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The IRS Isn’t Persecuting Tea Party Groups — It’s Regulating ‘Dark Money’

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The IRS Isn’t Persecuting Tea Party Groups — It’s Regulating ‘Dark Money’

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A security camera hangs near a corner of the U.S. Internal Revenue Service (IRS) building in Washington May 27, 2015. REUTERS/Jonathan Ernst

On Tuesday, a list of 426 groups singled out for extra scrutiny when applying for tax-exempt status was made publicly available. These organizations, many associated with the “Tea Party” movement, comprise the “victims” in the Great IRS Scandal of 2013, referring to outrage over intrusive questioning of pending groups and delayed approvals of applications and tax-exempt statuses seemingly based on extreme-right wing political views.

The scandal led to a lawsuit from the NorCal Tea Party Patriots, which for three years battled with the IRS to get the list of targeted groups released. The perceived misconduct also resulted in national scrutiny of the Obama administration — which was accused of coordinating the effort — and the IRS, as well as calls for the impeachment of the agency’s Director of the Exempt Organization’s unit, Lois Lerner, who eventually resigned in the midst of the controversy.

There are several elephants in this room that GOP officials ignore in their condemnations of the IRS: Mainly, that progressive and liberal groups were also targeted for extra scrutiny in 2013. And also that the Tea Party groups that received extra scrutiny had names involving buzzwords such as “Tea Party,” “liberty,” “patriot,” and “9/12” — referring to the 9/12 movement started by conservative advocate Glenn Beck — thus tagging them with an obvious political affiliation that rightly placed them under the microscope.

Why extra scrutiny for political activity? Easy: 501(c)(4) groups — like The National Rifle Association, Planned Parenthood, Sierra Club — may engage in political activities, as long as these activities do not constitute a group’s primary purpose. What does “primary” mean? The IRS hasn’t said. But because these 501(c)(4)s are supposed to be primarily focused on “social welfare,” they are legally allowed to keep their donors secret. They are the “dark money” groups you hear so much about: Karl Rove’s Crossroads GPS, or the liberal Patriot Majority USA.

These groups cannot contribute to active political campaigns, but they can lobby elected officials. However, according to the Center for Responsive Politics, it’s easy for 501(c)(4)’s to spend most if not all of their money on elections, and they can do so without blatantly breaking the rules by following a simple formula:

Millions of dollars in anonymous contributions are divided into separate contributions to different organizations within a political network. These groups then distribute the bulk of their proceeds to other organizations in their network, which then donate to another, not directly connected nonprofit with a straightforward social welfare function but is allied politically with the network.

Each donation is made in the name of the “social welfare” cause the group named when applying for tax-exemption status, thus counterbalancing political expenditures. Each donating group counts its donation as income, which it spends on permitted political projects. Donations to other groups comprise the 51 percent of operations that should not be allocated to direct political activity, to which each organization then devotes the remaining 49 percent of its budget.

The organizations won’t have to report the transfers until well after election time, allowing many to slip through the cracks undetected.

Dark Money Alchemy

Some groups protect themselves from regulation by spending on “educational” political advertisements, which often go unreported to the Federal Elections Commission, thus requiring an IRS audit to detect them, and the IRS only audits seven of every 1,000 annual nonprofit tax returns each year.

Political advertising has exploded in 2016, CRP reports. Senate races especially have seen “historic amounts of dark money spending.”

Almost 60 percent of money spent by outside organizations in Senate races has come from dark money groups, and while this is comparable to 2014, the amount is much higher than that of 2012. While the number of ads run in 2016 is similar to that in 2012, a Wesleyan Media Project report from that year found no 501(c) to have run over 800 ad spots by this point in the 2012 Senate race, while this year 10 nonprofits have purchased more spots and five have bought thousands.

In Pennsylvania, for example, a state that saw a highly contested Democratic Senate primary preceding what will likely be a close general election, the amount of ads purchased doubles that of any other state, and organizations that don’t disclose their donors paid for much of it.

Dark money organizations are responsible for 28,551 ads in Senate races to date. According to Sheila Krumholz, executive director of the Center for Responsive Politics, Senate candidates, who don’t enjoy the same free media benefits as presidential candidates, are “leaning more than ever on groups that can accept unlimited anonymous contributions.”

