What You Need To Know About The Obama Administration's Proposed 'Dark Money' Rules

Koch Industries executive VP David Koch speaks at the CANCER: The Emperor of All Maladies Television Launch Event hosted by S
Koch Industries executive VP David Koch speaks at the CANCER: The Emperor of All Maladies Television Launch Event hosted by Stand Up To Cancer (SU2C) and WETA at Remi on June 11(Photo by Evan Agostini/Invision for Stand Up 2 Cancer/AP Images)

WASHINGTON -- The Obama administration proposed new rules Tuesday that would clarify the definition of "political activity" for social welfare nonprofit groups, also known as "dark money" groups, which are currently not required to disclose their donors even as they spend money on elections.

The proposed rules still have a long way to go before they are enacted, and will face big questions from both Congress and groups on both sides of the issue. But already a partisan divide is opening up in response to the new rules, with Sen. Sheldon Whitehouse (D-R.I.) calling the rules "badly needed," while Rep. Darrell Issa (R-Calif.) has declared them "a crass political effort by the administration."

Below are seven key points and potential problems with the rules to help you better understand how the administration is tackling the issue of political spending by nonprofit groups.

1) Groups could not categorize the same expenditures in different ways in their reports to different agencies.

The new proposed rules would stop groups from reporting some expenses as political activity to the Federal Election Commission, and reporting those same expenditures to the IRS as non-political social welfare activity.

Grover Norquist's Americans for Tax Reform has provided one of the most recent examples of the practice. The group reported to the FEC that it spent $15.8 million on direct political actions, but only reported spending $9.8 million on political activity to the IRS.

The new rules would consider any expense that must be reported to the FEC as "political" for the IRS' purposes. This would mean that Americans for Tax Reform would have spent more than 50 percent of its total budget on political activity, almost certainly violating the law that provides its tax-exempt status.

2) Dark money groups would be limited in their giving to other 'dark money' groups.

Dark money groups have used the practice of passing money to other such groups to balance their overall annual spending in favor of their "social welfare" purpose and away from "political" spending. The practice consequently obscures the money's sources still further.

The proposed rules would attempt to reduce this practice by counting as "political activity" any social welfare nonprofit's contribution to another if the recipient group is engaged in political activity.

This would mean that the already questionable $26.4 million grant from Crossroads GPS, the 'dark money' behemoth co-founded by Karl Rove, to Americans for Tax Reform would count toward the political activity of Crossroads GPS, because Americans for Tax Reform was engaged in politics.

The IRS would provide a loophole that allows a contributor to receive written, signed confirmation that a recipient "does not engage in any such activity and the contribution is subject to a written restriction that it not be used for candidate-related political activity."

3) The rules do nothing about so-called issue ads.

Dark money groups have tended to run issue ads outside of the 60-day election reporting window in order to maintain a balance between social welfare spending and political spending, even when the group is only spending money to attack candidates.

Issue ads are meant to address a particular piece of legislation or a certain political position without calling for a specific candidate's election or defeat. Dark money groups routinely run ads that attack a candidate on an issue, but stop short of exhorting the viewer to vote for or against the named candidate.

Under a rule proposed by the IRS, any action by a social welfare nonprofit that names a candidate would be "political," so long as that action occurs within 60 days of a general election or within 30 days of a primary election.

The rule would not apply to issue ads run by groups like Crossroads GPS, and such ads would still qualify as a social welfare activity, thus allowing dark money groups to continue spend money on campaigns without jeopardizing their tax-exempt status and the anonymity of their donors.

Paul Ryan, a lawyer with the campaign finance watchdog Campaign Legal Center, said, "Our particular concern is that this proposed rule would allow continuation of the dark money free-for-all, for example, in a presidential election battleground state from the day after the state's primary through the beginning of September.

"The IRS should consider closing the gap between the primary and general elections, and treating as candidate-related political activity ads clearly identifying candidates beginning 30 days before the primary though the general elections," Ryan continued.

