A new administration proposal to limit the political activity of tax-exempt groups could fall short of forcing “dark money” out of campaigns, experts say.
The new Treasury Department and Internal Revenue Service proposals, which are expected to spark extensive debate, would bar so-called 501(c)(4) organizations from counting certain political activity as part of their social welfare work.
But no matter how the decision comes down, campaign finance experts predict lawyers will eventually be able to find a way to help donors avoid public disclosure.
"One thing we’ve learned is that very few fixes in this area of the law are permanent, and it requires a consistent regulatory response since lawyers can find their way around these rules,” said Rick Hasen, an election law expert at the University of California, Irvine.
According to the current law, groups classified as 501(c)(4), which can accept unlimited amounts of donations, are to be exclusively engaged in promoting social welfare.
But Treasury regulations say social welfare can be the groups’ primary purpose, leading to what experts say are blurry lines about what those organizations are allowed to do. The 501(c)(4) groups generally try to keep a majority of their work in the social welfare sphere as they try to keep their exemption.
Those groups have become much more prominent players in campaigns since the Supreme Court’s 2010 Citizens United decision. A select group of 501(c)(4)s spent more than $300 million in the 2012 cycle, with the majority of that money going to help Republican candidates.
Groups trying to limit “dark money” — like Citizens for Responsibility and Ethics in Washington (CREW) and Democracy 21 — praised the Obama administration for making progress on the issue.
But they also acknowledge that their fight is far from over, and it remains to be seen how much transparency the new rules will create.
“CREW will continue the fight to keep dark money out of our elections and will work tirelessly to achieve meaningful reform,” said the organization’s executive director, Melanie Sloan.
In addition to spending their own money on campaigns, some of the political nonprofits are also linked to super-PACs, groups that can accept unlimited donations but are required to disclose their contributors.
Crossroads GPS, the organization linked to Karl Rove, is a 501(c)(4), while a related group, American Crossroads, is a Super-PAC.
Experts cautioned that it was tough to know the impact of the new rules until they’re finalized.
But while the proposals could limit how attractive the 501(c)(4) status is to political groups and donors, they said, it could also just encourage organizations to find even more convoluted methods for keeping their contributors out of the limelight.
“I think these rules could drive political activity out of (c)(4)s,” Hasen said. “The question is whether it drives the activity into super-PACs, which would mean better disclosure, or drives them into other groups not regulated by the FEC but not (c)(4)s either.”
Bradley Smith, a former GOP chairman of the Federal Election Commission, said the rules might have the effect of “driving a few more donors into the open.”
“Some will think that’s good,” added Smith, now at Capital University Law School. “Some will think that’s bad.”
But Smith added that he thought campaign finance reformers were misplaced in their efforts to drive out dark money, noting that 501(c)(4)s spent just a fraction of the roughly $7 billion poured into the 2012 election.
He also said that he thought some of the bright lines proposed by the administration — including classifying any mention of a candidate or political party two months before an election a political activity — went too far.
Reformers, Smith said “are freaked out by circumvention and anybody escaping the net. Unless you want to really eviscerate the right to privacy, you’re going to have this problem.”
“I think the reformers here have lost all perspective,” he said.