Watchdog: Koch-Backed Group Bending Tax Code
Citizens for Responsibility and Ethics in Washington, the campaign finance watchdog, is calling on the IRS to investigate Freedom Partners, a fund tied to the Koch Brothers that quietly doled out $235 million in grants to conservative groups last year.
As we reported in September, when news of the group's existence first broke, Freedom Partners made fairly novel use of a section of the tax code—501(c)(6)—reserved for trade associations, like the National Beer Wholesalers Association, or chambers of commerce. Freedom Partners calls itself a chamber of commerce, but it seems to be driven by political ideology rather a common business interest.
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"I haven't seen a situation like this, and we watch that area pretty closely," Jim Clarke, the senior vice president of public policy at the Society of Association Executives, a sort of trade association of trade associations, told National Journal at the time. Most "dark money" political groups are organized as "social welfare" organizations under Section 501(c)(4) of the tax code, but 501(c)(6) status makes it easier for businesses to write off donations and may insulate groups from regulatory pressure.
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Now, CREW is calling on the IRS to look into the Koch-backed group's use of this tax designation, writing in a complaint to the tax agency that "it is clear the organization's activities do not meet [the] criteria" of a 501(c)(6) organization. Freedom Partners' only activity last year was to distribute money to other groups. "How does operating as a pass-through for anonymous sources to influence our elections mesh with the concept of a business league?" CREW Executive Director Melanie Sloan asked in a statement.
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CREW is also asking the IRS to issue new rules clarifying what 501(c)(6) organizations can and can't do ahead of next year's election.
"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," Sloan said. "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."
After Citizens United, Speech Now, and other recent court rulings, wealthy people of all political stripes seeking to influence elections have been in an arms race with regulatory agencies as well as outside watchdog groups and journalists seeking more transparency. CREW and others worry that Section 501(c)(6) could be a brand new class of weapons in this battle.
UPDATE (4:55 p.m.): James Davis, the spokesperson for Freedom Partners, responded to the complaint in a statement to the National Journal: "It's not surprising the Soros and Democracy Alliance funded CREW is attacking an organization that supports free-markets. Freedom Partners Chamber of Commerce follows all IRS regulations as a non-profit, nonpartisan business league that advances our members common business interests by promoting free-market policies. All of our activities are described in our tax Form 990 which is posted on our website."
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