Parting the Dark Money Sea: Exposing Politically Active Tax-Exempt Groups Through FEC-IRS Hybrid Enforcement
2015; Routledge; Volume: 57; Issue: 1 Linguagem: Inglês
ISSN
0043-5589
Autores Tópico(s)Corporate Taxation and Avoidance
ResumoTABLE OF CONTENTS INTRODUCTION I. TAX LAW AND ELECTION LAW FOUNDATIONS A. Internal Revenue Code Provisions 1. Section 501(c)(4) Social Welfare Organizations 2. Section 527 Political Organizations B. Campaign Finance Doctrinal Framework 1. Statutory Basis and Underlying Values 2. Evolving Case Law II. ESCALATING POLITICAL ACTIVITY OF TAX-EXEMPT SOCIAL WELFARE ORGANIZATIONS: WHERE TAX LAW AND ELECTION LAW INTERSECT A. IRS Treatment of Political Activity 1. Conflicting Threshold Standards 2. Vague Definitional Problem B. Section 501(c)(4) Organizations Have Emerged as the Preferred Campaign Finance Vehicle 1. Increased Independent Expenditures 2. Relaxed Reporting Provisions 3. The Coordination Problem C. Deregulation's Impact on Values that Support Campaign Finance Restrictions III. PROPOSAL: FEC-IRS HYBRID ENFORCEMENT, ENHANCED BY INTERNAL AGENCY REFORMS A. Internal Agency Reforms 1. Filing Requirements 2. Earmarked Funds 3. Combatting the Daisy Chain Effect 342 WILLIAM & MARY LAW REVIEW [Vol. 57:341 B. Cooperative Regulation: Pooling Together Tax and Election Enforcement Powers CONCLUSION INTRODUCTION The Internal Revenue Service (IRS) grants tax exemptions to nonprofit entities organized under [section] 501(c)(4), and in exchange, restricts these groups to a social welfare purpose. (1) Such a restriction limits how much political activity [section] 501(c)(4) organizations can fund. (2) Engaging in political action necessarily involves the Federal Election Commission (FEC), the Agency founded to enforce the federal election laws (campaign finance restrictions in particular), (3) and so there is an unavoidable intersection of tax law and election law when these tax-exempt groups participate in partisan activity. This Note aims to improve the system designed to regulate this overlapping area of the law by pooling the respective powers of the IRS and the FEC. The collaborative framework proposed herein presents an opportunity for an enhanced regulatory landscape, in which the two Agencies work better together than either can alone. Consider the following examples of the murky campaign finance world, where funding sources are obscured and the true messages of campaigns are confused. In the 2010 election, the [section] 501(c)(4) organization Commission on Hope, Growth, and Opportunity ran a series of television advertisements with cartoon depictions of prominent Democrats, including President Obama and Representative Nancy Pelosi, dancing in a conga line and living it up in Washington. (4) The ads called on viewers to join the Republicans, whom the Commission presumably viewed as more viable candidates. (5) This message likely appeared partisan for many viewers--a call to action for Republican voters--but the Commission did not register as a political committee or report any political spending to the FEC. The group also declared no political spending to the IRS, despite listing on its tax return that 96 percent of its total expenditures ($4.6 million) were on advertisements like the one described. (6) In the 2014 North Carolina Senate race, the Iowa-based [section] 501(c)(4) American Future Fund (AFF) launched a series of online advertisements endorsing libertarian candidate Sean Haugh and praising him for supporting marijuana legalization. (7) AFF did report the expenditures to the FEC, (8) but more significant here is the confusion such an advertisement creates. AFF actually supported Republican candidate Thom Tillis, but the point of the ad was to portray Haugh as the best choice for progressive values--a preferable alternative, then, to Democrat incumbent Kay Hagan. The ads also provided a new slogan for Haugh--More weed, less war--which his campaign did not approve. (9) To the average North Carolina voter, it may have appeared that Haugh, or a group supporting Haugh, paid for or approved of the advertising. …
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