Dark-Money Political Groups Are Probably Violating Tax Laws

The world of dark-money politics may soon get a little brighter, if the IRS agrees to investigate a number of nonprofit political groups associated with political action committees and Super PACs.

The groups that are almost certainly violating tax law are nonprofits known as 501(c)(4) groups, after the section of the tax code that governs their behavior. They are very similar to 501(c)(3) groups, which are typical nonprofit charities, with one important difference: while 501(c)(3) groups are legally prohibited from interfering in politics, 501(c)(4) groups are allowed to make political contributions as long as it’s not their “principle purpose.”

501(c)(4) organizations are officially considered “social welfare organizations,” not political organizations, but that hasn’t stopped many 501(c)(4)s from engaging in politics. In fact, many 501(c)(4)s exist only to funnel money to Super PACs that run political advertisements supporting or opposing political candidates and policies. They’re like shell corporations, only they’re nonprofits that can accept tax-deductible donations. And unlike a Super PAC, which can accept unlimited corporate donations but must publicly disclose its donors to the Federal Elections Commission, a 501(c)(4) — since it’s not considered a primarily political organization — never has to register with the Federal Elections Commission or disclose the names of the individuals and corporations that fund it.

Unsurprisingly, many political operatives have seen the value in being able to accept unlimited corporate donations without telling the public, and many 501(c)(4)s have been set up to shield the identities of donors to Super PACs. For instance, Karl Rove’s Super PAC, American Crossroads, is associated with the 501(c)(4) group Crossroads GPS, and Priorities USA Action, a Super PAC focused on Barack Obama’s re-election, is associated with the 501(c)(4) group Priorities USA.

It seems these 501(c)(4) groups are breaking the law, since their primary purpose is to interfere in politics, and they could conceivably be prosecuted by the IRS. Last week, campaign finance watchdogs Democracy 21 and the Campaign Legal Center sent a letter to the IRS urging them to investigate these 501(c)(4) groups and others like them. Last October, Sen. Dick Durbin sent a similar letter to the IRS, and in April, longtime campaign finance advocate and former Sen. Russ Feingold called the creation of Priorities Action USA akin to “playing with fire.”

Recently, satirist Stephen Colbert mocked the close ties between political groups like Super PACS and supposedly non-political 501(c)(4) organizations. In a segment on his show (which can be viewed below), Colbert sets up a 501(c)(4) named SHHH! to funnel money to his SuperPAC, Americans For A Better Tomorrow, Tomorrow. His lawyer, Trevor Potter, reminds him that, legally, his 501(c)(4) organization’s “principle purpose for spending its money” cannot be politics. “No, my principle purpose is an educational entity,” Colbert replies, “I want to educate the public that gay people cause earthquakes.”

He later seems shocked that what he has just done is legal. He asks, “I can take secret donations from my [501](c)(4) and give it to my supposedly transparent Super PAC…what is the difference between that and money laundering?” Potter can only reply that “it’s hard to say.” Unfortunately for many political 501(c)(4)s, the IRS may soon come to the same conclusion.


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