Lax IRS regulation allows “dark money” groups to thrive

As we’ve previously written, the growth of 501(c)4 groups after the 2010 Citizens United case has changed the way money and politics interact. The rise in new groups over the past decade has also stretched the IRS’s ability to effectively manage or regulate them, according to a report from ProPublica.

Despite all the calls from the campaign trail to end the role these organizations play in election financing, it seems that just the opposite is happening within the halls of the IRS. 

More Groups, Fewer Regulators

While the number of 501(c)4 groups has increased over the past few years, the number of IRS staffers assigned to review applications and monitor existing organizations has dropped by nearly half. According to ProPublica, the IRS employed 942 people to oversee nonprofits in 2010, compared to 585 in 2018.

Fewer eyes on these organizations means that more complaints from public interest groups and ordinary citizens against them are going unanswered and uninvestigated. Groups know this and are taking advantage of it to push the boundaries even more.

In fact, the IRS did not formally review any of the more than 2,000 complaints it received between September 2017 and March 2019. While not every claim submitted was likely worthy of consideration, sheer odds suggest that at least a few of them were. 

In addition, the bar to establish a new 501(c)4 organization has seemingly never been lower. According to Nonprofit Quarterly, the IRS rejected just three of the nearly 1,500 applications for new organizations it received in 2017. Again, the odds suggest that this number would be higher in a well-functioning system.

Allegations of Bias

In addition to staff cuts, the IRS is also dealing with the consequences of a 2013 scandal in which the organization was accused of unfairly targeting conservative groups that were applying for nonprofit status.

Conservative politicians and media — already skeptical of the government’s role in society — saw this as an opportunity to further discredit the IRS and make regulators think twice before exercising their oversight power.

“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,” one former IRS employee told ProPublica. “I locked down my Facebook page. I deleted all personal Twitter posts. I stopped telling people where I worked. I tried to become invisible.”

In addition, Congressional Republicans conducted their own investigations into bias allegations, which meant the IRS had to spend its time responding to requests for information and testifying at hearings instead of working directly with 501(c)4 groups.

Can the States Step In?

State governments can sometimes step in when the federal government is unable to take action. States have been leading the way in recent years on everything from medical marijuana to blocking enforcement of the Trump administration’s immigration policies. 

Is there a reason to believe the same thing can happen with regulating 501(c)4 groups? The short answer is — maybe.

Attorneys general at the state level have the authority to oversee political nonprofits in their states, but often face the same budget and staffing challenges that the federal government does. Further, elected officials may be hesitant to go after groups that may wind up on their list of donors in future elections.

Jim Sheehan, chief of the charities bureau at the New York Attorney General’s Office, spoke to those challenges earlier this year at an event about exempt organizations.  

“It’s the Wild West out there,” Sheehan said.

Given those challenges, it’s unlikely that any substantive change in the oversight of 501(c)4 groups will occur before the 2020 election. 

Photo Credit: Dan Meyers on Unsplash

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