Sens. Whitehouse and Warren Push Treasury Secretary Yellen to 'Rein In Abuse' of Dark Money Groups

Former Federal Reserve Chair Janet L. Yellen, confirmed as Treasury secretary in January 2021, spoke in Wilmington, Delaware on December 1, 2020. (Photo: Demetrius Freeman/The Washington Post via Getty Images)

Sens. Whitehouse and Warren Push Treasury Secretary Yellen to 'Rein In Abuse' of Dark Money Groups

"The IRS's regulation and enforcement related to 501(c)(4) organizations has been woefully inadequate in the post-Citizens United era."

In a Wednesday letter to recently confirmed Treasury Secretary Janet Yellen, Sens. Sheldon Whitehouse and Elizabeth Warren, attested to "the corrosive influence of dark money" and expressed hope that she will ensure the department reexamines "how it regulates dark money groups and restore transparency to our political landscape."

The senators' letter (pdf) aims to continue a conversation from Yellen's Senate Finance Committee hearing last month. Whitehouse (D-R.I.) has been on the committee and Warren (D-Mass.) announced Tuesday that she is joining it for the new congressional session. She is also on the Senate Committee on Banking, Housing, and Urban Affairs.

Whitehouse and Warren specifically express alarm over how the Internal Revenue Service--a bureau of the Treasury Department--has enforced rules governing groups organized under section 501(c)(4) of the tax code. Such organizations, often called "dark money" groups because they don't have to disclose donors, are required to operate exclusively "for the promotion of social welfare" but are allowed to engage in political activity as long as it accounts for less than half of their total spending.

"As was discussed at the hearing and we outline below," the senators write in the opening paragraph of the letter, "the IRS's regulation and enforcement related to 501(c)(4) organizations has been woefully inadequate in the post-Citizens United era. We urge you to undertake a careful review of what the IRS has done, reform its approach, and rein in abuse by 'dark money' organizations."

They point out that once the landmark U.S. Supreme Court ruling in Citizens United v. Federal Election Commission "unlimited political spending in elections, the value of hiding donors' identities exploded, and political activity by 501(c)(4) groups exploded in parallel. Since 2010, 501(c)(4) organizations have spent over $900 million on political expenditures, compared to $103 million in the previous decade."

"Citizens United wrought a seismic shift in the political ecosystem. These figures, while staggering, show only a facet of the massive, sophisticated political operation of these big influencers," the letter adds. "For example, these figures do not include money spent on 'issue ads' (often thinly veiled political attack ads), nor on official lobbying expenditures, nor on conventions and retreats in exotic locations designed to 'educate' policy makers, nor on impact litigation and amicus briefs that these organizations have turned into a burgeoning legal influence industry, nor do they contemplate the value of private threats and promises that the prospect of unlimited spending enables."

The senators also highlight a 2017 audit discrediting an earlier finding from the Treasury Inspector General of the Tax Administration that the agency had singled out certain right-wing groups for extra scrutiny--which special interests and their political allies used "to batter the IRS" via budget cuts, threats, and legislation barring the agency from issuing clarifying rules on 501(c)(4) political activity.

Although the 2017 audit showed left-leaning groups were also flagged for increased scrutiny, "the damage had been done." As Whitehouse and Warren detail:

The IRS was cowed from regulating or even investigating a small, powerful cadre of savvy political operatives who formed and funded a flotilla of nonprofit front groups, through which anonymous money flows into elections, in contravention of a clear statute and the IRS's own rules. Enforcement has become so weak that abuses have become open and notorious. According to one ProPublica study, from 2015-2019, the IRS failed to strip any nonprofit of its tax-exempt status, despite receiving thousands of complaints of abuse from watchdog groups and concerned taxpayers. Flagrant discrepancies between sworn statements made to the IRS and sworn statements made by the same group to election regulators have been turned a blind eye.

The dark money problem was exacerbated under the Trump administration, which promulgated a rule in 2020 that allows 501(c)(4)s to withhold their donor information from the IRS on their annual Form 990 reports. Dark money got darker.

Looking ahead to potential fixes, the senators acknowledge that "Treasury and the IRS are not alone to blame for the dark money problem infecting our body politic. Republican appropriations riders have tied Treasury's and the IRS's hands, preventing promulgation of new regulations regarding 501(c)(4) political activity."

"We are heartened that the Senate and House are poised to take up and pass the For the People Act (H.R.1/S.1), which would shine more light on dark money," they write. "However, absent a legislative fix, Treasury and the IRS should shift to a more robust 501(c)(4) enforcement regime, and thoroughly investigate the situation so those appropriations riders can be reviewed."

"Most immediately, Treasury should work with the Department of Justice and other law enforcement agencies investigating the attack on the United States Capitol on January 6, 2021," Whitehouse and Warren add, citing reports that dark money groups helped organize and fund the rally that ultimately led to the deadly insurrection.

The senators emphasize that they "seek no infringement on First Amendment speech rights," declaring that "basic, commonsense disclosure requirements restrict no one's right to speak, nor to spend money to influence elections. Disclosure is what permits citizens to do the work of citizenship in a republic, knowing the identity of political actors contesting for power."

In addition to the For the People Act--which recent polling shows is supported by a majority of U.S. voters across the political spectrum--a bipartisan group of lawmakers last month reintroduced a constitutional amendment to overturn Citizens United.

Rep. Ted Deutch (D-Fla.), one of the co-sponsors, said at the time that "we cannot allow the wealthiest individuals and corporations to flood our elections with cash through complex webs of super PACs and dark money groups that put special interests above the will of the American people."

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