The advocacy group Citizens for Responsibility and Ethics in Washington has filed a
The petition follows up on a lawsuit in February by the group, known as CREW for short, in which it sued the IRS for failing to properly regulate tax-exempt social welfare organizations organized under Section 501(c)4 of the Tax Code, which were spending vast sums of money on political campaigns (see
Section 501(c)(6) of the Tax Code provides tax-exempt status for organizations such as business leagues, chambers of commerce, and boards of trade. Recognizing “business league” to be an ambiguous phrase, in 1919, the IRS defined it as an “association of persons” with a “common business interest, whose purpose is to promote the common business interest.”
Taking advantage of the fact that the IRS has never provided guidance as to what activities serve the common business interests, 501(c)(6)s increasingly are serving as vehicles for wealthy groups and individuals to funnel anonymous or “dark” money to other tax-exempt organizations to influence elections. Section 501(c)(6) groups reported spending more than $46 million on federal campaigns in 2010, and more than $55 million in 2012.
“If there’s a loophole in the tax code, it’s a sure thing that someone will take advantage of it,” said CREW executive director Melanie Sloan in a statement. “If the IRS fails to act, Americans should expect to see an increase in the number of so-called business leagues’ created to funnel money into our elections while cloaking the identities of their donors.”
In addition to the rulemaking petition, CREW also filed a
During the 2011 reporting period, Freedom Partners’ activities allegedly consisted of providing more than $235 million in grants to 30 different tax-exempt groups, including organizations such as the Center to Protect Patient Rights, Americans for Prosperity and the National Rifle Association. Because the grants were provided for “general support,” CREW argued, there is no guarantee the money was spent furthering the common business interests of Freedom Partners and its members, as the law requires. Freedom Partners did not immediately respond to a request for comment. CREW provided some
“How does operating as a pass-through for anonymous sources to influence our elections mesh with the concept of a business league?” said Sloan. “Given all the problems surrounding 501(c)(4) organizations, and with the 2014 election cycle getting underway, it is imperative for the IRS to clarify its regulations and nip abuse of 501(c)(6) status before it gets out of hand.”