Under a perverse interpretation of federal law, tax-exempt nonprofit organizations supposedly devoted to “social welfare” can spend large amounts of money to influence elections without publicly disclosing the identities of their donors. But instead of cracking down on the use of “dark money” for political purposes, the Internal Revenue Service has decided to stop requiring these groups to reveal even to the government the sources of their funding.
Under a perverse interpretation of federal law, tax-exempt nonprofit organizations supposedly devoted to “social welfare” can spend large amounts of money to influence elections without publicly disclosing the identities of their donors. But instead of cracking down on the use of “dark money” for political purposes, the Internal Revenue Service has decided to stop requiring these groups to reveal even to the government the sources of their funding.
On Monday, the IRS and the Treasury Department announced they would no longer require 501©(4) groups — named after a provision of the tax code — to supply the government with the identities of donors who gave more than $5,000 in a single year. It’s a step backward that could make it easier for money from foreign sources to find its way into U.S. elections.
In announcing the change, Treasury Secretary Steven T. Mnuchin said that “the IRS simply does not need tax returns with donor names and addresses to do its job.” He also noted that “the same information about tax-exempt organizations that was previously available to the public will continue to be available.”
That’s putting a positive spin on the fact that the public is now kept in the dark about the individuals and special interests that are financing nonprofits that are able, under lax IRS regulations, to spend up to half their coffers on political advertising and other efforts to sway voters. Bizarrely, the IRS lets these groups do so even though federal law says that such groups should be engaged “exclusively” in social welfare activities.
But while this week’s policy change may not affect what the public may learn about political spending by so-called social welfare groups, it could make it more difficult for the government to police laws against spending by foreigners on U.S. elections. Fred Wertheimer, president of the campaign reform group Democracy 21, warned that, with the end of the reporting requirement, “there is no way to determine if a 501(c)(4) advocacy group that is spending money to influence federal elections is taking that money from Russia, from Russian agents, from China or from any other foreign interest.”
Congress could remedy this problem by requiring that 501(c)(4) groups stop engaging in political activities. Or failing that, lawmakers could mandate that they reveal their significant donors, as they would be required to do under a bill in Congress known as the DISCLOSE Act. Mandatory disclosure not only would flush out foreign money being spent on election-related activities; it would discourage the use of social welfare groups as cloaks for political spending by domestic special interests. Not all dark money comes from abroad.
