Washington, DC – In a letter sent today to U.S. Attorney General Loretta Lynch, Sen. Sheldon Whitehouse (D-RI) is urging the Department of Justice (DOJ) to crack down on “a pattern of open and notorious abuses” in our nation’s campaign finance system. Specifically, Whitehouse argues that some 501(c)(4) “social welfare” organizations take advantage of ambiguities in Treasury Department rules to raise and spend unlimited amounts of money in secret.
Whitehouse has long urged federal agencies to take action on this issue. In the wake of the so-called scandal in which the Internal Revenue Service (IRS) targeted certain applications for nonprofit status for extra scrutiny based on buzzwords like “progressive” or “tea party,” Whitehouse spoke on the Senate floor to point out that there were really two scandals at the IRS. The other, he argued, was “allowing big shadowy forces to meddle in elections anonymously through front groups that file false IRS statements.” In 2014, he led a group of 16 U.S. Senators on a letter urging the Department of the Treasury and the IRS to put an end to unlimited secret spending in elections by tax-exempt groups. And today, since IRS and Treasury have failed to act, Whitehouse is urging DOJ to step in.
“Many of the groups formed as 501(c)(4)s precisely because the current virtually lawless regime allows them to avoid disclosure,” Whitehouse writes.
Current 501(c)(4) regulations allow groups to collect unlimited, undisclosed donations, and to engage in some political activity so long as their “primary” activities are geared toward “social welfare.” However, the Treasury Department and the Internal Revenue Service have never clarified how much political intervention would violate the primary activity standard, nor have they clarified exactly what activities constitute political intervention.
“Because Internal Revenue Service regulations are so unclear,” Whitehouse continues, “groups reporting millions of dollars in election spending to the Federal Election Commission simultaneously answer ‘no’ to questions on official tax forms asking whether they participate in political activity… That these groups are engaging so openly in abuses undermines the rule of law and threatens our democracy.”
“I have been told that the Department of Justice cannot act independently to investigate tax-related violations because of a combination of statutory and self-imposed restrictions, even in cases where the most important evidence – potentially false forms, signed under oath – is already in the public domain. I note that false statement prosecutions under 18 U.S.C. § 1001 are governed by the regular criminal code, not the tax code. Given the increasing, and increasingly brazen, role of dark money in federal elections, I hope you will reconsider the Department’s position.”
The full text of Whitehouse’s letter is below.
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July 15, 2015
Dear Attorney General Lynch,
I write to express concern about the enforcement of our tax laws as they relate to the critical issue of campaign finance. In light of the Internal Revenue Service’s failure to promulgate rules clarifying limitations on political spending by 501(c)(4) “social welfare” organizations, I urge the Department of Justice to take appropriate steps to investigate a pattern of open and notorious abuses.
As you know, when the Supreme Court struck down provisions of the Bipartisan Campaign Reform Act (“BCRA” or “McCain-Feingold”) in Citizens United v. Federal Election Commission in 2010, it assumed that the BCRA’s disclosure requirements would create “a regime of effective disclosure.” Such a regime, to the extent it ever was established, has completely broken down with regard to non-profits—in large part because of ambiguous and permissive Treasury Department rules regarding political spending by these organizations. Many of the groups formed as 501(c)(4)s precisely because the current virtually lawless regime allows them to avoid disclosure.
While Section 501(c)(4) of the Internal Revenue Code establishes tax-exempt status for nonprofits “operated exclusively for the promotion of social welfare …. ,” Treasury regulations allow 501(c)(4) organizations to engage in campaign intervention as long as their “primary” activity involves social welfare. Because Internal Revenue Service regulations are so unclear, groups reporting millions of dollars in election spending to the Federal Election Commission simultaneously answer “no” to questions on official tax forms asking whether they participate in political activity.
Tax-exempt non-profits tailored to specific candidates’ political needs are operating in plain view with no apparent fear of accountability or repercussions. Acknowledging her own agency’s inability to effectively police political spending, Federal Election Commission Chairwoman Ann Ravel likened the atmosphere to the “Wild West.” She also went so far as to say that, “The likelihood of the laws being enforced is slim.” As the New York Times recently reported, “scant enforcement” has led some nonprofits to “become huge political operations” and “unofficial extensions of … campaigns.” According to the Washington Post, the widespread collaboration between candidates and their “independent” allies “indicates that candidates and their advisors have little fear that they will face serious scrutiny from law enforcement.” That these groups are engaging so openly in abuses undermines the rule of law and threatens our democracy.
I have been told that the Department of Justice cannot act independently to investigate tax-related violations because of a combination of statutory and self-imposed restrictions, even in cases where the most important evidence – potentially false forms, signed under oath – is already in the public domain. I note that false statement prosecutions under 18 U.S.C. § 1001 are governed by the regular criminal code, not the tax code. Given the increasing, and increasingly brazen, role of dark money in federal elections, I hope you will reconsider the Department’s position.
Sincerely,
Sheldon Whitehouse
U.S. Senator
[1] Citizens United v. FEC, 558 U.S. 310, 370 (2010).
[1] Associated regulations state that “[t]he promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”
[1] Bykowicz, Julie, “Candidates get Creative in Funding Search,” Associated Press, June 17, 2015
[1] Lichtblau, Eric, “F.E.C. Can’t Curb 2016 Election Abuse, Commission Chief Says,” New York Times, May 2, 2015
[1] Lichtblau, Eric, “IRS Expected to Stand Aside as Nonprofits Increase Role in 2016 Election,” New York Times, July 5, 2015.
[1] Gold, Matea, “It’s Bold but Legal: How Campaigns and their Super PAC Backers Work Together,” Washington Post, July 6, 2015.
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