07/18/2013 02:38 pm ET Updated Jul 18, 2013

Change IRS 'Dark Money' Rules, House Democrats Say


WASHINGTON -- More than a dozen Democratic House members are calling on the Internal Revenue Service to adopt clear rules on political activity following record spending on political campaigns in 2012 by tax-exempt nonprofits, and the agency's targeting of both conservative and progressive non-profit groups.

Despite the legal statute stating that tax-exempt nonprofits organized under section 501(c)(4) of the tax code must operate "exclusively" in their declared social welfare area, current IRS rules state these groups may engage in political activity, so long as that activity is not the "primary purpose" of the organization.

In a July 10 letter to Treasury Secretary Jack Lew, 14 Democrats called on the Treasury Department -- which houses the IRS -- to revise regulations. The Democrats, led by Rep. Ted Deutch (D-Fla.), called for the elimination of the "primary purpose" standard and clear definitions for both the amount of political activity allowed for these groups and what constitutes political activity.

"Given the dramatic growth in donations and the number and diversity of these organizations, the current regulations make it nearly impossible for the IRS to make consistent and fair determinations when reviewing applications for tax-exempt status under Section 501(c)(4)," the letter states.

Spending by 501(c)(4) nonprofits exploded following a string of recent Supreme Court rulings, including Wisconsin Right to Life and Citizens United, that loosened the ability of corporations -- even nonprofit corporations -- to spend money on political campaigns.

These rulings have upended federal and state disclosure rules as tax-exempt nonprofits are provided donor anonymity. This has led to a rapid increase in undisclosed or "dark money" in elections from the state to the federal level. In 2012, the first full election following the Citizens United ruling, "dark money" nonprofits spent more than $400 million on federal elections.

Last week's letter to Lew states that the current regulations abet this lack of disclosure through the absence of clear distinctions. "The 'primary purpose' standard in the current regulations thwarts central tenets of free and fair elections, such as the disclosure of donors," the letter states.

The letter also addresses new guidelines released by the IRS for groups that the agency subjected to delayed approval under extra scrutiny over their political involvement. Those guidelines allow an expedited approval process wherein the participating group promises to spend no more than 40 percent of its money and 40 percent of its staff and volunteer time on political activity.

"Expedited review is an insufficient response to this problem," the letter says. "When considering that the tax code requires these groups to operate exclusively for the promotion of social welfare, a group's certification that it will spend at least 60 percent of its time and money to promote social welfare and no more than 40 percent of its time and money on politics makes little sense."



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