[Senate Hearing 117-423]
[From the U.S. Government Publishing Office]


                                                          S. Hrg. 117-423

                     LAWS AND ENFORCEMENT GOVERNING
                      THE POLITICAL ACTIVITIES OF
                          TAX-EXEMPT ENTITIES

=======================================================================

                                HEARING

                               BEFORE THE

               SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT

                                 OF THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 4, 2022

                               __________
                                                                        

            Printed for the use of the Committee on Finance

                                __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
55-356 PDF                  WASHINGTON : 2024                    
          
----------------------------------------------------------------------

                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania   TIM SCOTT, South Carolina
MARK R. WARNER, Virginia             BILL CASSIDY, Louisiana
SHELDON WHITEHOUSE, Rhode Island     JAMES LANKFORD, Oklahoma
MAGGIE HASSAN, New Hampshire         STEVE DAINES, Montana
CATHERINE CORTEZ MASTO, Nevada       TODD YOUNG, Indiana
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                 ______

               Subcommittee on Taxation and IRS Oversight

               SHELDON WHITEHOUSE, Rhode Island, Chairman

DEBBIE STABENOW, Michigan            JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          CHUCK GRASSLEY, Iowa
BENJAMIN L. CARDIN, Maryland         JOHN CORNYN, Texas
SHERROD BROWN, Ohio                  RICHARD BURR, North Carolina
CATHERINE CORTEZ MASTO, Nevada       ROB PORTMAN, Ohio
ELIZABETH WARREN, Massachusetts      PATRICK J. TOOMEY, Pennsylvania
                                     BEN SASSE, Nebraska

                                  (II)
                           
                           
                           C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Whitehouse, Hon. Sheldon, a U.S. Senator from Rhode Island, 
  chairman, Subcommittee on Taxation and IRS Oversight, Committee 
  on Finance.....................................................     1
Thune, Hon. John, a U.S. Senator from South Dakota...............     3
Stabenow, Hon. Debbie, a U.S. Senator from Michigan..............     5

                               WITNESSES

Hackney, Philip, associate professor of law, University of 
  Pittsburgh School of Law, Pittsburgh, PA.......................     6
Smith, Bradley A., chairman, Institute for Free Speech, 
  Washington, DC.................................................     8
Ravel, Hon. Ann, former Chair, Federal Election Commission, Los 
  Gatos, CA......................................................    10
Walter, Scott, president, Capital Research Center, Washington, DC    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hackney, Philip:
    Testimony....................................................     6
    Prepared statement...........................................    27
    Responses to questions from subcommittee members.............    40
Ravel, Hon. Ann:
    Testimony....................................................    10
    Prepared statement...........................................    41
    Responses to questions from subcommittee members.............    44
Smith, Bradley A.:
    Testimony....................................................     8
    Prepared statement...........................................    45
    Responses to questions from subcommittee members.............    53
Stabenow, Hon. Debbie:
    Opening statement............................................     5
Thune, Hon. John:
    Opening statement............................................     3
    Prepared statement...........................................    60
Walter, Scott:
    Testimony....................................................    12
    Prepared statement...........................................    62
    Responses to questions from subcommittee members.............    73
Whitehouse, Hon. Sheldon:
    Opening statement............................................     1
    Prepared statement...........................................    80

                             Communications

Arabella Advisors................................................    83
Campaign Legal Center............................................    84
Common Cause.....................................................    86
Council on Foundations...........................................    87
End Citizens United/Let America Vote Action Fund.................    88
Independent Sector...............................................    89
National Taxpayers Union Foundation..............................    91
OpenSecrets......................................................    97
People United for Privacy........................................   102
Public Citizen...................................................   106

 
                     LAWS AND ENFORCEMENT GOVERNING
                      THE POLITICAL ACTIVITIES OF
                          TAX-EXEMPT ENTITIES

                              ----------                              


                         WEDNESDAY, MAY 4, 2022

                               U.S. Senate,
        Subcommittee on Taxation and IRS Oversight,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:08 p.m., 
via Webex, in Room SD-215, Dirksen Senate Office Building, Hon. 
Sheldon Whitehouse (chairman of the subcommittee) presiding.
    Present: Senators Stabenow, Menendez, Cortez Masto, Warren, 
and Thune.
    Also present: Democratic staff: Dan Smith RuBoss, Senior 
Economic Policy Advisor to Senator Whitehouse; and Claire Kim, 
Counsel to Senator Whitehouse. Republican staff: James 
Williams, Tax and Trade Advisor to Senator Thune; and Jason Van 
Beek, General Counsel to Senator Thune.

 OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR 
 FROM RHODE ISLAND, CHAIRMAN, SUBCOMMITTEE ON TAXATION AND IRS 
                OVERSIGHT, COMMITTEE ON FINANCE

    Senator Whitehouse. Welcome, everyone. I will call the 
hearing to order and express my gratitude to the witnesses for 
being here, and to Senator Stabenow for being here. Ranking 
Member Thune is on his way, and if somebody could do something 
about my volume control--I have to whisper because, otherwise, 
I will blow the doors off the room--that would be a big help.
    We are here to consider what is going on with enforcement 
of the political activities of tax-exempt organizations. And I 
will make an opening statement and then, if Senator Thune is 
here, I will invite him to make an opening statement. If no one 
is here but Senator Stabenow, I will invite her to say a few 
words, and then we will get on to the witness testimonies. And 
I want to thank Ms. Ravel, who is here also, but 
electronically, so she is not in the room with us.
    Twelve years ago, the Supreme Court rested its decision in 
Citizens United on the false predicate that effective 
disclosure--their words--effective disclosure would let voters 
know who was speaking to them. That was important, because it 
was the means by which it would dispel corruption.
    Well instead, a torrent of dark money, a ``tsunami of 
slime,'' it has been called, washed into our politics. That 
torrent washed into our politics from behind a veil of 
organizations formed under section 501(c)4 of the Internal 
Revenue Code.
    Unlike most groups spending money in elections, 501(c)4 
organizations are not required to disclose their donors. The 
statute governing these organizations states they must be 
operated exclusively for the promotion of social welfare, but 
the IRS muddied those waters with a regulation that allowed 
social welfare organizations to devote up to 49.9 percent of 
their spending to political activities and still qualify for 
501(c)4 status.
    Predictably, these organizations became a conduit for the 
secret political spending that Citizens United said was 
``corrupting.'' In the decade preceding Citizens United, 
501(c)4 organizations spent $103 million on political 
expenditures. In the decade following it, they spent over $1 
billion. It was a hell of a tsunami.
    The dark money flowing through the 501(c)4s has gotten 
darker. As soon as the IRS sought to review the explosion of 
these political groups after Citizens United, dark money 
interests whipped up a scandal, claiming the IRS was unfairly 
targeting conservative groups for scrutiny.
    Let's set the record straight. This is false. An exhaustive 
2017 report from the Treasury Inspector General for Tax 
Administration found no such unfair targeting of conservative 
groups, as did a bipartisan investigation from this very 
committee. And I ask unanimous consent that the Treasury 
Inspector General report \1\ and the Committee on Finance, U.S. 
Senate, report \2\ be put into the record here.
---------------------------------------------------------------------------
    \1\ https://www.tigta.gov/sites/default/files/reports/2022-02/
201710054fr.pdf.
    \2\ https://www.finance.senate.gov/imo/media/doc/CRPT-114srpt119-
pt1.pdf.
---------------------------------------------------------------------------
    The damage was nevertheless done. The fake scandal cowed 
the IRS, and an appropriations rider in place in 2015 blocked 
the IRS from promulgating regulations to clarify political 
rules for 501(c)4 organizations. This means groups flout limits 
on political activity with little risk to their tax-exempt 
