Democrats make second attempt to overturn IRS rule that could encourage foreign ‘dark money’

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Rep. David Price, D-N.C. (Tom Williams/CQ Roll Call)

Democrats are taking another crack at killing a 2018 Treasury Department rule that makes it so some 501(c) tax-exempt nonprofits — including politically active 501(c)(4) “
dark money” groups — don’t need to disclose donor names and addresses in tax returns submitted to the IRS.

With every Democrat voting in favor, the Senate narrowly approved a resolution to overthrow the rule under the Congressional Review Act in December 2018, but the resolution did not get a vote in the GOP-held House.

The rule change was met with widespread outrage from campaign finance watchdogs that argue the new rules will encourage foreign individuals to contribute to politically-active nonprofits influencing U.S. elections.

Titled the “Spotlight Act,” legislation from Senators Ron Wyden (D-Ore.) and Jon Tester (D-Mont.) — accompanied by an identical bill from Rep. David Price (D-N.C.) in the House — would overturn the rule change and restore donor disclosure to the IRS.

“At a time when our elections are plagued by unlimited corporate spending, anonymous donors, and illegal foreign meddling, the Trump administration’s decision to obscure millions in dark campaign money weakens our already failing campaign finance system and diminishes the power of voters,” Price said in a statement.

Dark money groups reported nearly $148 million in outside spending to the FEC during the 2018 cycle, not including money spent toward so-called issue ads aired before election season and other undisclosed political efforts, and contributed more than $176 million to super PACs.

Foreign nationals are prohibited from making federal contributions and politically-active groups cannot use foreign funds to influence elections. Though the IRS doesn’t directly enforce the foreign money ban, the FEC or Department of Justice (DOJ) could request an unredacted version of a politically-active nonprofit’s tax returns in order to assess whether it had received foreign money, said Brendan Fischer, director of federal reform at the Campaign Legal Center.

McClatchy reported in July 2018 that Special Counsel Robert Mueller likely got access to the National Rifle Association’s (NRA) hidden donors as part of his investigation into Russian interference in the 2016 election.  

A few weeks later, Treasury Secretary Steven Mnuchin announced the IRS rule change, just hours after the arrest of alleged Russian agent Maria Butina — accused of infiltrating the NRA.

The NRA spent a record $54.4 million in 2016, much of which went to help elect President Donald Trump, all while keeping its donors hidden as a dark money nonprofit. In a letter to Wyden, the NRA said it received roughly $2,500 from Russian sources in 2016.

Mnuchin justified the IRS rule change by noting it will prevent confidential donor information from leaking — as it did in 2013 when the IRS posted unredacted tax forms revealing donors to the Republican Governors Association Public Policy Committee. He also noted that nonprofits must continue to keep donor information in their own records.

It’s unlikely the bill will ever see the floor so long as Senate Majority Leader Mitch McConnell controls the upper chamber, as he applauded the rule change saying it “protects free speech and association.”

On the bill’s chances of reaching the floor, one Democratic Senate aide said “I would ask Senate Majority Leader McConnell about that.” McConnell’s office did not immediately respond to a request for comment.

Even if the bill reached the Senate floor and passed both chambers, President Donald Trump would be waiting on the other side with a veto ready — and a two-thirds override appears impossible. The December 2018 resolution passed with just 50 votes, with every Republican except Sen. Susan Collins (R-Maine) voting nay.

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