Tuesday, January 21, 2014

Donors Seek to Skirt IRS on Political Fundraising

As the IRS moves to limit campaign fundraising by nonprofit groups, lawyers are looking for ways to enable donors to continue to pour money into elections while remaining anonymous. According to a recent Wall Street Journal story, one option is the creation of taxable, for-profit businesses to be used as campaigning vehicles. Another idea involves donors banding together in trade associations. Neither type of group is required to disclose their members. In November of last year, the IRS proposed new rules to limit political activity by social-welfare groups, known as 501(c)(4) groups, whose donors can contribute unlimited amounts on an anonymous basis. A 2010 Supreme Court ruling allowed for companies to spend unlimited amounts of money to support or oppose candidates, and these organizations are not required to report their activities to the Federal Election Commission since they are not seeking tax-exempt status. Unlike political action committees (PACs), these groups, such as the Democratic firm Catalist and the GOP group called America Rising, do not have to disclose donors, clients, or spending and can work directly with political campaigns, though they are required to pay taxes on any profits. The taxable, for-profit entities are making it difficult to distinguish political-consulting firms from advocacy groups, experts note, even though companies must be able to demonstrate they have a legitimate business purpose other than campaign activity to avoid being defined by the IRS as a PAC. Many already do, saying they are providing services for a price, such as polling, consulting, and advertising. Meanwhile, political trade associations and charities, known as 501(c)(6) groups, similar to the U.S. Chamber of Commerce, are also finding ways to raise huge sums on an anonymous basis. The IRS has already hinted it may institute new rules to regulate these types of "business leagues" for their role in campaigning. For more, see

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