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Forum Post: Lawsuit Against the IRS over loophole for Dark Money

Posted 5 years ago on Feb. 20, 2013, 1:34 p.m. EST by TrevorMnemonic (5827)
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Washington, D.C. — Today, Citizens for Responsibility and Ethics in Washington (CREW) and former congressional candidate Dr. David Gill filed a lawsuit against the Internal Revenue Service (IRS) in the United States District Court for the District of Columbia for flouting a federal law barring 501(c)(4) organizations from engaging in political activity. Groups such as the American Action Network (AAN) have relied on an IRS-created tax loophole to spend hundreds of millions of dollars on electioneering activity without disclosing their donors.

CREW Executive Director Melanie Sloan stated, “Disgracefully, the IRS has sat on its hands for the last two election cycles while 501(c)(4) groups have been formed expressly to run negative attack ads funded by anonymous donors. When called out, the IRS has said only that it is ‘aware’ of the public’s concern. Now the IRS can explain its deplorable inaction in federal court.”

In 2012, David Gill, an emergency room physician, ran for Congress in Illinois’13th district. AAN, headed by former Sen. Norm Coleman (R-MN), funded false and misleading negative ads and robocalls against Dr. Gill, forcing his campaign to spend significant time and money attempting to counter them. AAN reported spending nearly $1.5 million opposing Dr. Gill — more than $1 million of which funded negative ads in the final weeks of the campaign.

AAN received substantial financial contributions from both insurance giant Aetna and the Pharmaceutical Research and Manufacturers of America, both of which oppose the single-payer, national health care plan supported by Dr. Gill. The ads AAN ran against Dr. Gill falsely claimed he was a “mad scientist” who wanted to destroy Medicare and raise taxes. Reputable polls indicated Dr. Gill led throughout the campaign, but in the wake of the AAN ads, Dr. Gill lost by 0.3 percent of the votes, making it the third-closest House race in the country.

“Campaigns should be transparent,” said Dr. Gill. “Voters should know who is funding political advertisements, so that they have the information necessary to properly evaluate the claims contained therein. By its inaction, the IRS has allowed shadowy groups to influence elections under a cloak of darkness.” Gill went on to note, “I ran for office because I believe in the democratic process and public service. I am taking this action against the IRS in furtherance of those beliefs — to ensure that anonymous dark money groups cannot continue to taint the political process by operating under the guise of social welfare organizations.”

Federal law states 501(c)(4)s must operate “exclusively for purposes beneficial to the community as a whole.” In contrast, IRS regulations allow a group “primarily” engaged in activities that promote the public welfare to take advantage of 501(c)(4) status. Many 501(c)(4) groups have interpreted this to mean they can spend up to 49 percent of their funds on political activities. The lawsuit, however, alleges the IRS regulation is invalid because “exclusively” and “primarily” are not synonymous and 501(c)(4) groups should be barred from engaging in political activities.

In its 2010 application to the IRS, AAN stated it expected to spend less than 20 percent of its resources on political activities. Within days of receiving IRS approval of its 501(c)(4) status, AAN acknowledged it planned far greater political activity than it had represented. Previously, CREW has filed two complaints with the IRS and one with the Federal Election Commission, alleging AAN violated tax and campaign finance laws.




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