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‘Dark Money’ Plot Behind IRS ‘Scandal’

This scandal of secret political money is the real scandal that has been obscured by the flap over an Internal Revenue Service office in Cincinnati using search words to get a handle on the flood of applications from Tea Party and other right-wing groups seeking to take advantage of – or abuse – the “social welfare” designation.

By Beverly Bandler

In the 2012 federal elections, “social welfare” nonprofits, known as 501(c)(4)s for their section of the tax code, emerged as the primary conduit for anonymous big-money contributions, pouring in more than $256 million and spending more money on TV ads in the presidential race than any other type of independent group.

In recent years, both Democrats and Republicans have seized on seemingly innocuous wording in IRS regulations “to create the darkest corner of American political fundraising,” according to ProPublica. Yet, of the more than $256 million spent by social welfare nonprofits on ads in the 2012 elections, at least 80 percent came from conservative groups, according to the Center for Responsive Politics.

The symbol of the Internal Revenue Service.

This scandal of secret political money is the real scandal that has been obscured by the flap over an Internal Revenue Service office in Cincinnati using search words to get a handle on the flood of applications from Tea Party and other right-wing groups seeking to take advantage of – or abuse – the “social welfare” designation.

The IRS bureaucrats in Cincinnati may have been politically tone deaf in using search words, like “tea party,” but they were doing so because many of the political groups masquerading as “social welfare” organizations were right-wing operations.

And the IRS has a statutory responsibility to ensure that groups claiming these benefits are in fact entitled to 501(c)(4) tax-status. Section 501(c)(4) organizations receive valuable tax and other benefits from the government. Plus, the anonymity for donors enables political operations to evade other federal laws that require public disclosure of political contributors.

How this “dark money” scheme works in practice was illustrated in May 2012 when the Republican Jewish Coalition met for a luncheon on the 24th floor of a New York law firm. The coalition’s mission, as described by Matt Brooks, RJC executive director, is to educate the Jewish community about critical domestic and foreign policy issues.

But ProPublica’s Kim Barker reported that the 100 or so well-dressed attendees were shown two coalition-funded ads that took aim at President Barack Obama. Then Brooks made a pitch for a $6.5 million plan to help Republican presidential candidate Mitt Romney in battleground states, reminding guests that their donations would not be publicly disclosed by the tax-exempt group.

“Contributions to the RJC are not reported,” Brooks told the people sitting around a horseshoe-shaped table. “We don’t make our donors’ names available. We can take corporate money, personal money, cash, shekels, whatever you got.” The Republican Jewish Coalition and similar organizations enjoy tax-exempt status in exchange for promoting “social welfare.”

A Different Scandal

Thus, the current IRS issue is notthe “scandal” that some would have Americans believe. It was a bureaucratic misstep that today’s version of the Republican Party, which has become less like a political party and more like an authoritarian apocalyptic cult, is trying to sell as a “scandal.” The IRS issue is an explainable mistake in which a beleaguered agency with insufficient resources applied some unwise shortcuts in an effort to protect the public interest.

The larger “dark money” scandal can be traced back to the current eligibility rules that were adopted in 1959 by the IRS under the Eisenhower administration. Congress had created the legal framework for 501(c)(4) nonprofits in 1913. To receive the tax exemption, groups were supposed to be “operated exclusively for the promotion of social welfare.” Campaign activities do not qualify as permissible activities under the law. No political party was eligible for public tax subsidy and secrecy for its donors.

However, in 1959, the IRS opened the door to some forms of political activity by interpreting the statute to mean groups had to be “primarily” engaged in enhancing social welfare. But neither the tax code nor regulators set out how “primarily” would be measured. “Social welfare” and “primarily” can be difficult words to define and for which applicable measurements can be provided. The difference between “exclusively” and “primarily” is clear, however.

Campaign reform activist (and attorney) Fred Wertheimer has said the existing regulations, in place since 1959, are antiquated and flawed and do not provide clear guidance regarding when a group is entitled to 501(c)(4) tax-exempt status – and these half-century-old regs do not take into account the new groups that formed after the 2010 Citizens United decision allowed unlimited political donations by corporations and similar entities. After Citizens United, claiming 501(c)(4) status became a favorite tactic for hiding identity of donors.

According to Wertheimer, former acting IRS Commissioner Steven Miller recently said that the eligibility requirements for 501(c)(4) tax status is “not always a clear area, and there are no bright-line tests for what constitutes political intervention. Yet, the IRS is tasked with monitoring and enforcing this difficult area.”

