Koch Brothers Break New Ground in Dark Money

The billionaires’ latest group could be the first in a new class of campaign finance weapons.

David Koch, executive vice president of Koch Industries, attends a meeting of the Economic Club of New York, Monday, April 11, 2011. 
National Journal
Sept. 13, 2013, 9:57 a.m.

The Koch broth­ers are noth­ing if not in­nov­at­ors in the murky world of cam­paign fin­ance, and their latest ven­ture — a secret fund that quietly dis­trib­uted $250 mil­lion to con­ser­vat­ive groups dur­ing the 2012 elec­tion, as by re­vealed by Politico yes­ter­day — is no ex­cep­tion. The group ex­plores near-vir­gin ter­rit­ory in the tax code as the first in what could be a new class of weapons in the secret money arms race.

On its face, Free­dom Part­ners looks like any of the oth­er dark-money groups that have pro­lif­er­ated in re­cent years. Those tax-ex­empt “so­cial wel­fare” or­gan­iz­a­tions, called 501(c)(4)s for their tax code des­ig­na­tion, can raise un­lim­ited amounts of money without dis­clos­ing their donors, and can spend just shy of half of it on polit­ics.

But un­like those groups, Free­dom Part­ners is or­gan­ized un­der a dif­fer­ent sec­tion of the tax code, 501(c)(6), which is typ­ic­ally re­served for cham­bers of com­merce and trade groups like the Amer­ic­an Bar As­so­ci­ation and the Na­tion­al Beer Whole­salers As­so­ci­ation. Polit­ic­al activ­ity from these groups is noth­ing new — the U.S. Cham­ber of Com­merce was one of the biggest spend­ers in the 2010 and 2012 elec­tions — but Free­dom Part­ners is plainly not a busi­ness as­so­ci­ation in the tra­di­tion­al sense; its roughly 200 donors are united by a com­mon ideo­logy, rather than a com­mon in­dustry.

“I haven’t seen a situ­ation like this, and we watch that area pretty closely,” said Jim Clarke, the seni­or vice pres­id­ent of pub­lic policy at the So­ci­ety of As­so­ci­ation Ex­ec­ut­ives, a sort of trade as­so­ci­ation of trade as­so­ci­ations. “I can safety say, an­ec­dot­ally at least, that this would be new.”

Why Free­dom Part­ners would chose 501(c)(6) status over the more com­mon 501(c)(4) is a bit of a mys­tery be­cause the rules gov­ern­ing polit­ic­al activ­ity are es­sen­tially the same for both, but ex­perts spec­u­late there may be some ad­vant­ages in the choice.

Douglas Var­ley, a pro­fess­or at Geor­getown Law and a law­yer at Cap­lin & Drys­dale who ad­vises non­profit groups, said he hasn’t seen an or­gan­iz­a­tion quite like this be­fore. “I’m sur­prised that it’s a (c)(6) from a pointy-headed law­yer’s per­spect­ive, but I’m not that sur­prised from a real­ist polit­ic­al per­spect­ive,” he said.

One ad­vant­age of the status, Var­ley ex­plained, is that com­pan­ies could write off dir­ect con­tri­bu­tions to the group as busi­ness ex­penses more eas­ily. It’s pos­sible to do that with a more tra­di­tion­al 501(c)(4) group, but harder to jus­ti­fy, while con­tri­bu­tions to busi­ness as­so­ci­ations are routine.

In­deed, when asked why his group chose the par­tic­u­lar sec­tion of the tax code it did, Free­dom Part­ners spokes­per­son James Dav­is told Na­tion­al Journ­al, “The (c)(6) struc­ture al­lows us to work with busi­nesses — both large and small — across a vari­ety of in­dus­tries to ad­vance our mem­ber’s busi­ness in­terests of pro­mot­ing the prin­ciples of a free mar­ket and a free so­ci­ety.”

Mean­while, with an eye on the in­creas­ing scru­tiny dir­ec­ted at (501(c)(4)s, Free­dom Part­ners may have de­cided it was safer to move in­to a new reg­u­lat­ory space. Rep. Chris Van Hol­len, D-Md., re­cently sued the IRS to try to force it to crack down on (c)(4)s, while some state at­tor­neys gen­er­al, such as New York’s Eric Schnei­der­m­an, have been try­ing to make the groups dis­close their donors. Then there’s all the bad press that the dark-money groups sus­tained dur­ing the 2012 cam­paign, and the re­newed scru­tiny dur­ing this year’s IRS scan­dal, which re­volved around al­leg­a­tions that the tax agency im­prop­erly tar­geted tea-party 501(c)(4) groups.

With all the heat on those groups, Viveca Novak of the Cen­ter for Re­spons­ive Polit­ics said she’s heard some polit­ic­al strategists say they’ve been look­ing at sec­tion 501(c)(6) as a po­ten­tial refuge. “Busi­ness as­so­ci­ations may not fall with­in the char­it­able trust jur­is­dic­tion of state at­tor­neys gen­er­al, so the ar­range­ment could help sty­mie states’ ef­forts to shed some light on who is be­hind the or­gan­iz­a­tions,” Novak wrote on the cam­paign fin­ance watch­dog’s blog.

