IRS Lets Dark Money Groups Hide Their Donors From the Public

Despite what some supporters of the rule change have argued, the IRS’s decision will not have neutral effects, but rather will bolster wealthy donors in their quest to covertly buy their preferred policies and, in the case of Brett Kavanaugh, judicial appointees.

[Photo: U.S. Treasury Secretary Steven Mnuchin testifying before the House Financial Services Committee on July 12, 2018.]
The decision was framed in statements to the public with disingenuous neutrality. U.S. Treasury Secretary Steven Mnuchin (pictured) made it sound purely functional: “Americans shouldn’t be required to send the I.R.S. information that it doesn’t need to effectively enforce our tax laws.” Chip Somodevilla / Getty Images

The IRS decided in July that it would no longer require most non-charitable tax-exempt organizations to disclose the names and addresses of major donors in annual filings. The new rule will affect Planned Parenthood and the National Rifle Association alike. But what looks on the surface like a neutral rule is more like a carve-out for deep-pocketed donors of the right wing. Despite what some supporters of the rule change have argued, the IRS’s decision will not have neutral effects, but rather will bolster wealthy donors who deal in untraceable political spending known as “dark money,” in their quest to covertly buy their preferred policies and, in the case of Brett Kavanaugh, judicial appointees.

The IRS’s recent rule change affects politically active nonprofits. Prior to the rule change, the most these organizations had to do was report to the IRS who was giving them more than $5,000—that information was never public. In fact, public transparency in political spending had already been on a decade-long decline. The U.S. Supreme Court prominently struck down restrictions on corporate political advocacy in a flurry of court cases, most prominently Citizens United in 2010, though it actually affirmed that disclosure laws were acceptable and important for allowing voters to make informed choices. However, how useful that concession was would depend on lawmakers’ commitment to pass disclosure laws. Unsurprisingly, Congress members dragged their feet on transparency bills like the Disclose Act, perhaps to protect the same sources of funding that might reelect them. Elected representatives say they spend up to 50 percent of their time asking for money from wealthy people.

There are no limits on how much any donor to a dark money nonprofit can give. Now, absent public disclosure laws, an organization can register as a 501(c)(3) group under a vague-sounding name like Club for Growth, accept funds from undisclosed donors, and pour those funds into super PACs or ground-level advocacy. Dark money behemoths like the Koch-backed Americans for Prosperity can parachute into a state or local election or ballot initiative, and voters have no way of knowing who is paying for attack ads or leafleting in their communities. The pharmaceutical industry did this to kill a ballot measure to lower drug prices in Ohio, in what became the most expensive ballot issue in state history.

Dark money exists on all sides, but its prevalence is predictably lopsided: The vast majority of dark money comes from organizations tied to the wealthiest of donor networks, who overwhelmingly spend to oppose worker protections, defund reproductive health services, gut environmental preservation, and block commonsense gun control measures. The nonpartisan Center for Responsive Politics looked through thousands of 990 tax forms to find that the top dark money donors after 2008 were Freedom Partners Chamber of Commerce (the Koch brothers’ “secret bank”), the Center to Protect Patient Rights (the founder of which was previously hired by the Kochs), and Crossroads GPS (Karl Rove’s spending nonprofit). By comparison, Sea Change Foundation, the environmental action group next on the list, contributed less than one-fifth of what Freedom Partners gave to political groups over the years. In the 2016 cycle, the NRA’s political arm outspent every other political nonprofit.

Still, the decision was framed in statements to the public with disingenuous neutrality. U.S. Treasury Secretary Steven Mnuchin made it sound purely functional: “Americans shouldn’t be required to send the I.R.S. information that it doesn’t need to effectively enforce our tax laws.” And Senate majority leader Mitch McConnell parroted the argument anti-disclosure advocates have long used to shoot down transparency laws, saying the new rule would prevent donors from being “bullied for exercising their First Amendment rights.” Incredibly, Americans for Prosperity made the “free speech” argument by comparing its donors to civil rights activists, invoking NAACP v. Alabama, a landmark 1958 ruling which in fact protected the group’s membership during a time of widespread racial violence. If mega-donations are a First Amendment issue, the Kochs have certainly stockpiled more than their share of speech. (Every major Koch-backed group that has asked for a 501(c) tax exemption has received it.)

Neither is the new rule unprecedented; its trail of breadcrumbs leads straight to a targeted lobbying effort since President Trump was elected. According to disclosure forms, the Kochs’ lobbying firm began work on a “Preventing IRS Abuse & Protecting Free Speech Act,” a variation of the IRS’s new rule, as soon as the president took office. In May, Americans for Prosperity and other Koch network organizations sent a letter to the president and Secretary Mnuchin calling this policy change proposal “well within the IRS’s prerogative.” “Transparency is meant for the government, not for private individuals,” said the network’s head lobbyist.