anonymized status.
    As early as 2012, a ProPublica investigation found that 
roughly 3 in 10 of the 501(c)4 organizations they surveyed 
reported to the FEC that they had spent money on 
electioneering, but reported to the IRS that they had spent no 
money to influence elections either directly or indirectly. It 
is hard to see how both statements could be true.
    A report out last week from the Citizens for Responsibility 
and Ethics in Washington describes several recent examples of 
this problem. \3\ One example is the NRA. And I ask unanimous 
consent that the CREW report I am referring to be put into the 
record, and without objection.
---------------------------------------------------------------------------
    \3\https://www.citizensforethics.org/reports-investigations/crew-
reports/the-irs-is-not-enforcing-the-law-on-political-nonprofit-
disclosure-violations/.
---------------------------------------------------------------------------
    CREW says, and I will quote them here: ``Between 2008 and 
2013, the NRA reported to the FEC, the Federal Election 
Commission, that it spent nearly $11 million in independent 
expenditures out of its 501(c)4. In 2012, it reported making 
$7,448,385 dollars in independent expenditures, more than half 
of which were spent opposing Barak Obama or supporting Mitt 
Romney in that year's presidential race.''
    Remarkably, the NRA told the IRS, under penalty of perjury, 
that it spent absolutely nothing on political campaign 
activities between 2008 and 2013, nor did it file a Schedule C 
disclosing details of its political spending.
    Despite all this open and notorious predication for 
investigating whether there were false statements made, there 
is no sign that the IRS is doing much enforcement. A 2018 
Treasury Inspector General for Tax Administration Report 
estimated that over 1,000 cases of impermissible political 
activity by 501(c)4s weren't even forwarded to the agency's 
committee tasked with recommending audits, despite meeting the 
IRS criteria.
    According to a 2020 GAO review, the IRS between 2010 and 
2017 conducted only 226 examinations involving impermissible 
political campaign intervention. Of those, only 6 percent, a 
total of 14--14 examinations--involved 501(c)4s. That is fewer 
than two per year in the middle of that dark money tsunami.
    We cannot tolerate a system that lets 501(c)4 groups 
operate without oversight, not when they spend tens, even 
hundreds of millions of dollars per election cycle without 
disclosing their donors. Citizens are denied that most basic 
right to know what is going on around them in their democracy.
    First, we should free the IRS to promulgate clear rules for 
501(c)4 organizations--all of them.
    Second, the IRS should use the tools and resources it 
already has to crack down on blatant abuse. Lax enforcement 
sends a message that rules don't matter.
    Third, referrals need to be made of likely false statements 
so that the right officials in law enforcement, who prosecute 
false statements as a matter of regular bread and butter, can 
do their jobs and investigate. We are aware of no referrals at 
all to DOJ despite years of CREW, ProPublica, and press 
reporting of these flagrant discrepancies.
    I hope my colleagues will join me in untying the IRS's 
hands and providing them the tools and resources to enforce its 
most basic rules. The premise of transparency in Citizens 
United has been violated for far too long.
    With that, let me recognize my distinguished ranking member 
Senator Thune.
    [The prepared statement of Senator Whitehouse appears in 
the appendix.]

