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On Dark Money, a Glimmer of Hope from the IRS

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Tax watchers and nonprofits have been waiting to hear four little words from IRS Commissioner John Koskinen … and they may have just heard them.

Those words? “[A]nd other (c) organizations,” spoken last Friday in an interview with Tax Analysts Magazine. In that interview,Commissioner Koskinen said for the first time that a new definition of political activity will apply beyond just 501(c)(4) social welfare organizations.

Why are those words so critical? Nonprofits organized under section 501(c) of the tax code are allowed to do some political activity without disclosing the source of their funding. Those groups have poured more than $100 million into our elections just this cycle, all without having to tell voters who is buying the ads they’re seeing. The IRS is currently working on new rules that could clarify the definition of political activity and drive political spending to groups that do disclose their donors.

The last draft of the rules would have only applied to (c)(4)s, which could have caused dark money to move to other tax-exempt organizations, such as 501(c)(6) trade associations, in order to continue evading disclosure rules. Commissioner Koskinen’s statement seems to confirm that new rules will apply to exempt organizations beyond just (c)(4)s and is an indication that the IRS is serious about ending the game of regulatory whack-a-mole.

Public Citizen’s Bright Lines Project has long advocated for a clear, fair, definition of political activity that would apply to all nonprofits. Voters are also overwhelmingly supportive of clearer rules, according to a recently-released poll.

The commissioner’s four words are a glimmer of a good sign as the IRS prepares to release a new draft of the rules early in 2015. The IRS has said that redrafted regulations will consider what the definition of political activity should be, how much political activity exempt organizations should be allowed to do, and to which exempt organizations new rules should apply.

As we await more details on the next draft of the rules, nonprofits and voters can breathe a small, cautious, sigh of relief that the IRS is on the right track.

Emily Peterson-Cassin is the Bright Lines Project Coordinator for Public Citizen’s Congress Watch division

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