SUNDAY, AUGUST 22, 2010
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Politics & Nation
Ruling sets up IRS as overseer of groups’ gifts to campaigns But a requirement to
disclose donors is open to wide interpretation
by T.W. Farnam
The Supreme Court’s decision this year in Citizens United, which lifted campaign spending restrictions for companies and interest groups, has indirectly thrust the Internal Revenue Service into the more prominent role of overseeing those expendi- tures. The ruling largely tied the hands of the Federal Election Commission to force companies or groups that are funding politi- cal or advocacy advertisements to disclose their donors. And al- though Democrats in Congress had pushed legislation that would have mandated more dis- closure, the measure failed in the Senate this summer. Long-standing IRS regulations require some groups to reveal their donors, and that is why the agency suddenly finds itself with what some might see as a more crucial watchdog role, stepping in to monitor disclosure in the absence of the FEC. But the IRS rules also have long-standing loopholes and, with limited re- sources and enforcement tools, the nation’s tax collector is not set up to be a campaign reg- ulator. “The chances of the IRS being able to catch a violation of the tax law around campaigns is virtu- ally nil,” said Marcus S. Owens, a lawyer with Caplin & Drysdale who directed the agency’s tax- exempt organizations division for 10 years. “Certainly if it hap- pens, it’s going to be well after the election has already ended.” Since the court’s ruling, some prominent Democrats and oth- ers have argued that, with much more freedom to spend on cam- paign ads, corporations, unions and advocacy organizations ought to be forced to disclose who is paying for the ads and, in the case of groups, where the money is coming from. The IRS, which declined to comment, requires groups whose “primary purpose” is political ac- tivity to name their donors. But that requirement is open to wide interpretation. The conservative group Amer- icans for Job Security, for exam- ple, founded in 1997 as a busi- ness association, spends the vast majority of its budget on televi- sion and radio ads before elec- tions.
At the end of July, it disclosed spending $585,000 on an ad at- tacking Colorado Republican Senate candidate Jane Norton, who recently lost her primary contest against Ken Buck, a county district attorney with “tea party” backing. The ad, running just ahead of the primary, said, “Norton passed the largest tax hike in Colorado history” and “Jane Norton’s real record has cost us plenty.” The ad is similar to most run by Americans for Job Security – criticizing politicians before an election. That fits under the defi- nition of lobbying and not elec- tion activity, according to the group, which has declared itself in the advocacy category and therefore is not required to dis- close its donors to the IRS. “What we do is grass-roots lob- bying and issue advocacy,” Exec- utive Director Steve DeMaura said. “Elections are when the American people are most en- gaged in educating themselves about public policy issues.” Ideological groups taking the form of nonprofit “social wel- fare” organizations — which also are not required to disclose — in- clude FreedomWorks, the anti- tax group fueling the tea party movement, and American Cross- roads GPS, a new organization associated with Karl Rove, an ad- viser in the George W. Bush ad- ministration. Since the court’s ruling, some groups have opted to disclose do- nor information to the FEC. But others, including some of the largest, have protected donors’ identities by registering with the IRS as nonprofits whose primary purpose is advocacy rather than politics. The IRS has limited ability to enforce its rules. It cannot fine groups for violating their tax sta- tus, for example. Its only option is to charge taxes on specific types of expenditures or take the much bigger step of revoking a group’s tax-exempt status — a punishment often considered in- commensurate with most infrac- tions. “The only effective tool the IRS has to use against a nonprofit is the death penalty,” said Brett Kappel, a lawyer with the firm Arent Fox.
One of the few times the IRS has denied tax-exempt status
was in 1999 for the Christian Coalition, which operated as a social welfare organization while distributing “voter guides” to churches favoring certain candi- dates. The battle became highly politicized, with legal challenges that stretched out for years. Also hampering the agency’s
ability to enforce is the fact that it operates on what Owens calls “tax time.” Any investigation comes after an organization has
“The chances of the IRS being able to catch a violation of the tax law
around campaigns is virtually nil.” — Marcus S. Owens, a lawyer with Caplin & Drysdale who directed the agency’s tax-exempt organizations division for 10 years
filed a tax return. Nonprofits are often granted two three-month extensions before they file,
meaning most returns showing campaign spending this fall will come about a year after the elec-
tion.
When returns detailing elec- tion-related spending are filed, they fit into a queue with 1.9 mil- lion other tax-exempt organiza- tions, including charities, foun- dations and clubs. The agency’s 200 revenue agents focused on tax-exempt filings have tradi- tionally focused on making sure that the groups don’t abuse tax- deductible gifts or tax-exempt status for private gain.
A5 Watchdog groups complain
that when they have flagged al- leged violations, their notices seem to go nowhere. “The IRS doesn’t respond,”
said Fred Wertheimer, president of Democracy 21, which advo- cates for increased regulation of money in politics. “Sometimes they say ‘we have received your letter,’ but you never hear from them about the status.”
farnamt@washpost.com
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