But even prior to Trump, the Kochs have long worked to tear down regulations on reporting and disclosure. Koch Industries lobbied hard to thwart the Disclose Act, a federal bill introduced in 2010 in the wake of Citizens United that would have tightened disclosure laws for any group receiving more than $10,000 in independent expenditures. The company’s nonprofits threw their weight behind the 2014 “Stop Targeting of Political Beliefs by the IRS Act,” which, if passed, would have curtailed the IRS’s ability to create new rules for nonprofit political activity. The Koch network has also dragged its feet on basic legal disclosures: the brothers’ primary dark money group, Americans for Prosperity, resisted attempts by watchdog groups even to see publicly viewable redacted tax forms; in January, nonpartisan nonprofit MapLight had to file a formal IRS complaint to get them. In short, wealthy interests that advocated for this rule change consider it a hard-earned victory.

The policy goals of dark money organizations are noteworthy precisely because they are secret. These groups serve as back-door routes for company executives, who can contribute to them despite the fact that they regularly violate in practice the values these individuals or their brands espouse to the public. Target learned this lesson, for example, when its CEO contributed in 2010 to a violently anti-gay candidate for Minnesota governor, prompting public outcry and widespread boycotts after the press followed the money trail. Americans for Prosperity’s secret dealings suggest the Kochs understand that if people knew who was paying for the ads they watched, they would think and vote differently.

The Kochs’ attempts to commandeer the president’s agenda are neither new nor tacit. They already explicitly take credit for a host of Trump administration policy developments, including passing the 2017 tax reform package, confirming conservative judges, and “rolling back overregulation” on the environment.

Koch-linked groups have spent billions of dollars to oppose minimum wage increases, cut public sector union benefits and pensions, and hobble unions. Their full-time staff have mobilized at the state level; in Minnesota, they moved resources against all manner of environmental protection regulations, fees on opioid manufacturers, and funding for transit projects. Smaller Koch-backed nonprofits have taken a whole host of other advocacy actions, like mass-posting anti-net neutrality comments to the Federal Communications Commission’s website and funding organizations to erect billboards in Ohio falsely claiming that Obamacare included taxpayer-funded abortion.

The NRA’s political arm has also spent millions of untraceable dollars to block gun control measures down to the state level. It has opposed restricting access to guns even for people convicted of domestic violence, and spends to elect pro-gun politicians in line with its grading system. Its dark money nonprofit has received large public donations from Smith & Wesson, Beretta and Sturm, and other gun manufacturers.

The Kochs and the NRA also have been pouring resources into seating Supreme Court nominee Brett Kavanaugh, who Demos and the Campaign Legal Center warn could gut disclosure laws for good, and who many advocates argue will threaten Roe v. Wade. Americans for Prosperity announced a seven-figure lobbying campaign to seat Kavanaugh, and the NRA said it would spend at least $1 million on TV ads to support his nomination. These dark money groups have fundamentally changed every issue they have touched, and have no plans to stop.

In the first breathless wave of coverage of the new IRS rule, commentators underlined the IRS’s poor enforcement record to suggest that little will change. To be sure, the agency has a history of asking too few questions about nonprofits’ political spending. (While tax-exempt organizations in the relevant categories—like labor unions, the NAACP, and local chambers of commerce—cannot spend mainly on politics, the law is unclear how much is “too much.”) If the IRS was never much of a watchdog in the first place, how much could it hurt to obstruct it?

Regardless of how little the agency has used its powers, it’s arguable IRS scrutiny will be uniquely critical in the coming two years as illegal foreign donations flood public discourse. The Center for Responsive Politics, a watchdog group that has followed election spending for decades, testified to the Senate last year, saying “foreign corporations, individuals and governments had the wherewithal and the willingness to try to shape U.S. elections.” In light of known Russian influence efforts in the 2016—potentially including part of $35 million in NRA dark money—voluntarily rejecting expenditure reports is nothing less than an abdication of the IRS’s responsibility to its government and people.

The last time the House considered a bill that would do what the agency just did, eight public interest groups filed a joint letter saying the rule was “the only real protection we currently have against the use of 501(c)(4) groups to launder foreign money into federal elections.” The rule change does not merely hobble the IRS; it spells the end of the agency’s oversight at a time when it is most needed to prevent outside threats to the political process.

The U.S. campaign finance system was already mired in dysfunction before this new rule. Now, we have more than just ironclad proof that the Kochs and the NRA get their way in politics; we also know they can change the rules to further entrench their power, and that all it takes is money and time. Given bipartisan support for campaign finance reform, state- and local-level advocates have never heard a more urgent call to action.