             OPENING STATEMENT OF HON. JOHN THUNE, 
                A U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Chairman Whitehouse. It is a 
pleasure to work with you on this subcommittee. The 
Subcommittee on Taxation and IRS Oversight is uniquely 
positioned to oversee the activities of the Internal Revenue 
Service, the executive branch agency charged with tax matters.
    It is my hope that we can use this hearing as a foundation 
to conduct appropriate oversight of the IRS and ensure that 
Americans' private tax-related information is protected.
    Today we are here to discuss the laws and enforcement as 
they apply to the political activities of tax-exempt entities 
and, by extension, how those laws and any proposed reforms 
impact Americans' freedom of speech, association rights, and 
ability to privately give to caucuses that they care about.
    Free speech is not just good in theory. It is a key driver 
of a healthy democracy. And allowing Americans to privately 
give to causes they care about is a fundamental component of 
protecting free speech and the First Amendment.
    Partisan legislation to force tax-exempt groups to choose 
between spreading their message and protecting donors' privacy 
runs a real and potentially corrosive risk of chilling speech. 
A few words about the scope of 501(c) organizations and the 
IRS.
    Section 501(c) of the Internal Revenue Code describes 28 
different categories of organizations that generally are exempt 
from Federal income tax. And we are going to focus much of 
today's discussion around four categories. These include 
501(c)3 charitable organizations, 501(c)4 social welfare 
organizations, 501(c)5 labor organizations, and 501(c)6 trade 
associations and business leagues--in other words, a wide range 
of entities that represent diverse constituencies and causes 
across the country, and include churches, charities, nonprofit 
foundations, advocacy groups, unions, and trade associations.
    The chairman has a particular interest in 501(c)4 
organizations and their impact on campaigns. And according to a 
recent New York Times analysis, the impact is anything but 
small, particularly for politicians on the left. The Times 
stated that in the last election, the left raised and spent 
more money from 501(c)4 donors than the right. The report 
showed that 15 of the most politically active nonprofit 
organizations that generally align with the Democratic Party 
spent more than $1.5 billion in 2020, hundreds of millions of 
dollars more than a comparable sample group aligned with the 
Republican Party.
    There was a deep bench of well-funded 501(c)4 organizations 
aligned with the Democratic Party that expressly support 
progressive policies and causes. Of course, there are plenty of 
related organizations on the right as well.
    The Senate Finance Committee has a long history of 
oversight in the 501(c) tax-exempt entities and the IRS's 
treatment of such organizations. Just a few years ago, the 
committee conducted a 2-year bipartisan investigation into the 
IRS's inappropriate targeting of 501(c)3 and 501(c)4 
applications for tax-exempt status.
    The investigation, which culminated in 2015, found that the 
IRS grossly mismanaged applications filed by Tea Party and 
other conservative organizations. The report showed that the 
IRS improperly disclosed taxpayer information from numerous 
conservative organizations, and that the agency systematically 
selected conservative organizations for heightened scrutiny in 
a manner wholly different from how it processed applications 
from left-leaning organizations.
    Indeed, the unifying factor for how Tea Party applicants 
were handled at the IRS was not specific political activities, 
but rather an underlying political philosophy.
    Americans, regardless of political affiliation, deserve to 
have an IRS that will administer the tax code with fairness and 
integrity and safeguard their private taxpayer information. 
Regrettably, recent history and current developments show the 
agency is falling short.
    Since last year's massive IRS leak or hack of taxpayer 
information, which the left-leaning ProPublica obtained and 
then used to publicize confidential taxpayer details, there has 
been no meaningful follow-up from the agency or the 
administration. Perhaps that is because the unauthorized 
disclosure of private taxpayer data by ProPublica conveniently 
advanced a preferred political narrative on tax policy.
    More fundamentally, the apparent leak, or hack, of private 
taxpayer information was a serious breach of trust between 
Americans and their government. And it puts everyday citizens 
at risk of intimidation or harassment by ideological foes. 
Americans have a right to know that the personal information 
they provide to the IRS remains confidential and will not be 
used to target them or to advance partisan political agendas.
    Americans are justifiably concerned about the IRS or, for 
that matter, any regulatory agency collecting more sensitive 
taxpayer and donor information than is necessary, and how that 
collection could impact their lives and their freedom of 
speech. Policymakers would be wise to heed their concerns.
    We have an excellent panel before us today. Thank you all 
for being here, and I look forward to hearing your testimony.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Thune appears in the 
appendix.]
    Senator Whitehouse. Thank you very much, Senator Thune.
    I will also give Senator Stabenow a chance to say a few 
opening words. The bombshell that dropped out of the Supreme 
Court the night before last has put a lot of turbulence into 
our lives and has caused a lot of unexpected meetings and 
things to happen. So, Senator Stabenow is facing, as a member 
of the Democratic leadership, a lot of activity, so I am 
delighted that she is here and would like to have her have this 
opportunity.

