to disregarded entities rather than to better-known nonprofits.

“You don’t want to just create one layer of anonymity, because that layer could be breached, maybe just by accident — you know, the memo that’s left lying around kind of situation,” said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance and who reviewed the groups’ available documents for ProPublica.

Further, while nonprofits are required to disclose their top administrators and boards in tax filings, disregarded entities can have separate managers who are not identified anywhere, said Ellen Aprill, a professor at Loyola Law School in Los Angeles who has studied politically active nonprofits. Such a manager would be able to control how the money received by the LLC was spent.

Seven disregarded entities in the Koch network took in more than three-quarters of the money received by their parent nonprofits. POFN, the disregarded entity of a nonprofit called Public Notice, for instance, brought in more than 75 percent of its parent’s $6 million in revenue from May 2011 through April 2012. POFN’s manager — whoever that may be — would control how that money was spent, nonprofit experts said.

So far, the Koch network’s use of disregarded entities has been unique. ProPublica reviewed tax returns filed by more than 100 liberal and conservative nonprofits that reported spending money on elections in 2010 and 2012. No group unaffiliated with the Kochs had such offshoots.

Their use might be catching on: In July 2012, the American Future Fund, a dark money behemoth that received most of its money through the Koch network but is not part of it, formed its own disregarded entity, Franklin Squared.

Trusts

Social welfare nonprofits are typically formed as not-for-profit corporations, with boards that set their policies.

But nine of the 12 nonprofits in the Koch network were formed as trusts — an approach several tax experts said they had rarely, if ever, encountered. The first was TC4 Trust, which was established in August 2009 and folded in 2012. Eight more Koch-affiliated groups were set up as trusts in 2010 and 2011.

Trusts are subject to little outside oversight. They don’t have to file incorporation papers or annual reports to the state. Any documents filed with the IRS take effort and time to get. “It keeps it out of the public eye a little longer,” said Lawrence Katzenstein, a lawyer in St. Louis who has formed charitable trusts.

Trust agreements rarely have to be filed publicly, but since most of the Koch-connected trusts have been recognized by the IRS as social welfare nonprofits, their trust agreements are available from the agency. ProPublica examined six trust agreements for groups that are still active.

The trust agreements are all “irrevocable,” meaning the trustee cannot change them, except for changing the trust’s name or anything necessary to maintain the group’s tax-exempt status. Two of the trustees are longtime Koch insiders; a third used to be a lawyer for the Charles G. Koch Charitable Foundation. Two other trustees are relatively new to the Koch fold but have long conservative pedigrees.

Despite those credentials, the trustees can be axed at any time. Each trust agreement gives an LLC — not a disregarded entity, but a different one with a similarly nonsensical string of four letters for a name –power to remove the trustee for any reason. For instance, Daniel Garza, the trustee for the LIBRE Initiative Trust, can be removed by an LLC called THGI.

Tax experts say that this means that someone behind that LLC can actually control the nonprofit. “It’s someone having control, and it’s that someone going to great lengths to avoid being known,” said lawyer Marcus Owens, who used to run the Exempt Organizations division of the IRS.

Little else is known about these LLCs except that they, too, were formed by Graber in 2010 and 2011 in Delaware, a state that requires virtually no disclosure.

Giving someone the power to remove the trustee is increasingly common, said Charles Durante, a Delaware lawyer who does work with trusts, nonprofits and LLCs. But it’s typically a named individual, he said, not an anonymous LLC.

“That is not customarily how people structure their trusts,” he said.

One employee of a nonprofit with ties to the Kochs, who spoke on condition of anonymity because he feared retribution, said the LLC arrangement fit in with the brothers’ desire to keep a tight grip on their organizations.

“Their level of degree to which they insist on control is truly spectacular,” he said.

Screenshot via Al-Jazeera