New spending bill prevents agencies from regulating dark money

Washington, DC (Sunlight) – A rider attached to the omnibus spending bill passed in the House today will prevent two federal agencies from issuing rules that would make it easier to track political spending.

The Republican provision prevents the IRS from issuing or finalizing any rule “relating to the standard which is used to determine whether an organization is operated exclusively for the promotion of social welfare for purposes of section 501(c)(4) of the Internal Revenue Code.” That means the IRS would be prevented from clarifying the existing rules on how they determine whether a group is violating the requirements on political activity during the fiscal year 2016 — meaning no rule could be issued before President Obama leaves office.

The IRS would be prevented from adding any regulations to dark money groups. These groups, known as 501(c)(4) organizations for their tax code identification, are nonprofits that promote “social welfare.” They can engage in political activity but it must not be their primary activity; most attorneys agree that means it should be less than 50 percent of their overall activity. What’s notable about these organizations is that they do not have to disclose their donors. Since the Citizens United case eliminated limits on outside spending, the number of (c)(4)s has dramatically expanded exactly for this reason.

The IRS isn’t the only agency targeted by the bill. There’s also a rider that prevents the Securities and Exchange Commission from issuing a proposed rule requiring publicly traded companies to disclose their political donations. According to Public Citizen, the 1.2 million supportive comments on the rule made it the most popular rule in the agency’s history. Some companies voluntarily disclose, but most don’t.

This would have been an important way to improve and increase disclosure of political contributions in a post-Citizens United world, where untraceable, undisclosed dark money increasingly dominates. In 2014, the Center for Public Integrity found that at least $173 million had flowed from top U.S. corporations into dark money groups, including Exelon and Microsoft.

Foreign Currencies. Image source: epSos.de

Foreign Currencies.
Image source: epSos.de

The issue of reining in dark money groups has become a hot button issue. In May 2013, the IRSapologized for “inappropriate” targeting of conservative nonprofits. It was revealed they used a list of certain terms to decide which groups to flag for audit, including “tea party” and “patriots.” The list also included groups that aimed to “make America a better place to live” or would focus on government spending and debt. A Department of Justice investigation into the accusations ended in October with no criminal charges, though they did find “substantial evidence of mismanagement, poor judgment and institutional inertia,” leading to the appearance of political targeting.

A 2013 Treasury Inspector General report recommended that the IRS clarify its rules on what constitutes political activity, and the IRS made moves toward that this year. This rider would prevent them from clarifying these rules, essentially mandating a continuation of the status quo, which is extremely murky. As The New York Times reported this year, “[c]urrent regulations provide no clear test for what constitutes election activity or for how much of their revenue tax-exempt groups can spend to try to influence elections.” This is especially problematic for small non-profits who can’t afford to pay lawyers to make sure they’re in compliance with the rules. The Campaign Legal Centercriticized the rider:

There is virtually universal agreement that the current rules are confusing and unclear, and have resulted in abuses both by dark money groups and by IRS agents in the exemption approval process. However, the IRS effort to update these rules has been bogged down in bureaucracy and plagued by partisan opposition. Now, Congress has mandated that these same inadequate rules remain untouched for another year — the agency is not even allowed to continue working on drafting better ones.

This is particularly troubling after reports that the IRS will “stand aside” for the 2016 elections because it’s still “deeply wounded” by the 2013 scandal. That certainly seems to be the case so far. The nonprofit group Conservative Solutions has spent almost $8.5 million on ads supporting Marco Rubio. The group seems to be aimed primarily at promoting Rubio, a direct violation of the political activity rules, but no enforcement action has been taken by the IRS.

House Majority Leader Kevin McCarthy, R-Calif., said in a statement that the “House has succeeded in putting strong legal limits on the IRS so that our government is accountable to the people.”

This report prepared by  for Sunlight Foundation.