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IRS Gave Up on Regulating 501(4)(c) Groups and the Dark Money is Gushing


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#1 LFC

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Posted 19 April 2019 - 09:52 AM

The right-wingnut meltdown over the IRS auditing over their many scam groups plus, I'm sure, Trump being in office has succeeded in keeping the legal and illegal money flow wide open. The IRS has basically surrendered, a Republican wet dream (except for the poor who are audited like crazy it turns out).

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Six years after it was excoriated for allegedly targeting conservative organizations, the agency has largely given up on regulating an entire category of nonprofits. The result: More dark money gushes into the political system.

In the past decade, people, companies and unions have dispensed more than $1 billion in dark money, according to the Center for Responsive Politics. The very definition of that phrase, to many critics, epitomizes the problem of shadowy political influence: Shielded by the cloak of anonymity, typically wealthy interests are permitted to pass limitless pools of cash through nonprofits to benefit candidates or political initiatives without contributing directly to campaigns.

Such spending is legal because of a massive loophole. Section 501©(4) of the U.S. tax code allows organizations to make independent expenditures on politics while concealing their donors’ names — as long as politics isn’t the organization’s “primary activity.” The Internal Revenue Service has the daunting task of trying to determine when nonprofits in that category, known colloquially as C4s, violate that vague standard.

But the IRS’ attempts to police this class of nonprofits have almost completely broken down, a ProPublica investigation reveals. Since 2015, thousands of complaints have streamed in — from citizens, public interest groups, IRS agents, government officials and more — that C4s are abusing the rules. But the agency has not stripped a single organization of its tax-exempt status for breaking spending rules during that period. (A handful of groups have had their status revoked for failing to file financial statements for three consecutive years.)

Most cases do not even reach the IRS committee created to examine them. Between September 2017 and March 2019, the committee didn’t receive a single complaint to review according to one former and one current IRS employee who worked closely with the committee, even as at least 2,000 warranted its consideration. (The IRS disputes this.) The standards are almost as permissive when organizations apply for C4 status in the first place. In 2017, for example, the IRS rejected only three out of 1,487 applications.

The IRS’ abdication of oversight stems from a trio of causes. It started with a surge in the number of politically oriented C4s. That was exacerbated by the IRS’ almost comically cumbersome process for examining C4s accused of breaching political limits; the process requires a half-dozen layers of approvals and referrals merely to start an investigation. That is abetted by years of IRS staff attrition and loss of expertise that was then compounded by steady budget reductions by Congress starting in 2010. The division that oversees nonprofits, known as the “exempt organization” section, shrank from 942 staffers in 2010 to 585 in 2018, according to the IRS.

On top of that, the 2013 scandal in which the IRS was accused of targeting conservative nonprofits left the division seared by the vilification of the conservative politicians, media and the public, and by the resignation of Lois Lerner, who headed the division. Some IRS auditors say they were paralyzed. “I was scared of being pilloried, dragged to the Hill to testify, getting caught up in lawsuits, having to sink thousands of dollars in attorneys bills that I couldn’t afford, and having threats made against me or my family,” said one employee who worked in Lerner’s division at the time. “I locked down my Facebook page. I deleted all personal Twitter posts. I stopped telling people where I worked. I tried to become invisible.”

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