Power Grab - Jason Chaffetz Page 0,12

Because they operate under a different set of rules than political campaigns, they have become the key conduit for the so-called dark money that flows into political Super PACs. But before we get to that, let’s zoom out and look at the bigger picture.

The ability to operate tax free is an advantage that comes with a price. These organizations must actually do charitable work. They can’t just be fronts for business or politics.

There are more than 1.6 million nonprofits approved for tax-exempt status in the United States. They fall under twenty-seven different classifications, encompassing everything from religious groups to trade unions. For our purposes, we are focused on two of the most common: the 501(c)3 charitable organization and the 501(c)(4) advocacy organization. Both types of nonprofit are required to file an IRS Form 990 each year showing revenues and expenses, which is the only way we’re able to ferret out the political activities.

The most common and most sought-after classification is the 501(c)(3). Donations made to a 501(c)(3) are tax deductible, but these organizations must adhere to rigid restrictions on political activity or risk losing their own tax-exempt status. They may lobby legislative bodies on specific pieces of legislation that impact them, but even then they have to report that activity and demonstrate that it stays below a very low threshold governed by statute. With that one exception, they simply cannot engage in political or campaign-related activity directly or indirectly.

My research indicates some of them have found a way around that prohibition. What would be the incentive to use charitable nonprofits to influence elections?

For one thing, the restrictions on donors are much looser than they would be on campaign donations or even the kind of advocacy group donations we’ve discussed thus far. Charities can take money from sources political groups cannot—corporations, citizens of other countries, foreign governments. The tax advantages for donors make 501(c)(3) charities a much more attractive option than an advocacy nonprofit. Amounts donated to charities can be written off on taxes. For another thing, large and venerable American charities maintain massive endowment funds that generate an income of their own. This would make them a perfect political dark money vehicle—if only the law allowed it. It unequivocally does not. Don’t forget that charities are not required to report who gives them money. They shouldn’t be. But that lack of disclosure makes them a tempting target for those looking to bypass campaign finance regulations.

Advocacy organizations, on the other hand, have a little bit more political latitude. There are more than 80,000 such organizations approved by the IRS. They are classified as 501(c)(4) groups and are subject to very different rules than charities. They still operate with tax-exempt status like charities, but they cannot offer a tax deduction to donors like a charity could. They also have no restrictions on who can donate or how much, nor are they required to disclose their donors.

They are allowed to engage politically under very specific conditions. A 501(c)(4) may participate in politics, provided politics is not the primary purpose of the group. That means they must spend less than 50 percent of their revenues on politics. When you hear the term “dark money groups” it is usually a reference to 501(c)(4) nonprofits that are doing some political work and do not have to disclose their donors.

Advocacy groups classified as 501(c)(4) have traditionally been required to disclose their donors to the IRS, although not to the public. But in July 2018, Treasury secretary Steven Mnuchin removed that disclosure requirement both for 501(c)(4) social welfare organizations and for 501(c)(6) labor unions amid evidence that the IRS was using those reports to target organizations based on the identity of specific (conservative) donors.

By contrast, the world of campaign finance is subject to very different and more complicated rules. Candidates for federal office have the most restrictions. They must strictly adhere to limits on who can donate (no corporate donations, no foreign governments, etc.) and how much they can give. In 2018, an individual donor was limited to giving $2,800 per election, although primary and general elections count as two separate elections. Parties and political action committees (PACs) are also strictly regulated, although the contribution limits are higher. For example, in 2018 an individual could give $5,000 per year to a PAC, $10,000 to a state or local party committee, $35,500 to a national party committee, and $106,500 to the national party.

Less restrictive are the regulations on independent expenditures—essentially free speech campaigns (you probably know them as Super