Van Hollen Sues IRS to Enhance Transparency of Campaign Finance

Rep. Chris Van Hollen, D-Md.
National Journal
Patrick Reis
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Patrick Reis
Aug. 21, 2013, 2:58 p.m.

Rep. Chris Van Hol­len sued the IRS on Wed­nes­day, seek­ing to stanch the flow of an­onym­ous cam­paign cash by for­cing the agency to re­write dec­ades-old reg­u­la­tions on tax-ex­empt char­it­ies.

The Mary­land Demo­crat wants the In­tern­al Rev­en­ue Ser­vice to tight­en its rules on which groups qual­i­fy as “so­cial wel­fare” or­gan­iz­a­tions. The IRS cur­rently al­lows such or­gan­iz­a­tions — a tax-ex­empt class of power play­ers known as 501(c)(4)s, whose ranks in­clude Karl Rove’s Cross­roads GPS and the Obama-aligned Pri­or­it­ies USA — to dabble in polit­ic­al ad­vocacy, so long as they keep such activ­it­ies sec­ond­ary to their gen­er­al char­it­able work.

But Van Hol­len says that such a “primar­ily char­it­able, sec­ond­ar­ily polit­ic­al” ar­range­ment leaves open a loop­hole for overtly polit­ic­al or­gan­iz­a­tions to ex­ploit be­ne­fits in­ten­ded to be re­served for char­it­ies. Chief among those be­ne­fits is that 501(c)(4)s do not have to dis­close their donors, and so cor­por­a­tions, uni­ons, and oth­er groups can pour money in­to ad­vocacy ef­forts without fear­ing pub­lic back­lash — or in­deed any pub­lic scru­tiny at all.

Hop­ing to lift the cur­tain on polit­ic­al spend­ing, Van Hol­len wants the IRS to re­write its rules to re­quire 501(c)(4)s to en­gage ex­clus­ively in so­cial-wel­fare activ­it­ies, and keep out of polit­ic­al spend­ing en­tirely. If the groups want to get in­to polit­ics, Van Hol­len said, they should re­gister un­der a dif­fer­ent non­profit cat­egory — known as 527s — that would pro­tect the groups from tax­a­tion but re­quire them to dis­close all of their donors.

“You can spend the money, but the law does re­quire, as Con­gress in­ten­ded, that you [tell] the pub­lic where the money is com­ing from,” said Van Hol­len, who said his primary goal in the suit is cam­paign fin­ance trans­par­ency.

For trans­par­ency ad­voc­ates, the fight over polit­ic­al spend­ing has taken on new ur­gency since 2010, when the Su­preme Court’s Cit­izens United de­cision struck down cam­paign fin­ance laws that had pre­vi­ously re­quired dis­clos­ure of out­side groups’ polit­ic­al spend­ing.

Out­side polit­ic­al spend­ing has ex­ploded since the de­cision, as have the num­ber of groups seek­ing 501(c)(4) status. More than 3,200 groups sought the status in 2012, as op­posed to 1,735 in 2010.

But the IRS’s ef­forts to dis­tin­guish between char­it­able or­gan­iz­a­tions and polit­ic­al groups landed the agency in hot wa­ter with Re­pub­lic­ans earli­er this year, when Obama ad­min­is­tra­tion of­fi­cials ad­mit­ted that some IRS em­ploy­ees had used cri­ter­ia that tar­geted tea-party groups seek­ing 501(c)(4) status for closer scru­tiny.

Re­pub­lic­ans de­clared the rev­el­a­tions a scan­dal, ac­cus­ing the ad­min­is­tra­tion of us­ing the IRS to pun­ish their polit­ic­al ad­versar­ies.

Van Hol­len countered Re­pub­lic­an claims that the IRS was en­gaged in polit­ic­ally mo­tiv­ated at­tacks with Demo­crats’ as­ser­tions that lib­er­al groups were also in the agency’s crosshairs. But he said the is­sue could be rendered moot by re­mov­ing the IRS’s ob­lig­a­tion to judge where groups stand along the blurred line between so­cial wel­fare and polit­ic­al ad­vocacy.

“The root of the prob­lem is that the IRS is cur­rently in the busi­ness of try­ing to de­term­ine wheth­er an or­gan­iz­a­tion’s “¦ primary pur­pose is so­cial wel­fare or wheth­er its pur­pose is polit­ic­al,” Van Hol­len said.

Van Hol­len is su­ing in his of­fi­cial ca­pa­city as a House mem­ber, and he is joined in the suit by sev­er­al groups ad­voc­at­ing for ad­di­tion­al gov­ern­ment trans­par­ency. The suit is be­ing filed in the U.S. Dis­trict Court for the Dis­trict of Columbia, and it also names the Treas­ury De­part­ment as a de­fend­ant.

Treas­ury and the IRS are cur­rently en­gaged in an ef­fort to bring more clar­ity to the bound­ary between so­cial-wel­fare and polit­ic­al-ad­vocacy groups, in­clud­ing look­ing at pos­sible nu­mer­ic­al thresholds on the per­cent­age of an or­gan­iz­a­tion’s funds that it would be al­lowed to spend for polit­ic­al pur­poses.

But while Treas­ury is in­volved in cla­ri­fy­ing the rules, the de­part­ment is steer­ing clear of in­vest­ig­at­ing the 501(c)(4)’s polit­ic­al activ­it­ies.

“That’s not with­in our pur­view,” Deputy Treas­ury Sec­ret­ary Neal Wolin told a House pan­el in May. “It is im­port­ant I think just to re­it­er­ate that the Treas­ury not in­volve it­self in mat­ters that re­late to the ad­min­is­tra­tion of the tax code and in par­tic­u­lar ones that have these kinds of polit­ic­al over­tones.”

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