          OPENING STATEMENT OF HON. DEBBIE STABENOW, 
                  A U.S. SENATOR FROM MICHIGAN

    Senator Stabenow. Thank you very much, Mr. Chairman and 
Ranking Member. First, I would say I would hope that one of the 
things that comes out of all of the work on this would be to 
recommend that we pass the DISCLOSE Act, which would basically 
get rid of dark money on either side by requiring 501(c)4 
groups and super PACs and corporations spending substantial 
sums in elections to report significant donors. And 
transparency is what we really need.
    I wanted to just take a moment in the opening to bring this 
to something that, beyond elections and so on, really impacts 
all of us, so many people in our daily lives, and just in one 
area. And that is the cost of medicine, the cost of 
prescription drugs, and the impact of the pharmaceutical and 
health products industry right now.
    We know that they spent $354 million in lobbying. That was 
what happened last year, far more than any other industry, 
doubling the spending of the second highest industry. They have 
enough lobbyists--they have about 17 lobbyists for every member 
of the United States Senate. We know this. But what we don't 
know is what else is going on.
    Imagine how much undisclosed money is being spent by the 
pharmaceutical industry to defeat policies to drive down drug 
prices and health-care costs. We know there is much of that 
going on, but we don't know the numbers on that.
    And there are well-funded dark money efforts that not only 
influence, or attempt to influence members of Congress, but 
also each of us in our daily lives. For example, well-funded 
organizations with innocuous names like the American Chronic 
Pain Association, Americans for Patient Access, shape the news 
for doctors and patients when it comes to opioid medications, 
for example. And there are many, many, many examples of this, 
information going out by groups with these names, and we do not 
know who they are. We do not know where the money is coming 
from.
    And we all know the tragic consequences in this particular 
area. These groups were cited in a 2020 Grassley-Wyden report 
in this committee on the opioid industry's use of tax-exempt 
organizations.
    So, Mr. Chairman, I just want to say ``thank you'' for 
doing this really important hearing today. There are so many 
ways that this impacts our lives directly and indirectly, and I 
think it is important that we shine some sunshine on the groups 
and the money so that we understand what is going on.
    Senator Whitehouse. It is famously the best disinfectant.
    Let me now introduce our witnesses. Our first will be 
Philip Hackney, associate professor of law at the University of 
Pittsburgh. His scholarship focuses on the tax laws that govern 
the nonprofit tax-exempt sector, and he brings to us the 
particular practical experience of having served at the IRS in 
the Office of the Chief Counsel.
    We will then hear from Bradley Smith, the chairman and 
founder of the Institute for Free Speech. He is also the Josiah 
H. Blackmore II/Shirley M. Nault professor of law at Capital 
University, and previously served as a Commissioner and Chair 
of the Federal Election Commission.
    We will then hear from Ann Ravel. Ms. Ravel served as 
Commissioner of the Federal Election Commission from 2013 to 
2017, including time as Chair. And she formerly chaired the 
California Fair Political Practices Commission. She is 
currently a lecturer on ethics and campaign finance at Berkeley 
Law School.
    And our final witness will be Scott Walter, the president 
of Capital Research Center, who previously served in the George 
W. Bush administration as Special Assistant to the President 
for Domestic Policy, and was vice president at the Philanthropy 
Roundtable.
    Mr. Hackney, your full statement will be put into the 
record, and if you can give us your 5-minute summation, we 
would appreciate it very much.

   STATEMENT OF PHILIP HACKNEY, ASSOCIATE PROFESSOR OF LAW, 
     UNIVERSITY OF PITTSBURGH SCHOOL OF LAW, PITTSBURGH, PA

    Mr. Hackney. Chair Whitehouse, Ranking Member Thune, 
distinguished members of the subcommittee, thank you for 
inviting me to speak with you about the tax laws and IRS 
enforcement related to the political activities of tax-exempt 
entities.
    I am an associate professor of law at the University of 
Pittsburgh. I specialize in the Federal tax treatment of 
