"Business League" will keep political spending in the shadows.
The wingnut network funded by the billionaire industrialist Koch
brothers is being revamped after the 2012 elections, starting with a new
nonprofit called the "Association for American Innovation" that will
act as a hub for funneling undisclosed spending towards the Kochs'
political projects.
With ambiguous IRS rules and a deadlocked Congress, they might get away with it.
The role for the group,
according to the Huffington Post,
is to serve as a financing vehicle for the Koch political network,
which includes organizations like Americans for Prosperity. In some
respects it appears to be playing a similar role as the
Center to Protect Patient Rights, a 501(c)(4) nonprofit run by Koch operative Sean Noble that funneled nearly $55 million to other front groups, which in turn ran ads attacking Democrats in the 2010 elections.
The
Association for American Innovation will likely help the Kochs and
their allies continue avoiding transparency in political spending.
Association Formed as "Business League," Perhaps to Avoid IRS Scrutiny
The
Association is organized under Section 501(c)(6) of the tax code,
setting it apart from many of the dark money groups active in the 2010
and 2012 elections, like Karl Rove's Crossroads GPS or Americans for
Prosperity, which are organized as 501(c)(4) "social welfare"
nonprofits.
Section 501(c)(6) is reserved for business leagues
like the U.S. Chamber of Commerce or trade associations like the
pharmaceutical lobby PhRMA; but unlike those groups, there is little
evidence the Association exists to advance the interests of any
particular trade or industry.
"A (c)(6) is exactly where you'd
expect captains of industry to go for political leverage out of the
public view, especially if the notorious 501(c)(4) organizations are
about to be more heavily scrutinized and regulated by the IRS," attorney
Greg Colvin, an expert in nonprofit law, told the Center for Media and
Democracy.
"Unlike a (c)(4), the organization would have no
pretense of promoting the common good and general welfare of the
community," Colvin said. "A 501(c)(6) is not a public interest
organization. It can promote the special interests of oil and gas,
pharmaceuticals, real estate developers, manufacturers, or free
enterprise capitalism generally."
Donors to both 501(c)(6) "trade
associations" and 501(c)(4) "social welfare" nonprofits can remain
anonymous, providing a potential avenue for publicity-shy funders to
spend on elections while keeping their identities secret. Super PACs
must disclose all their donors, but nonprofits have no such obligation,
unless a donation was specifically earmarked for a political ad.
And
the law governing both 501(c)(6) and 501(c)(4) groups are the same:
political intervention cannot be their primary purpose. But the IRS
rules for what constitutes political intervention are relatively
ambiguous and rarely enforced. And this provides an opening for the
Kochs and their allies to continue influencing elections from the
shadows.
Kochs Exploiting "Vague, Unpredictable, and Unevenly Applied" Laws
Despite
these limits on political intervention, several dark money nonprofits
last year did little else besides spend on election-related ads. Some
nonprofits
even told the IRS they would not spend a dollar on political intervention.
There
still has not been a public prosecution of a dark money group for
violating election or tax law in the 2012 or 2010 elections, an issue
that was the subject of a
Senate Judiciary Subcommittee hearing in April.
"The tax rules are vague, unpredictable, and unevenly applied," Colvin
testified at
the hearing. "Only the most flagrant violations could be knowing,
willful, or deliberate and subject to criminal prosecution."
To
assess whether an ad or expenditure counts as "political intervention,"
the IRS uses multi-factor "issue advocacy" rules and a vague "facts and
circumstances" approach. This includes enough wiggle room for dark money
groups run by the Kochs or others to argue that their ads or organizing
drives should count as "education" or "lobbying" rather than electoral
advocacy -- preserving their nonprofit status while shielding their
spending and funding from public view.
The IRS and Treasury Department could create more bright-line rules but have failed to do so.
Kochs Taking Steps to Thwart Transparency
This
ambiguity in the rules governing nonprofits led to an unprecedented
level of secret spending in the 2012 elections. And that has inspired
calls for transparency from members of both parties, although the GOP as
a whole has consistently opposed disclosure legislation. In addition to
the DISCLOSE Act, which failed in recent sessions (largely because of
Republican opposition), Sens. Lisa Murkowski (R-Alaska) and Ron Wyden
(D-Ore.) have introduced the
"Follow the Money Act" to
require any group that spends more than $10,000 on an election to
disclose the identities of donors who give $1,000 or more.
The Kochs have
lobbied against almost every proposal for greater transparency in election spending.
The
fate of disclosure legislation remains unclear. But perhaps the Kochs
are nonetheless anticipating greater transparency requirements with the
creation of the Association for American Innovation: by a donor giving
to the Association, and the Association then contributing to a dark
money nonprofit like Crossroads GPS that spends on political ads, the
original donor's identity is almost certain to remain secret if
Crossroads GPS must disclose its donors. GPS would likely only report
the Association for American Innovation contribution, allowing the
original donor to keep their anonymity.
"So long as huge amounts
and proportions of political campaign funds can flow through
multi-purpose 501(c) entities, the task of achieving public disclosure
will be almost impossible," Colvin told the Senate Subcommittee.
Another
complicating issue is that the IRS has never clarified how much
political intervention is too much for a nonprofit. It cannot be a
"primary purpose," which could mean anywhere between 10 percent and 49
percent of the nonprofit's overall activities. It is also not clear when
one nonprofit transferring funds to another counts towards their
political intervention limit.
Even if a group like the Association
were to specify that its transfer to another Koch group cannot be used
for electoral purposes (as defined under vague IRS rules), money is
fungible, so the contribution can free up more funds for the recipient's
explicitly political activity. And if the Association makes a
significant number of contributions to other nonprofits -- which they
will likely do -- and argues the transfers do not count as "political
intervention," the Association itself could devote more resources to
electoral politics without this becoming its "primary purpose."
Take it to the States (but Avoid State Attorney Generals)
Despite
entreaties from Colvin and other experts, the IRS has failed to create
more clear rules for nonprofits on how political intervention is defined
and how much is too much, and Congress has failed to revise the tax
code or pass disclosure legislation. This has left the door open to
abuse of the tax code by players like the Kochs.
But some states have not been paralyzed by inaction.
In 2012, the Koch-connected Center to Protect Patient Rights was involved in a
shell game where
$11 million was shuffled between three different groups to influence
two California ballot initiatives. But since November, California's
elections board has been digging deep into what it calls this "campaign
money laundering" effort,
most recently issuing a round of subpoenas to determine who provided the original funds.
Other states are also taking action. Montana and its state courts have
successfully enforced disclosure laws against a dark money group that had tried keeping its donors secret.
Bipartisan legislation in
Wisconsin would require greater transparency for "issue ads" that run
near an election. And New York's Attorney General issued new rules to
require donor disclosure by dark money groups that spend more than $10,000 in an election.
And
here arises another advantage to organizing the Association for
American Innovation as a (c)(6): unlike (c)(4)s, they largely will not
fall under the jurisdiction of state attorney generals.
Dave Bidini has a column in the National Post. I have no idea what he's talking about. Google Translate isn't helping a bit. Do you understand?
