TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, December 23, 2015

The IRS Scandal, Day 958

IRS Logo 2Politico, White House Surrenders on 'Dark Money' Regulation:

The Obama administration has thrown in the towel on cracking down on hundreds of millions of dollars in “dark money” — funds given to advocacy groups that claim to be social welfare organizations rather than political committees.

Closing the so-called social-welfare loophole — which exempts the groups from federal tax and disclosure requirements — was one of the most urgent priorities of campaign-finance reformers in the wake of the Supreme Court's decision in the Citizens United case. But then the IRS came under fire for holding up conservative groups applying for the social-welfare tax exemption, and many Republicans cried foul.

By giving in to a GOP provision in the omnibus spending bill, the administration has effectively given up on limiting the political influence of nonprofit groups with unknown funders. ...

Some suspect that the Obama administration was wary of litigating the issue in the midst of the 2016 campaign. Even though Koskinen had assured lawmakers the rules would not take effect before the election, tea party groups and others on the right would almost certainly have pounced on any proposal released before then as an effort to muzzle free speech.

“From the Obama administration’s point of view, nothing was going to happen this election cycle … it was going to happen after he was done anyway,” said David Keating, president of the Center for Competitive Politics, which supports the rider. “And going into an election year the last thing they needed to do probably was raise the whole topic of the IRS scandal again.”

Congress didn’t stop there.

Keating pointed to a handful of other riders and tax provisions in the year-end tax-and-spending deal — including a provision barring the Securities and Exchange Commission from requiring corporations to disclose campaign spending to shareholders, and a ban on applying the gift tax to nonprofit donors. ...

The issue stems as much from the 2013 IRS scandal as it does from Citizens United. Republicans were infuriated when the IRS inspector general disclosed the agency had stalled the applications of tea party-affiliated organizations after Citizens United.

The report triggered the biggest scandal in recent IRS history: Several officials, including Exempt Organizations Director Lois Lerner, were pushed out, and the agency is still under investigation on the Hill. The inspector general called for clearer guidelines for delineating social welfare groups and political organizations. In response, the IRS floated guidance in November 2013 to police the political activity of social welfare groups.

But the proposal — released just over six months after the targeting scandal came to light — caused such an uproar that agency officials said they would start over from square one.

Technically, the congressional regulation ban lasts only through September 2016, but the timetable for finalizing regulations means the effort will have to be left to the next administration. A Republican president presumably would bury the rules, and a Republican Congress could continue to block them under a Democratic administration.

“If they were going to finalize this before the [Obama] administration leaves office they’d have to release the proposal by around Jan. 20 … so the delay until the end of the fiscal year effectively kills the regulation,” Georgetown law professor Brian Galle said.

“To be honest I expected them to issue it on Christmas Eve,” Galle said. He added: “What surprises me is the administration didn’t stand up a little more firmly on this provision …They didn’t even, as far as I know, make any effort to bluff that they were going to [veto it].”

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Comments

Ah happy day for the "conservatives!" They have succeeded in neutering the IRS. One more brick in the wall between the people and democracy.

Posted by: Publius Novus | Dec 23, 2015 7:56:00 AM