nonprofit organizations. From 2006 to 2011, I worked with the 
IRS Chief Counsel in DC overseeing the tax-exempt sector. Today 
this sector is my research focus.
    Our overall legal structure for political activities of 
nonprofits is imperfect but not bad; it is justifiable. Where 
we fall down is enforcement. That failure is a combination of a 
failed IRS budget, but also a failure for the IRS to pursue 
clear violations.
    These failures do not favor one party over the other, but 
favor those interests with the means and the willingness to 
abuse that legal structure. I want to focus on two fundamental 
points.
    First, the IRS budget is not sufficient to ensure the laws 
are equally and fairly enforced. The 2022 budget improved 
matters, but there is a hole to dig out from.
    Second, enforcement. Though the IRS can definitely blame 
the budget in part on its failure to enforce these laws, there 
are simple things that it could do to enforce the law that it 
is not doing.
    The budget. Congress shrank the IRS budget over the past 
decade. CBO reports the IRS budget fell by 20 percent in real 
dollars between 2010 and 2018.
    The IRS went from over 94,000 employees in 2010 to about 
73,500 employees in 2019--the fewest employees IRS has had 
since 1970. How has this impacted the exempt organizations 
group? The workforce shrank from 889 employees in 2010 to 
around 550 in 2019. As annual exempt organization applications 
increased, annual rejections decreased. In 2019, with over 
101,000 applications for exempt status, 66 rejections. 
Comparatively in 2010, with over 65,000 applications, 517 
rejections.
    What about audits? In 2010, IRS data suggests about a .38-
percent examination rate. In 2019, TEGE accounted that rate at 
.13 percent. While the IRS shrank, the tax-exempt sector grew. 
In 2010, charitable organizations reported $2.9 trillion in 
assets and $1.6 trillion in revenue. In 2017, charitable 
organizations reported over $4.3 trillion in assets, and almost 
$2.3 trillion in revenue. It continues to grow.
    When compared to the size of the sector, the idea the IRS 
might be able to use human resource-heavy examinations to 
ensure compliance is laughable.
    Enforcement. Efforts such as those recommended by GAO for 
the IRS to make better use of data available are the only way 
the IRS in this current environment can make headway against 
tax abuse. Robust information reporting thus needs to be the 
norm.
    Is the IRS using information reporting in the exempt 
organizations sphere dealing with political activities? 
Unfortunately, it appears the answer to that question is 
``no.'' First, the IRS recently chose less information, even 
though it recognizes information reporting matters in stopping 
tax abuse. The IRS ended the collection of substantial donor 
information for dark money organizations. That information 
matters for a range of tax laws, including those that govern 
political activity.
    Second, the IRS appears to not make use of relevant public 
information. CREW documents many occasions where a social 
welfare organization represents to the FEC that it made 
independent expenditures but reports nothing to the IRS. This 
situation cannot and should not abide.
    Thank you for inviting me to speak. The tax laws are built 
fairly well to prohibit the deduction of campaign expenditures, 
to promote a strong nonprofit sector, and to not subsidize 
politically related contributions. But the current anemic IRS 
budget, the lack of enforcement action by the IRS, and the 
failure to collect substantial donor information from dark 
money organizations creates a crisis.
    These factors undermine confidence in the tax system, the 
equal enforcement of the law, and our ability to operate a fair 
democratic system.
    I urge Congress to increase the budget to allow the IRS the 
ability to properly enforce the laws, but institutionally, I 
believe the IRS needs to be pushed and given support to enforce 
these laws. Additionally, I hope Congress considers ending the 
prohibition on the IRS enacting sensible rules in this area. It 
promotes transparency both in government and outside, and 
allows folks to know when they are going to step over the line.
    I believe the IRS can do that now, but these hindrances to 
the IRS are significant and need to stop. Thank you.
    [The prepared statement of Mr. Hackney appears in the 
appendix.]
    Senator Whitehouse. Thank you very much, Mr. Hackney.
    Mr. Smith?

