The IRS Just Made Dark Money Darker

The IRS will no longer require certain nonprofits to report the names of their donors. This rule change will make it easier for secret and foreign money to flood our political system. States and localities will need to push back with forceful transparency measures.

July 23, 2018

Until now, tax-exempt organizations had to give the IRS the names and addresses of donors who gave them $5,000 or more. Such information could be relevant if the agency were investigating whether a nonprofit was primarily acting for tax-exempt purposes or more focused on something else, such as, say, electioneering. Last Monday, the U.S. Treasury scrapped that rule for certain types of nonprofits – including social welfare groups, such as the NRA and NAACP, and labor unions, which have engaged in political activity. The rule change makes it easier for unaccountable money to influence our elections, and sounds the alarm for more states and cities to join the localities that have recently passed laws to counter dark money.

To be sure, the IRS has hardly been aggressive about examining whether nonprofits abuse their tax-exempt status to shield donors who fund political spending. Advocates have called the agency a "toothless watchdog,” and its leadership has come under fire in previous years for turning a blind eye to violations and approving questionable applications for tax-exempt status. What’s more, none of this donor information was ever public – just auditable behind closed doors.

Still, this rule change enables even greater secrecy at a time when the stakes are especially high for preventing covert influence in American politics. Large-scale foreign spending is now a well-documented threat. We know foreign money has gone toward influencing U.S. elections, potentially including some part of more than $35 million in NRA dark money-backed political ads in 2016. Mandatory donor disclosure was one tool for safeguarding against the misuse of nonprofits for such ends. The Treasury’s decision to end those disclosures came on the same day the Department of Justice charged a Russian national with attempting to use the NRA as a “back channel” to influence American politics.  

The Treasury’s decision chips away at the main bulwark against unchecked political spending after Citizens United: transparency. The Supreme Court in that decision reasserted, by an 8-to-1 vote, the importance of transparency in a democracy. Yet Treasury Secretary Steven Mnuchin claimed that ending major-donor disclosure was important to ensure that “private taxpayer information will be better protected.” His reasoning echoed a popular argument of anti-disclosure advocates.

The federal government has, over and over, proven itself out of step with the rest of the country when it comes to making elections fair and accountable in an age of unlimited political spending. Instead, states and cities have had to step into the breach by passing tougher disclosure measures. As the Brennan Center has found, stronger transparency laws and better enforcement enable Americans to make better-informed choices and hold elected officials accountable, and they correlate with lower levels of secret spending in elections. Among numerous reforms, the Maryland legislature passed a bill this April to bring transparency to online political advertising. California’s 2017 DISCLOSE Act requires campaigns and independent spenders to name their top three funders at the start of political ads. Washington state passed its own DISCLOSE Act this year, enacting new transparency rules for nonprofits that spend $10,000 or more a year on elections – some of the same groups now exempt from IRS scrutiny. State and local efforts like these to enact meaningful campaign finance reform, including tough transparency measures, have never been more urgent.

Shyamala Ramakrishna is a Research & Program Associate at the Brennan Center.


Purchasing Power: The Conversation

This post is part of the special series designed to provide well-informed commentary, fresh questions, and new answers about the facts of money in politics. Dive in to 'Purchasing Power: The Conversation' here. 

The views expressed by blog contributors are the authors’ own and not necessarily the views of the Brennan Center.