This gray area also is where the potential for fraud arises, as Wertheimer, ProPublica,Mother Jones, the New Republic’s Noam Scheiber and others have pointed out: The “social welfare” nonprofits tell the IRS that they are not going to spend money on elections. They then receive IRS recognition and turn around and spend large amounts of money on elections.

A second part of the real scandal is that IRS has failed to pursue blatant abuses of the tax laws by groups that claim 501(c)(4) tax status to evade financial disclosure requirements for political campaigns. A third scandal is how the IRS story is being reported by the major U.S. news media which has largely ignored these underlying scandals and focused on how a few bureaucrats employed some clumsy criteria in an effort to identify organizations that likely were violating the law.

Hiding Donors

Democracy 21, joined by the Campaign Legal Center, filed a rulemaking petition almost two years ago and urged the IRS to adopt new regulations that would sharply reduce political spending by groups holding 501(c)(4) tax status.

In their petition, they proposed that: “consistent with court decisions, the IRS establish a bright-line test by limiting the amount a section 501(c)(4) group could spend on campaign activity to no more than a small or ‘insubstantial’ percentage of its total annual expenditures, such as five or ten percent of the group’s expenditures. Or, consistent with the statutory language, the IRS could prohibit section 501(c)(4) groups from engaging in any campaign activity at all.”

Hiding the donors who are financing these campaign expenditures from the American people also is inconsistent with democratic principles, among them that the public not be subject to “hidden persuaders” and manipulation. Voters should know who is trying to buy their government.

The powers-that-be in Washington need to solve this issue. Campaign financing sources, which are hidden to keep voters in the dark, compromise the integrity of the electoral system. To try and reclaim the integrity of the election process, it seems appropriate to restore section 501(c)(4) groups to their original statutory role of engaging only in social welfare activities and to define those limits with clarity.

More broadly, the current assault on the IRS fits with the Right’s strategy of demonizing government. For years now, it has been the plan of the Republicans and so-called conservatives, who have evolved into an extremist Right, to sap confidence in government, if not destroy it altogether.

This hostility toward government has gained momentum since Ronald Reagan’s declaration in his First Augural Address in 1981 that “government is the problem.” Reagan’s statement has been followed by consistent anti-government messages from right-wing think tanks and media outlets. As anti-tax advocate Grover Norquist said in 2001: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

New Republic editor Noam Scheiber noted, “Conservatives have laid the groundwork for a cynical two-step: First, squeeze funding for government programs, making it harder for civil servants to do their jobs. Then, when the inevitable screw-up comes, use it as further justification for cuts. Against this backdrop, the IRS scandal looks like only the latest step in the conservative long-game.”

Or as Rick Perlstein looked at this reality from a different direction: “The mortal fear of the Republicans is that if government delivers the goods, the Republicans have no future.”Thus, instead of effecting policies to benefit the American public, the GOP will continue to tear down the effectiveness of government at all levels. Meanwhile, liberals and the Left have been ineffective in their response.

The Right’s anti-government strategy has been aided by a mainstream press corps that usually gets driven in whatever direction the Republicans prefer. Lay judge and commentator William Boardman has cited the “remarkable mental stampede in the wrong direction” as evidenced by the “false framing of the IRS story across the media spectrum.”

“Almost everything you hear and read in the media about the current IRS ‘scandal,’” Boardman wrote, “is based on deliberate falsification of basic facts. Some might call it lying … so much of the media goes on reporting as fact the partisan spin placed on a ‘scandal’ that was not really a ‘scandal’ at all.”

To understand the IRS controversy clearly, the distracting side issues of IRS bureaucratic mistakes should be distinguished from central issues like deliberate violations of federal law, such as promising under penalties of perjury to spend money on “social welfare” and then collecting money from anonymous donors to be spent on political campaigns.

Yet, the even bigger scandal may be the concerted effort by the Right to destroy the very idea of elected governments doing the people’s business – and replacing the concept of a democratic Republic with a structure of institutions firmly under the control of corporate power.

Beverly Bandler’s public affairs career spans some 40 years. Her credentials include serving as president of the state-level League of Women Voters of the Virgin Islands and extensive public education efforts in the Washington, D.C. area for 16 years. She writes from Mexico. Her e-mail is

(Originally posted at Consortium News)