           STATEMENT OF BRADLEY A. SMITH, CHAIRMAN, 
           INSTITUTE FOR FREE SPEECH, WASHINGTON, DC

    Mr. Smith. Thank you, Mr. Chairman, Ranking Member Thune.
    Under the Internal Revenue Code, a 527 organization exists 
to influence elections. And under Supreme Court precedence, it 
is only when that purpose of influencing elections is the major 
purpose of an organization that it can be required to register 
as a political action committee or PAC under the Federal 
Election Campaign Act, with the full donor disclosure that that 
entails.
    A 501(c)3 organization, on the other hand, is precluded 
from electoral activity as that term is defined by law. There 
must then be some category for organizations that engage in 
limited political activity--that is, organizations that do not 
have a major purpose of influencing elections but may have a 
lesser purpose of doing so. And these are primarily 501(c)4 
organizations. (c)4 organizations are required by statute to be 
operated exclusively for the promotion of social welfare. And 
it has become common in recent years to criticize the IRS 
because, despite this exclusive language, the agency's 
regulations allow (c)4s to engage in political activities so 
long as that is not their primary function. Anything more than 
a de minimis exception, these people argue, violates the 
statute.
    But this argument overlooks the fact that the statute does 
not define ``social welfare'' at all, leaving that entirely up 
to the IRS. There is no serious reason I can think of why 
social welfare should not include political activity.
    You who have devoted much of your lives to electoral 
politics and public service should know that as well as anyone, 
and I wonder if anyone on the committee would wish to say here 
today that members, their staffs, and their election campaigns 
operate contrary to the social welfare of the American people.
    The IRS regulations say that social welfare does not 
include political activity but that groups can meet the 
exclusive requirement if they engage in some political activity 
as long as they primarily engage in other activities. That is 
just a roundabout way of recognizing that political activity 
has to be defined at some level as including a social welfare 
function. Because otherwise, again, there is no spot for groups 
in America that do not engage in primarily electoral activity 
but want to engage in some electoral activity.
    From the revenue standpoint, (c)3 charities cost the 
government money because donors receive a tax deduction. Thus, 
the government indirectly subsidizes these (c)3 organizations 
and, for that reason, Congress has chosen to prohibit (c)3 
organizations from engaging in electoral politics.
    (c)4s, on the other hand, have no meaningful impact on 
revenue, and in fact they generate tax revenue when they spend 
money on political campaigns because their campaign spending is 
then taxed to the lesser of those expenditures or their net 
investment income. Otherwise, donations are from after-tax 
dollars. Thus, whether a group is to classify as a political 
committee under section 527 of the Code, or as a social welfare 
group under 501(c)4, it has no meaningful effect on Federal 
revenue, and thus there is no need for the IRS to be 
investigating these organizations to deny or reclassify their 
(c)4 status.
    If they engage in too much political activity--i.e., it 
becomes their primary focus--then they are subject to the 
campaign finance laws and penalties under the Federal Election 
Campaign Act, which is administered by the bipartisan, 
independent Federal Election Commission. An FEC determination 
would trigger an automatic reclassification of the group by the 
IRS to a section 527 organization, but again, this would have 
no effect on revenue, at least no meaningful effect.
    This is what IRS's National Taxpayer Advocate recommended 
in her report to Congress in 2013, that it, quote, ``may be 
advisable to separate political determinations from the 
function of revenue collection,'' and the IRS could rely on the 
determination of political activity from the FEC.
    Whether one believes the IRS in 2010 to 2012 was targeting 
conservative groups, or really making a whole bunch of errors, 
it was not a good thing. And when that happened, they were 
removed from this process of trying to determine who was 
engaged in political activity.
    Why this ongoing effort to embroil the IRS in the 
enforcement of political rules? The cynical reason is that some 
actually want the potential for partisan abuse of the agency. 
And though this is an inherently abusive power and almost 
always harms the IRS's 
revenue-collecting mission by sowing public distrust, a more 
serious but still urgent reason is that this would be 
unconstitutional if done directly under the Federal Election 
Campaign Act, because Supreme Court decisions have limited 
disclosure to organizations that have, again, the major purpose 
of electing candidates, or to contributions to groups only if 
those contributions are earmarked for elections.
    So this attempted end-run of the constitution is bad policy 
and, as indicated by the phrase ``end run,'' is probably 
unconstitutional.
    Let me conclude by noting that, in any case, the problem of 
so-called ``dark money'' is probably much less than it seems. 
Depending on how one defines it--and there is no legal 
definition of the term, and people use different definitions--
you find that between 0.6 percent and 7.4 percent of all 
political spending in the 2020 election cycle was so-called 
dark money. This is down from approximately 15 percent back in 
2000, long before Citizens United.
    Furthermore, most so-called dark money groups, such as the 
National Association of Realtors and related conservation 
advocates, are well known to the public. Those that are less 
well known are hardly unknowable. For example, Majority Forward 
was the third largest dark money spender in 2020. In less than 
10 seconds, a person can do a Google search and learn that 
Majority Forward is a Democratic Party-aligned advocacy group 
that campaigns against Republicans and conservative causes. It 
is literally the first link, and you do not even have to click 
through to read that description.
    Finally, while the courts have recognized an informational 
interest in disclosure, that interest is not about helping 
people to evaluate the quality of an argument, let alone 
holding people, quote, ``accountable'' for their speech. Its 
sole purpose is to assist voters--and this is us describing 
Buckley--in predicting the actions of elected officials. 
Otherwise, this is a limited exception to the general rule that 
it is not the government's business to investigate or track the 
memberships' political views and affiliations of American 
citizens.
    Thank you very much for your time.
    [The prepared statement of Mr. Smith appears in the 
appendix.]
    Senator Whitehouse. Thank you very much, Mr. Smith.
    Now we turn, I hope, electronically to Ms. Ravel, 
Commissioner Ravel.

