TaxProf Blog

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

Tuesday, August 7, 2018

ProPublica: The IRS’ Dark Money Decision May Be Less Dire Than It Seems

Pro PublicaProPublica, Why the IRS’ Recent Dark Money Decision May Be Less Dire Than It Seems:

Starting next year, the Internal Revenue Service will no longer collect the names of major donors to thousands of nonprofit organizations, from the National Rifle Association to the American Civil Liberties Union to the AARP. Democratic members of Congress and critics of money in politics blasted the move, announced last week by the Treasury Department, the IRS’ parent agency. The Democrats claim the new policy will expand the flow of so-called dark money — contributions from undisclosed donors used to fund election activities — in American politics. For their part, Republicans and conservative groups praised the decision as a much-needed step to avoid chilling the First Amendment rights of private citizens.

The Supreme Court’s decision in Citizens United unleashed these groups, typically organized as 501(c)(4) nonprofits, to spend unlimited amounts of money on campaign ads. Their role in American politics has grown increasingly central. In theory, the new IRS policy could have a significant impact on the tax agency’s ability to detect improper contributions — and thereby curb illegal campaign spending.

But in practice, even critics acknowledge that the IRS very rarely audits nonprofits. In other words, the IRS will no longer receive information that it was seemingly making little use of. And the information in question was already shielded from the public’s view.

Up to now, IRS regulations have required all types of nonprofits to report the names and addresses of each major donor, as well as the dollar amount the donor contributed that year, on their tax returns. But the IRS can override this reporting requirement in certain cases when it finds that the information is “not necessary for the efficient administration of the internal revenue laws.”

That’s what the IRS did last week — relieving most nonprofits, excluding 501(c)(3) charities and foundations, of the need to report the names and addresses of major donors. “The IRS simply does not need tax returns with donor names and addresses to do its job in this area,” Treasury Secretary Steven Mnuchin said in a press release.

https://taxprof.typepad.com/taxprof_blog/2018/08/propublica-the-irs-dark-money-decision-may-be-less-dire-than-it-seems.html

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Comments

I agree with ProPublica's point of view, as far as it goes. The real distress, as I pointed out in my coverage of this story for The Nonprofit Quarterly (NPQ), is at the state level. From the article: "In addition to further shrouding the identities of donors from the IRS, the rule change also makes it more difficult for states seeking to regulate political expenditures on elections held within their borders."

See: https://nonprofitquarterly.org/2018/07/18/treasury-weakens-donor-disclosure-requirements-for-some-nonprofits/

Posted by: Michael L. Wyland | Aug 8, 2018 11:37:49 AM

That the IRS is not auditing is not news. However, this same information is very useful is individuals are trying to determining who and how much are institutions and individuals attempting to influence our elections and congress. In Montana we think we have a right to know. Where would we go now?

Posted by: Raymond Young | Aug 8, 2018 4:23:18 PM