Nonprofits that spend money to influence elections but are not required to disclose donors to the public — called “dark money” groups by critics — no longer need to share their donors’ names or addresses in their tax filings under a new Treasury Department rule announced Monday.
The decision was immediately heralded by free-speech advocates who have long sought to protect donors’ private information. But it was rebuked by those who want to reduce the role of money in politics, who claim it would make U.S. elections more susceptible to anonymous foreign donations.
How significant is the change? Here is what you need to know.
Wealthy donors can give unlimited sums of money to politically active nonprofits registered under sections of the Internal Revenue Service code, without their names or addresses being revealed in the nonprofits’ public tax filings.
There has been a surge of political activity by such nonprofit groups since the 2010 landmark Supreme Court Citizens United decision that allowed corporations to spend unlimited sums on campaigns.
These donors’ names, addresses and donation amounts were previously reported to the IRS, but the IRS would redact the names and addresses for public release.
With this policy change, the organizations will still be required to retain the donor information, but no longer have to submit it to the IRS.
That means if the IRS is suspicious about a donation reported on a nonprofit’s tax filing, the agency can still ask the nonprofit to turn over records about that donor — including their name and address.
Why did Treasury change the policy?
Some nonprofits and free-speech advocates have long expressed concerns that the names and addresses may be used by the government to politically target the donors, noting previous scandals that found the IRS targeted tea party and progressive groups.
They also note the risk of donor information being released publicly by accident, either by the IRS or by the nonprofits.
Former IRS commissioner Mark Everson, now vice chairman of alliantgroup, said the agency’s requirement of this donor information was “an extension beyond its normal tax collecting duties.”
In a conference call Tuesday, senior Treasury officials said the new rule would help prevent the improper disclosure of donor information by the federal government.
The Treasury officials also stressed said the move would save thousands of organizations money by reducing their compliance costs and would save the IRS time by reducing paperwork.
“The IRS doesn’t use this information and has no need for this information,” said David Keating, president of the nonprofit Institute for Free Speech, which opposes limits on political speech.
Democrats and advocates warned the new rule would make it easier for foreign actors to funnel money into the U.S. political system.
Some tax experts raised concerns the new rule would make it more difficult for authorities to discover fraudulent activity, by depriving the IRS of a tool to track the flow of cash.
“I personally saw there was corruption in business leagues, labor unions, cemeteries, and fraternal organizations,” said Marv Friedlander, a former IRS official who spent 40 years in the organization, including its exempt-organization unit. “And the ability to begin by looking at large donations — whether tax deductible or not — was a useful tool in pursuing the possibility of corruption.”
Roger Colinvaux, nonprofit tax law expert at the Catholic University of America, said the new rule “could be characterized as reinforcing the dark money loophole by taking donor information completely off the public record.” The fact that the IRS had this information in the past “might have dissuaded” potential foreign actors, he said.
Others say this particular requirement has not been an effective tool to enforce the prohibition on foreign influence.
“I don’t see how filing the donor information with the IRS – how making an entire sector file information with the IRS is an effective way to prevent foreign money being used to influence elections,” said Beth Kingsley, nonprofit law expert at Harmon, Curran, Spielberg and Eisenberg.
These tax returns — Schedule B of the Form 990 — should not look too different, experts say.
Right now, you can request the tax return of a nonprofit and see if a certain wealthy individual made a huge donation to a nonprofit. But you cannot see who made the donation.
For example, tax returns filed by a Virginia-based nonprofit Wellspring Committee showed that in 2016, a single anonymous donor gave $28.5 million, much of which went toward boosting President Donald Trump’s Supreme Court nominee Neil Gorsuch.
We do not know who that person was — it is redacted from the tax return released to the public — but the IRS does.
Under the new policy, you will still be able to see itemized donations in Schedule B, according to a Treasury official.
So the public still will not know who made that $28.5 million donation, and now, neither will the IRS.
Follow the Bangor Daily News on Facebook for the latest Maine news.