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May 20. 2013 4:59PM

Kathy Sullivan: The IRS scandal exposes flaw behind tax-exempt politicking

If there is a silver lining in the IRS wrongly using search terms like “Tea Party” for heightened review of applications for tax-exempt status, it may be the publicity given to the 501 (c)(4) organizations abusing this status by engaging in political activity.

The political use of tax exempt 501 (c)(4) organizations is big business in the United States. According to the Center for Responsible Politics, nearly $300 million was spent by these groups in the 2012 elections. Lack of precision in the tax code, combined with the failure of the IRS to focus on correcting these abuses, has resulted in unrestrained political activity by groups on both the left and the right.

Unlike candidates and political parties, 501 (c)(4)s are not required to disclose the identity of their donors. Campaign finance laws do not limit the amount those donors can give to these groups. It is a gross misuse of the tax laws that hides special-interest political spending on both sides of the aisle while avoiding donor limits.

These groups avoid campaign limits by running “issue ads” or “educational” ads. We have all seen them; they are the ads that do not tell voters to vote for or against a candidate. Instead, the ads say something like, “Congressman John Doe supports regulating widget factories. Call John Doe and ask him why he is against good-paying widget jobs.” The ad then ends with a tagline along the lines of, “Paid for by Americans for Apple Pie.” What they don’t tell us is that “Americans for Apple Pie” actually raised hundreds of thousands of dollars from a couple of extreme right-wing wealthy donors, or from a couple of labor organizations, to run the ads. It is a way of using the tax code to circumvent donation limits while hiding the special-interest money influencing elections.

In New Hampshire, both liberal and conservative tax-exempt groups have successfully blocked efforts to require greater disclosure. They claim it is a free speech issue, but disclosure would not impact the right of these groups to say whatever they want. It only would require them to own up and tell the world where their money is coming from, be it the Koch brothers on the right or George Soros on the left.

These groups get away with it because Section 501 (c)(4) exempts “social welfare” groups from taxation. “Educating” the community, including advocating a position, is considered social welfare. Although the educational effort is supposed to be non-partisan, typically each organization has a consistent ideological bent and frequently is run by individuals associated with a party. For example, here in New Hampshire, Americans For Prosperity is run by Greg Moore, whose prior job was chief of staff for the extremist Republican Speaker of the New Hampshire House, Bill O’Brien.

Perhaps because the donors do not need to identify themselves, the ads run by 501 (c)(4)s can be particularly nasty. Americans for Job Security, a group run by Republicans, got involved in the 2010 GOP United States Senate primary by attacking Kelly Ayotte, saying that her actions with respect to the Joint Underwriting Association medical malpractice insurance fund would have put regular people “in leg irons.” Ayotte responded by calling AJS shady, with a demonstrated record of false, sleazy attacks. Shady, indeed. Because of its status as a 501 (c)(4), AJS never had to disclose to the voters where the money for those ads came from. It could have been a single donor associated with another candidate, or a group that did not like Ayotte for other reasons.

This past February, state Sen. Jeb Bradley introduced a bill calling for additional disclosure by all independent groups, saying that these outside groups spent millions of dollars in the 2012 elections, but did not have to report it due to the “vagaries” of campaign finance laws. However, his bill exempts 501 (c)(4)s from disclosing receipts, meaning that he would continue the “vagaries” that prevent disclosure by the groups spending the most money.

At the federal level, Sen. Jeanne Shaheen has called for clearer rules and guidelines from the IRS to curtail these abuses. Bradley, who fancies Shaheen’s job, tried to claim that her efforts to clean up abuses by existing left- and right-wing organizations were somehow tied to the IRS review of newly formed Tea Party groups. He looked silly. If he truly wants to do something about the “vagaries” of campaign finance, Bradley would join Shaheen in calling for individuals and entities hiding behind 501 (c)(4)s to be forced into the light of day. Voters should have the right to know who is paying for political activity, and how much they are paying.

Kathy Sullivan is a Manchester attorney and member of the Democratic National Committee. She was chairman of the state Democratic Party from 1999-2007.


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