Finance

IRS makes it easy for nonprofits to spend dark money in our elections

IRS enforcement of the rules surrounding what nonprofits can and cannot do in our elections is outdated and broken, and it has been for years. But instead of taking obvious steps to correct these problems, the IRS and the Treasury Department have just taken a step that will make enforcement harder, not easier, and could stand to widen the loophole that keeps enforcers from catching illegal foreign election spending.

The Treasury Department has announced it will no longer require some nonprofits to disclose the names and addresses of donors to the IRS. The affected groups, 501(c)(4) social welfare organizations, 501(c)(6) trade associations and others, have never disclosed their donors publicly, and add to the flow of money in elections. This system keeps vital information away from voters, and now keeps the IRS in the dark as well.

The new requirements sensibly maintain the same level of transparency to the public as before the changes. However, the key information that would allow the IRS to determine whether groups were engaged in illegal spending of foreign money in elections will now be withheld unless the IRS asks for it. Enforcement in this area needed improvement even before the changes, and the idea that agents will go seek out the information from groups, which will still be required to keep records and give them to the IRS upon demand, is laughable.

The wider context of these changes makes enforcement of any rules surrounding what tax-exempt groups can spend in elections even more difficult. Though some nonprofits are allowed to spend some portion of their resources on "political activity," current regulations offer no clear guidance on what constitutes such activity. This leads to a system where groups that want to follow the rules act too conservatively, and do less than they are allowed. Meanwhile, groups willing to manipulate and abuse the system, the very groups that are cheering the disclosure changes made this week, are able to do so with impunity.

The problems described above are partially due to internal issues, but they have been given a firm shove in the wrong direction by Congress as well. Since 2015, the IRS and the Treasury Department have been prevented from making sensible rules for 501(c)(4) organizations by a provision inserted into a spending bill. Once these "riders" are placed into that legislation, which provides annual funding to the Treasury Department, they are notoriously difficult to extract.

Luckily, the House will have a chance to take a step back in the right direction this week. Congressman Salud Carbajal (D-Calif.) has offered an amendment to strike the rider that will be voted in the funding package this year, offering a clear chance for improvement in the area. This morass of bad rules and worsening enforcement seem to have led to the IRS throwing up its hands and saying, "There is nothing we can do!" But the least they could do is to not make the situation worse.

Emily Peterson Cassin is the Bright Lines project coordinator at Public Citizen, an advocacy organization that promotes the public interest.

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