4) Some seemingly nonpartisan activities by social welfare nonprofits would be considered political.

Political activity under the new rules would also include nonpartisan voter registration drives, get-out-the-vote efforts and any event hosting a candidate within the 60-day election window.

Currently, 501(c)(3) nonprofits, which cannot engage in political activity, are allowed to perform nonpartisan voter registration and get-out-the-vote campaigns. While these proposed rules apply only to 501(c)(4) social welfare nonprofits, the IRS is asking whether these new rules should apply to all other nonprofits.

Conservative lawyer Dan Backer, no fan of the proposed IRS rules, also noted that the rules could affect some groups' efforts to register and provide voting information to members of the armed forces stationed overseas.

"I find the voter registration part particularly offensive, especially since the government does a piss-poor job of registering overseas- and domestic-deployed military and their families, and the outside groups that work to cover that gap would be penalized for doing so," Backer said in an email.

Events like a nonpartisan debate hosted by a nonprofit group could also be implicated in the rule on candidates appearing at events close to an election.

5) Rules covering online activity by nonprofits appear to misunderstand the web completely.

The section of the proposed rules likely to receive the most criticism from all sides is the one that addresses social welfare nonprofits' online actions as political activity.

These rules state that online activity will be treated the same as any other activity. This means that any mention of a candidate on a social welfare nonprofit's website or other online platform within 60 days of a general election or within 30 days of a primary election would count as political activity.

The problematic part of these rules is this section: "The Treasury Department and the IRS intend that content previously posted by an organization on its Web site that clearly identifies a candidate and remains on the Web site during the specified pre-election period would be treated as candidate-related political activity."

This means that a blog post, press release, comment, video, tweet or other online action made by an organization prior to the 60-day general election or 30-day primary election window would be counted as political activity if it remained on the group's website during that window.

Which would effectively require that a group scrub its websites, YouTube channels and social media profiles of all previous mentions of candidates if it did not want those mentions to count towards its total political activity.

6) The new rules only target 501(c)(4) social welfare nonprofit groups.

The proposed rules only target 501(c)(4) social welfare nonprofit groups, the most common form of nonprofit used by groups seeking to participate in politics while keeping donors anonymous. But it is not the only form that is in use or that could be used.

"As the regulations stand, it is not clear how effective [the proposed rules] will be, as activities may shift to other organizational forms, like 501(c)(10) veterans organizations," University of California-Irvine election law professor Rick Hasen said.

Already groups are operating as business associations under section 501(c)(6) in order to spend money on political activity while evading many new state rules that impose disclosure requirements on 501(c)(4) social welfare nonprofits.

Lisa Gilbert, director of Public Citizen's Congress Watch, voiced her support for expanding the proposed rules to other nonprofit forms. "We hope that Treasury and the IRS choose to define political intervention for all tax-exempt organizations, not just 501(c)(4) groups," she said.

7) The rules do not limit social welfare nonprofits' political activity.

One of the primary criticisms of the current rules governing political activity by social welfare nonprofits is that the language is confusing and ambiguous in both the legal statute and the IRS regulation.

The statute states that these groups must be "exclusively" focused on their declared social welfare function, whether that's informing the public about climate change or providing information to lawmakers about certain policies. The regulation interprets "exclusively" to mean "primarily," but the IRS has never given a clear definition of the word "primarily."

This has left a confusing situation in which it is unclear how much time and money a social welfare group can spend on political activity and still maintain its tax-exempt status.

"The IRS has never issued clear guidance on what 'primarily' means," the Campaign Legal Center's Ryan said. "Some tax lawyers have argued that groups can spend up to 49.9 percent of their budget on candidate election activity while still being primarily engaged in social welfare activity."

The proposed rules do state that the IRS will look into new guidelines on how much political activity is acceptable, but it is not doing so at this time.



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