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Hotline's Latest Edition / CAMPAIGN LAW -- FEC

Watchdogs Want IRS Crackdown

WASHINGTON - AUGUST 30: The Internal Revenue Service building is shown August 30, 2006 in Washington DC. (Photo by Mark Wilson/Getty Images)(Mark Wilson/Getty Images)

July 27, 2011

Campaign finance watchdogs Wednesday renewed their call for the Internal Revenue Service to crack down on non-profit groups participating in politics.

The 501(c) 4 organizations that have become a popular vehicle for contributions by donors who want to remain anonymous are inappropriately taking advantage of loopholes in the regulatory system, a petition from Democracy 21 and the Campaign Legal Center argued.

The groups are seeking a de-facto ban on the political 501(c)4 organizations, which have become a popular vehicle for political activity since 2010’s landmark Citizens United ruling. The groups, headlined by the Karl Rove-aligned Crossroads GPS, can accept uncapped contributions and are able to keep their donors anonymous, making them an attractive destination for many high-dollar contributors. They are not regulated by the Federal Election Commission.

The petition makes two arguments: First, the IRS is improperly interpreting its own regulations. Tthe agency currently mandates that the non-profit organizations spend at least half of their money on “social welfare” issues. But the petition argues that court rulings have shown the threshold should be lower, in favor of one that doesn’t permit any “substantial” investment in politics.

Second, the petition says that even under the 50 percent rule, groups such as Crossroads are in violation. Many of the 501c(4) groups can retain their tax-exempt status even when running so-called issue ads, television spots that mention and criticize politicians by name so long as the spots stop short of urging a vote for against them. Construing those spots as anything other than purely political in nature is foolhardy, the petition says.

“Improper IRS regulations have resulted in widespread abuses of the tax laws and allowed  political organizations to operate under the guise of being section 501(c)(4) ‘social welfare’ groups in order to keep secret the donors who are financing their campaign expenditures,” said Fred Wertheimer, president of Democracy 21, which filed the petition with the Campaign Legal Center. “The IRS should promptly issue new regulations and start to properly enforce the laws.”

In his statement, Wertheimer mentioned not only Crossroads but Priorities USA, a Democratic outside group created to assist President Obama’s re-election effort. After largely staying away from such groups in 2010, Democrats have built a network of outside organizations this year that include the 501(c)4 status targeted by Wertheimer’s petition.

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