Democrats slam prospect of 'darker' money after IRS ruling on non-profit donors

The Trump administration is lifting requirements that some tax-exempt groups disclose the identities of their donors to U.S. tax authorities.

The change benefits groups that spend millions of dollars on political ads, such as the U.S. Chamber of Commerce and an organization tied to the billionaire Koch brothers.

Republicans accused the Internal Revenue Service, during President Barack Obama's tenure, of liberal bias and unfair targeting of conservative tax-exempt groups. Now those groups figure among the organizations allowed to withhold names of their donors under the new IRS policy announced late Monday.

For decades, the Treasury has required tax-exempt groups organized under Section 501(c) of U.S. tax law to disclose to the IRS the identities of their financial donors. The disclosures have been confidential, not public, although there have been occasional leaks of information.

Treasury Department officials portrayed the changes as important free speech and privacy protections for donors, while also preserving government transparency. But critics see the easing of disclosure requirements as opening the door to more dark money in political campaigns.

"Americans shouldn't be required to send the IRS information that it doesn't need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area," Treasury Secretary Steven Mnuchin said in a statement.

Mnuchin said the same information on tax-exempt groups that was previously available to the public will continue to be so, while private taxpayer data will be better protected.

Critics note curious timing of announcement

Critics said the action will hurt openness in political campaigns and allow hidden unscrupulous donors to funnel money into the system.

"It is another Trump blow against transparency and for obscurity — hardly his promised swamp drainage," said Norman Eisen, chief ethics lawyer in the Obama administration who is a governance studies fellow at the Brookings Institution.

Steven Rosenthal from the Urban-Brookings Tax Policy Center said the move was particularly ill timed. The change comes this week as federal prosecutors charged a gun-rights activist living in Washington with serving as a covert Russian agent gathering intelligence on U.S. officials and political organizations. Court papers show the activities of the activist, Maria Butina, included efforts to use contacts with the National Rifle Association to develop relationships with U.S. politicians during the 2016 campaign.

"Foreigners are not allowed to contribute directly or indirectly to campaigns. If a foreign entity or government tried to use a [non-profit] indirectly, the IRS ought to make sure that money's not being used in a political campaign," said Rosenthal.

The NRA is one of the groups that will benefit from the new IRS policy, but so too could left-leaning groups such as Planned Parenthood, the Sierra Club and labour unions.

Oregon Sen. Ron Wyden, the senior Democrat on the Senate finance committee, said Tuesday he'll vote against President Donald Trump's nominee to head the IRS, Beverly Hills tax lawyer Charles Rettig, unless Rettig commits to restoring the disclosure requirement.

"Trump's Treasury Department made it easier for anonymous foreign donors to funnel dark money into non-profits the same day a Russian national linked to the NRA was arrested for attempting to influence our elections," Wyden said. "It's the latest attempt by Secretary Mnuchin and Donald Trump to eliminate transparency and keep officials and lawmakers from following the money."

Kochs' AFP group praises decision

House Democratic Leader Nancy Pelosi denounced the IRS move as "President Trump's late-night giveaway to shady donors and interest groups [that] makes dark money even darker."

Under the new IRS policy, charities that mainly receive tax-deductible contributions and political organizations, will still have to provide in their annual returns the names and addresses of their donors giving at least $5,000. But so-called social welfare organizations, business leagues and labour unions will be relieved of a requirement that the Treasury Department said Congress never imposed.

The IRS "makes no systematic use" of donor information provided by those groups in carrying out tax rules, the government said, and if the information is needed for an audit, the IRS could ask the group for it directly.

The Chamber of Commerce praised the new policy.

"This action will help ensure that sensitive donor information will not fall into the hands of those who wish to suppress the First Amendment right to free speech," spokesperson Blair Holmes said in a statement. "The U.S. Chamber strongly supports the right of all organizations — no matter their ideological or political persuasion — to participate vigorously in our nation's important policy conversations."

Americans for Prosperity is one of the groups backed by the influential network of conservative billionaire brothers Charles and David Koch.

"Preserving the right to privacy is essential to protecting free speech and free expression," the group's chief government affairs officer Brent Gardner said. "We support the IRS taking this step in protecting the free-speech rights of all Americans, regardless of political views or affiliations."

The NRA didn't immediately comment on the IRS policy change.