The Koch brothers have formed a new "dark money" nonprofit to funnel money to other "dark money" organizations.
The "Association for American Innovation" will purportedly be a hub where undisclosed big money comes in and then gets disbursed to Kochs’ political groups such as Americans for Prosperity.
The idea is to make sure contributors and the Kochs can continue pouring massive amounts of money into their interests without anyone knowing.
It does so by exploiting the tax code and by taking advantage of lax enforcement by the IRS.
This is a case where the IRS – if it does its job – could play a big role in halting shady political campaign spending.
The rules that govern nonprofits are ambiguous and these organizations take advantage of that. IRS needs to clarify the definition of various kinds of nonprofits and what they are allowed to do – and then they need to enforce it.
Two Kinds of Nonprofits
Koch’s new umbrella group, "Association for American Innovation" is organized as a trade association (501(c)(6)), which means it is set up to advance the interests of a particular industry. The Chamber of Commerce, for example, is trade association.
A 501(c)(4) nonprofit, on the other hand, is for public interest organizations, those that promote the public good. The Koch’s Americans for Prosperity and Karl Rove’s Crossroads GPS are registered under this category, but if the IRS clarified the rules, that would be illegal.
"A (c)(6) is exactly where you’d expect captains of industry to go for political leverage out of the public view, especially if the notorious 501(c)(4) organizations are about to be more heavily scrutinized and regulated by the IRS," attorney Greg Colvin, an expert in nonprofit law, told the Center for Media and Democracy.
Donors to both kinds of groups are allowed to contribute anonymously, unless it is specifically earmarked for a political ad. In contrast, PACs must disclose all donations.
But it’s illegal for either kind of nonprofit to have political intervention as its primary purpose, and here is where the IRS looks the other way.
Clearly, groups like Crossroads GPS have only one purpose – to elect Republicans to office and to spend donations directly on political ads and campaigns.
But the IRS has ignored this and allowed hundreds of groups to get away with this designation. Even worse, 501(c)(4) organizations are exempt from paying taxes.
Brendan Fischer of PR Watch writes on AlterNet:
"To assess whether an ad or expenditure counts as "political intervention," the IRS uses multi-factor "issue advocacy" rules and a vague "facts and circumstances" approach. This includes enough wiggle room for dark money groups run by the Kochs or others to argue that their ads or organizing drives should count as "education" or "lobbying" rather than electoral advocacy — preserving their nonprofit status while shielding their spending and funding from public view."
The IRS has the power to clarify the definition of "political intervention" and enforce the law, which would prevent these groups from their shadowy operations.
It should use this power, because any attempt to reform the system in Congress is confronted by overwhelming lobbying efforts by those very same groups!
The Kochs, for example, lobby against any bill that would enhance transparency in election spending, such as the Disclose Act, which failed to pass last year.
"So long as huge amounts and proportions of political campaign funds can flow through multi-purpose 501(c) entities, the task of achieving public disclosure will be almost impossible," Colvin told a Senate Subcommittee.
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They defund IRS so there is no staff to do the job.