Polit­ic­ally, it would also be much harder for states to reg­u­late these kinds of groups, Var­ley poin­ted out, be­cause any new policy on 501(c)(6)s would af­fect not just ideo­lo­gic­al dark-money group, but all the quo­tidi­an — and power­ful — in­dustry groups in a state, as well as loc­al cham­bers of com­merce.

There’s noth­ing il­leg­al or un­der­han­ded about us­ing the des­ig­na­tion this way, though any 501(c)(6) or­gan­iz­a­tion does have to meet cer­tain re­quire­ments to be a con­sidered a busi­ness league. Ap­par­ently Free­dom Part­ners has sat­is­fied them. Dav­is said the IRS of­fi­cially re­cog­nized his group in Janu­ary of last year after it was in es­tab­lished the pre­vi­ous Novem­ber.

And it’s not en­tirely without pre­ced­ent. The con­ser­vat­ive Amer­ic­ans for Job Se­cur­ity set up shop back in 1997 as a 501(c)(6). But oth­er­wise, Free­dom Part­ners ap­pears to be in un­charted wa­ters. “We’ve seen sig­ni­fic­ant amounts of money spent through (c)(6)s, but they’ve been through well-es­tab­lished, more well-known trade or­gan­iz­a­tions like the Cham­ber of Com­merce,” said Paul S. Ry­an of the Cam­paign Leg­al Cen­ter.

Mar­cus Owens, who for 10 years ran the IRS of­fice that over­sees tax-ex­empt or­gan­iz­a­tions, said that while he didn’t see an ob­vi­ous be­ne­fit to the new status, it might just serve to com­ple­ment oth­er groups in the Koch Broth­ers net­work. They already have their hands in 501(c)(3)s, such as the Amer­ic­an Le­gis­lat­ive Ex­change Coun­cil, and 501(c)(4)s, such as Amer­ic­ans for Prosper­ity, plus their com­pany’s PAC, so a 501(c)(6) is the next lo­gic­al place to ex­pand to cre­ate a new giv­ing op­tion for donors.

“It strikes me as maybe the Koch Broth­ers are try­ing for one of each kind of or­gan­iz­a­tion. Maybe next they’ll set up a labor uni­on!” Owens quipped. Call it the cam­paign fin­ance ver­sion of EGOT­ing.

What We're Following See More »
34 STATES MUST SIGN ON
Scott Walker to Lead Effort for Constitutional Convention
8 minutes ago
THE LATEST

"A national group says its campaign to convene an unprecedented U.S. constitutional convention to balance the federal budget has a new leader: former Republican Gov. Scott Walker. The Center for State-led National Debt Solutions on Monday announced Walker will serve as its national honorary chairman. It marks one of the first efforts by Walker to re-enter the political fray since his November election loss to Gov. Tony Evers. In 2017, Wisconsin became the 28th state to request an Article V convention — so named for the article of the U.S. Constitution that sanctions the process." Thirty-four states must sign on to trigger a convention.

Source:
WOULD ALSO LIMIT MONTHLY PAYMENTS
Administration Aims to Cap Student Borrowing
10 minutes ago
THE LATEST

"The Trump administration on Monday proposed placing limits on federal student borrowing programs as part of a series of initiatives to amend the Higher Education Act. ... A number of the proposals seek to change the borrowing and loan repayment process. A senior administration official said the White House wants to institute a limit on loans through the PLUS program, which graduate students and parents of undergraduates use to help pay for college or trade school."

The official did not say what the loan cap would be, but that it could vary by program rather than by institution.

The administration is also calling for Congress to simplify loan repayment programs, in part by condensing five income-driven repayment plans into one plan that would cap monthly payments at 12.5 percent of the borrower's discretionary income.

Source:
HE PLANNED TO LEAVE MID-MARCH
Rosenstein Not Leaving DOJ Yet
1 hours ago
THE LATEST
"HE HAS STAYED OUT OF A LOT OF PEOPLE'S WAY"
Mulvaney Likely to Become Trump's Permanent Chief of Staff
1 hours ago
THE DETAILS

The White House plans to drop the word 'acting' from Mick Mulvaney’s title, officially making him President Donald Trump’s third chief of staff, according to four current and former senior administration officials...'He has stayed out of a lot of people’s way,' said one senior administration official. No one is saying he is killing it but staying out of people’s way has helped.'"

Source:
MANAFORT STEERED HIM WORK IN UKRAINE
Prosecutors Weighing Whether to Charge Greg Craig
18 hours ago
THE LATEST

A long-running federal investigation into former Obama White House counsel Gregory Craig "is reaching a critical stage, presenting the Justice Department with a decision about whether to charge a prominent Democrat as part of a more aggressive crackdown on illegal foreign lobbying." Federal prosecutors in New York have transferred the case to Washington. ... The investigation centers on whether Mr. Craig should have disclosed work he did in 2012 — while he was a partner at Skadden, Arps, Slate, Meagher & Flom — on behalf of the Russia-aligned government of Viktor F. Yanukovych, then the president of Ukraine. The work was steered to Mr. Craig by Paul Manafort."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login