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Outside editorial: Crack down on groups that dodge sunlight, taxes

Posted: Tuesday, October 12, 2010

The following editorial first appeared in the St. Louis Post-Dispatch:

What do Americans for Prosperity and MoveOn.org Civic Action have in common? Not political leanings, that's for sure. AFP is hard right, MoveOn is hard left.

Both are registered with the Internal Revenue Service as 501(c)4 organizations. There 26 categories of Section 501(c) organizations, all of them exempt, at least in part, from paying income taxes.

Under IRS regulations, 501(c)4 organizations "must be operated exclusively to promote social welfare." Such organizations "must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements)," the regulations say.

That "promote social welfare" language leaves a lot of wiggle room, and, increasingly, groups all along the political spectrum - though particularly those on the right - have formed 501(c)4s for blatantly partisan purposes.

Donations to 501(c)4s aren't tax deductible, but the names of donors don't have to be disclosed, and there's no limit on how much donors can give.

Thus, a few wealthy individuals, corporations or labor unions can have a huge influence on political campaigns and issues without being accountable to the public.

Last week, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, asked the IRS to investigate whether 501(c)4s are violating the rules for tax-exempt organizations. Because Baucus' committee has oversight of the IRS, his "request" carries considerable weight.

"With hundreds of millions of dollars being spent in election contests by tax-exempt entities, it is time to take a fresh look at current practices," Baucus wrote to IRS Commissioner Douglas Shulman.

The senator noted that the law forbids political activity from being the "primary purpose" of such tax-exempt organizations. "These rules prevent private individuals or groups from using tax-exempt organizations to benefit their private interests or to profit from the tax-exempt organization's activities," Baucus wrote.

Oil and energy lobbyists and trade groups for example, have formed dozens of 501(c)4s to oppose the Obama administration's cap-and-trade bill, which would raise their costs.

On the other hand, two years ago, Sen. James M. Inhofe, R-Okla., had the minority staff of the Senate's Environment and Public Works Committee look into the partisan activities of 501(c)4s run by environmental groups. He argued that donors who wanted their money to support environmental causes had no way to know whether their money was going instead to partisan political causes.

But that was in 2008, before a Democrat was elected to the White House. Conservatives like Inhofe are no longer as concerned with 501(c)4s.

After the 2002 McCain-Feingold campaign finance law limited direct contributions (hard money) to political parties, political activists developed the concept of "soft money."

Democrats led the way, using so-called "527 corporations" (after a provision in the tax code) to raise money for independent political expenditures. Republicans quickly caught up. But for those who prefer operating in the shadows, 527s had a problem: Donors' names must be disclosed.

Groups that would rather masquerade as "grass roots" organizations then seized on using 501(c)4s. Many of them (such as MoveOn.org) also have related 527 organizations or political action committees that are allowed to engage more overtly in political affairs. But donors to 527s and PACs must disclose their names.

Groups whose donors prefer anonymity hide behind the "astroturf" roots of 501(c)4s. And since the election of President Barack Obama in 2008, conservatives and business groups, who tend to give money in larger amounts and be far leerier about disclosure than liberals, have embraced them whole-heartedly.

Consider Karl Rove's new "American Crossroads" organization. Rove, the political adviser to former President George W. Bush, formed it as a 527 corporation. Its seed money was $1 million each, fully disclosed, from a corporation controlled by Texas financier Harold Simmons of "Swiftboat" fame and from a trust controlled by Jerry Perenchio, founder of Univision, a Spanish-language TV network.

But Rove quickly spun off "Crossroads Grassroots Political Strategies," a 501(c)4 for donors shy about having their names made public. It already has spent several million dollars "promoting social welfare" by attacking Democratic politicians around the country.

It has been said that money in politics is like water - it always finds a crack to trickle through. But using tax-exempt organizations to hide the identities of donors too cowardly to acknowledge their beliefs must end. We trust Baucus will hold the IRS to enforcing not only the letter of the law, but also its spirit.



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