Steve Bullock scores debate night win against Trump administration in ‘dark money’ case

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Governor of Montana Steve Bullock (BRENDAN SMIALOWSKI/AFP/Getty Images)

Just before Montana Gov. Steve Bullock took to the bright lights of the Democratic debate stage Tuesday, he scored a victory in federal court against the Trump administration that could affect influential “dark money” groups.

A federal judge in Montana overturned a new Internal Revenue Service rule that allowed some tax-exempt nonprofits, including politically active 501(c)(4) groups, to avoid reporting names and addresses of donors who gave $5,000 or more in tax returns submitted to the agency. 

The new rule, enacted by the Treasury in July 2018, was met with opposition from Democrats and groups advocating for stricter campaign finance rules. Political nonprofits are already able to keep donors hidden from the public, but Bullock argued the new rule would make it harder for Montana to crack down on illegal foreign money in its elections if the IRS didn’t have donor information on hand. 

Bullock, as well as the state of New Jersey, swiftly filed a lawsuit against the IRS, arguing the federal government violated the Administrative Procedure Act by failing to give the public enough time to offer input on the proposed rules. 

Judge Brian Morris sided with Bullock, overturning the new rule. The Barack Obama appointee said the IRS must provide a notice-and-comment procedure before adopting a similar measure. 

“Then, and only then, may the IRS act on a fully-informed basis when making potentially significant changes to federal tax law,” Morris wrote in his conclusion. 

Treasury Secretary Steven Mnuchin said his agency changed the rules in part to prevent leaking of confidential donor information, which occurred in 2013 when the IRS posted unredacted tax forms revealing donors to the Republican Governors Association Public Policy Committee. Mnuchin said the IRS could still get names and addresses of donors to nonprofits during audits. 

The change was met with celebration by conservative groups, and came following lobbying from the conservative Center for Individual Freedom, which reported spending $60,000 on lobbying to support “executive action to eliminate the Schedule B.”

Senate Democrats, along with Sen. Susan Collins (R-Maine), voted to overturn the rule in December on a near party-line vote, but the Republican-led House never held a vote. Democrats introduced new legislation this year to overturn the new rule, but it wasn’t going to get a vote in the upper chamber — Senate Majority Leader Mitch McConnell (R-Ky.) applauded the IRS rule change saying it “protects free speech and association.”

Bullock has centered his presidential campaign around stricter campaign finance laws, arguing that dark money must be quashed before lawmakers can make real changes.

Dark money groups reported $148 million in outside spending to the FEC during the 2018 cycle, not including money spent on so-called issue ads aired before election season and other undisclosed political efforts. The groups also contributed more than $176 million to super PACs. Dark money groups have spent more than $1 billion since the Supreme Court’s 2010 decision in Citizens United v. FEC that led to a boom in undisclosed spending. 

Foreign nationals are prohibited from making federal contributions and politically-active groups cannot use foreign funds to influence elections. The influential National Rifle Association, one of many dark money groups potentially affected by the IRS rule change, admitted taking small amounts of money from Russian nationals ahead of the 2016 election in which it spent record sums to support President Donald Trump. 

Politically active 501(c)(4)s are not supposed to have politics as their primary purpose, which is generally understood as a rule against spending more than half of their money on political efforts. But the rules lack clarity about how much politicking is too much and regulators are already struggling to address noncompliance by these groups. An October 2018 Inspector General report found that the IRS failed to document more than 1,000 cases in which nonprofits allegedly conducted impermissible political activity. 

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