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IRS to target 'Dark Money' non-profits

The outside groups poured at least $305 million into the 2012 elections.

IRS building in Washington, D.C.
IRS building in Washington, D.C.Read more

The surprise announcement Tuesday that the Internal Revenue Service intends to take aim at campaign spending by so-called social welfare non-profits could substantially alter the political landscape  -- if the tax agency's proposed new regulations eventually take effect. That's a big if given the lengthy and, given the stakes involved, highly contentious path ahead.

Outside groups organized as non-profits poured at least $305 million into the 2012 elections, according to Federal Election Commission figures compiled by the Sunlight Foundation. Those figures likely represent the tip of the dark money iceberg as the groups' privileged tax status exempted them from disclosing not only their donors but many of their expenditures.

The IRS proposal to eliminate "candidate-related activity" from the purview of social welfare non-profits would appear to threaten the tax status of many of 2012's biggest non-profit spenders. Some, such as the League of Conservation Voters or the National Rifle Association, are groups whose campaign activities appear to be a sideline to their main mission. But many of the non-profits that spent big in 2012 are relatively new groups with little if any history of doing anything but politics.

pre-publication draft of the notice of proposed rule-making , to be published in Wednesday's Federal Register, notes that the regulations governing social welfare non-profits have not been updated since 1959. The notice says that officials at the IRS and the U.S. Treasury Department recognize that "more definitive rules . . . would be helpful." The notice also says the IRS is considering tightening regulations on political spending by other types of non-profits, including labor unions and trade associations. That could potentially affect big spenders such as the U.S Chamber of Commerce and the Service Employees International Union.

Crossroads GPS, which lapped the field of non-profits when it came to campaign spending, ponied up more than $70 million to oppose Democratic candidates and support Republicans. It appears thateverything that money paid for would be prohibited under the IRS new regulation for non-profits: TV ad production, web advertising, phone banking and mailings. A Pro Publica report earlier this week  suggested that Crossroads' political spending may have violated tax law, which requires that at least 51 percent of social welfare non-profits' spending be non-political in nature.

On the other side of the aisle, Patriot Majority USA invested more than $7.5 million backing Democrats and opposing Republicans, and reported spending on TV commercials, canvassing and campaign literature.

The same outside groups already have begun making expenditures in the 2014 cycle. Most of the reported donations have been made in special elections taking place for House and Senate vacancies.

Whether the proposed IRS regulation could take effect in time for next year's election is an open question. As the Treasury Department itself acknowledged in its announcement of the regulation, there's likely to be intense interest and a significant amount of jockeying.

Complicating prospects are:

  1. An embarrassing scandal that erupted earlier this year when the IRS admitted targeting groups that used "tea party" in their names. The ensuing outrage by congressional Republicans, who suspect that groups hostile to the Obama administration are being targeted, is likely to be reignited by the IRS latest announcement.

  2. The Supreme Court: In both Citizens United and an earlier case, Wisconsin Right to Life v. the Federal Election Commission, the justices have shown a reluctance to interfere in non-profits campaign spending.

The Sunlight Foundation is a member of the Bright Lines Project, a coalition of organizations that has been calling on the IRS to take a more aggressive stance toward political activities by social welfare non-profits.

Sunlight's view: 

The Sunlight Foundation is a nonprofit, nonpartisan organization that uses the power of the Internet to catalyze greater government openness and transparency, and provides new tools and resources for media and citizens, alike. A list of Sunlight's funders can be found here.