Because some of these groups are running issue ads that don’t promote or denounce candidates, they haven’t technically been required to report their spending to the FEC. For instance, One Nation — which is managed by the same people who run Karl Rove’s Crossroads GPS — has run over 4,000 ads in seven states, and Concerned Veterans for America, which has ties to the Koch brothers, has run over 1,500, all of which have gone unreported.

It’s easy to see why federal oversight of “dark money” groups is so necessary.

In May, the New York Times ran an op-ed by attorneys Kathleen M. Donovan-Maher and Steven L. Groopman that addressed a rule proposed by the SEC which would require corporations to report the recipients and amounts of their political donations. The proposal has been applauded by a bipartisan group of former SEC commissioners, state treasurers and law professors who think the status quo jeopardizes the democratic process.

Those against the change say they are exercising their First amendment right to free speech, the exact line of thought that gave us Citizens United — the “money is speech” decision that 77 percent of Americans want to see overturned.

According to a November 2015 report from Pew Research Center, 64 percent of Americans say “the high cost of running a presidential campaign discourages many good candidates from running,” and the same amount held this view almost 30 years ago in 1988.

“Most Americans,” the report reads, “including majorities in both parties, believe that new laws would be effective in reducing the role of money in politics.”

Photo: A security camera hangs near a corner of the U.S. Internal Revenue Service (IRS) building in Washington May 27, 2015. REUTERS/Jonathan Ernst

Graphic: Center for Responsive Politics

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9 Comments

  1. Dominick Vila June 8, 2016

    What a lot of people don’t understand, or prefer to ignore, is that when groups like these defraud the government they are defrauding us. We are the government! The IRS has the obligation to expose and investigate fraud, regardless of whether the organization or individual is right or left wing. Instead of defending those who wrap themselves on the flag, and use labels such as “patriots” to commit crimes that would result in most of us ending up in jail, we should back up the government for doing what they are supposed to do.
    Put these criminals behind bars, regardless of ideological leanings. Kudos to the IRS for doing a good job, at a time when effective governance is perceived as a liability.

    Reply
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      Reply
      1. Mstrdiver June 9, 2016

        Sounds like a new spin on the world’s oldest profession.

        Reply
  2. Siegfried Heydrich June 8, 2016

    All the IRS needs to do is go back to the original wording of the regs for 501.c groups – there can be NO, as in zero, zip, nada political spending at all. Not a penny. If they do, they are immediately reclassified as 527s, which means that while they are still non-taxable, their donor lists are no longer hidden.

    Reply
  3. ralphkr June 9, 2016

    I find it extremely interesting that although the IRS was “only” targeting TEA Party groups the ONLY group denied status was a liberal group.

    Reply
    1. Eleanore Whitaker June 9, 2016

      You do realize that Charles and David Koch two multi BILLIONAIRES established and fund that TEA Party? Remember when Issa, Cantor and Ryan all met on a weekly basis with the Koch boys?

      And, the Tea Party is well known for “dark money” that often comes from foreign sources. This is the same BS corporations pull. And why Trump has 150 pending fines for money laundering and corporate fraud.

      You want the IRS abolished so the Koch boys can BE YOUR government?

      Reply
      1. ralphkr June 9, 2016

        Eleanore, I strongly suggest that you actually read my post before going off on a wild goose chase. Personally, I feel that at least 99.9% of the 501.c groups should be denied status because they do not meet the regulatory standards. All my post pointed out was what a lousy job the IRS did since they were ONLY targeting TEA Party (according to TEA Party) but the IRS was such a bad shot they only hit a liberal group.

        Reply
        1. Eleanore Whitaker June 10, 2016

          The IRS targeted the most likely groups who hide “dark money.” Why wouldn’t they? The Tea Party has done enough damage to the middle class from the minute Bush took office. Enough!

          If they are guilty of fraud or Pay to Play, they belong in jail. When they put money into lobbyists ONLY to get more of our tax dollars or to elect ONLY the politicians THEY want, what the hell do you call that? I call it time for the departments of government to do their jobs no matter who the hell these people are. You obviously prefer fraud and corruption.

          Reply
          1. ralphkr June 10, 2016

            What is wrong with you, Eleanor? I post that I think most of those groups are fraudulent and should be denied and you say that I am pro-fraud and corruption (the exact opposite of my posts). Your posts are beginning to sound like someone in the pay of the TEA Party. You have really gone of the deep end, Eleanor.

            Reply

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