          STATEMENT OF HON. ANN RAVEL, FORMER CHAIR, 
           FEDERAL ELECTION COMMISSION, LOS GATOS, CA

    Ms. Ravel. Thank you, Chairman Whitehouse, Ranking Member 
Thune, and distinguished members of the subcommittee. I too am 
honored to be here today to discuss the significance to our 
democratic process of the issues that this subcommittee is 
considering. Special tax benefits for nonprofit organizations 
were enacted by Congress to encourage social welfare 
organizations to operate exclusively for the promotion of the 
common good and the general welfare of the community. And an 
IRS decision subsequently was clear that if an organization is 
primarily political, it cannot be a 501(c)4 or 501(c)6.
    Federal tax law, enforced by the IRS, governs the extent to 
which those organizations may engage in activities supporting 
candidates without jeopardizing their tax-exempt status, and 
deciding if such activity requires public disclosure or the 
payment of tax.
    On the Form 990, expenditures for political purposes must 
be disclosed, and the IRS can and should remove tax-exempt 
status for violators of the law.
    Due to the Citizens United decision, lack of enforcement by 
the IRS, and the new IRS rule eliminating donor reporting 
requirements to the IRS, 501(c)4s are now a major source of 
anonymous and very large political contributions. This 
anonymity has exacerbated dark money, and it opens the avenue 
to allow foreign donors to interfere illegally in the United 
States' elections. And it has emboldened 501(c)4s to violate 
the law with impunity.
    In the Citizens United decision, eight members of the 
Supreme Court insisted on the importance of disclosure of 
political contributions, with Justice Kennedy going so far as 
to say, quote, ``that citizens, with transparency, can see 
whether elected officials are in the pocket of so-called `money 
interests,' and also transparency enables the electorate to 
give proper weight to different speakers and messages.''
    Additionally and notably, both Citizens United and Buckley 
v. Valeo said that a full Federal disclosure doesn't impose a 
chill on speech or expression. Shockingly, and as was just 
mentioned, according to the GAO report from February 3rd in 
2020, the IRS doesn't even check nonprofit tax records for 
signs of illegal foreign money in our elections.
    And the CREW report also mentioned that for much of the 
time since Citizens United, the IRS doesn't revoke section 
501(c)4 groups' 501(c)4 status for violating the law's limits 
on political spending, partly because they do not even review 
the ethics of filings to assure that political efforts of 
501(c)4s are consistent and truthful in their filings. CREW's 
report also mentioned that groups which had disclosed political 
spending to the FEC told the IRS, under penalty of perjury, in 
their tax returns that they did not engage in any political 
activity, or else they misrepresented the amount that they 
spent.
    The Federal agencies such as the FEC, the IRS, and DOJ that 
have overlapping missions regarding political spending do not 
work very often together. They do not consult--and I saw this 
when I was on the FEC--or coordinate information regarding 
violations of Federal law.
    Congress should not accept this barrier to enforcing the 
law that is violated by organizations that do receive special 
tax benefits that were intended by Congress for social welfare 
and not as conduits for political spending.
    The IRS and the Treasury Department should update the 
social welfare regulations to provide clarity around the 
standards to determine if an organization has operated 
exclusively for the promotion of social welfare. To do this, 
Congress needs to repeal and stop including a rider in must-
pass appropriations that has prevented the IRS and Treasury 
from taking this important step. This dark money rider has kept 
voters in the dark as to who is behind political spending that 
influences elections. And the regulations that were enacted 
decades before Citizens United must be updated to preserve the 
voter's right to know who is influencing elections.
    Thank you.
    [The prepared statement of Ms. Ravel appears in the 
appendix.]
    Senator Whitehouse. Thank you, Commissioner Ravel.
    And our final witness is Mr. Walter.

             STATEMENT OF SCOTT WALTER, PRESIDENT, 
            CAPITAL RESEARCH CENTER, WASHINGTON, DC

    Mr. Walter. Chairman Whitehouse, Ranking Member Thune, 
distinguished members of the subcommittee, thank you for the 
honor of addressing you and for addressing this critical topic 
of political activity by tax-exempt groups, which Capital 
Research Center has studied for decades.
    I have numerous agreements with the witnesses selected by 
the chairman. For instance, I agree multiple types of exempt 
groups must be considered, not just (c)4 dark money groups, and 
the groups across the political spectrum, as Ms. Ravel 
observed, that behave similarly. I second Professor Hackney's 
concerns, stated elsewhere, about the dangers of elite donors 
working against the common good. But we have significant 
disagreements.
    First, I agree with Professor Smith that donor disclosure 
is no cure. This supposed remedy presumes that money to a (c)4, 
like the chairman's friends at the League of Conservation 
Voters, is bad if government doesn't coerce the donors into the 
limelight. But I don't think the League's dark money has 
captured the chairman. I think he receives it because he and 
the League have shared views of what the social welfare 
requires. So disclosure brings little help but often causes 
great harm, especially when mobs threaten Americans across the 
spectrum. That is why the leading constitutional case in this 
area is one that protected the NAACP in Jim Crow Alabama. To 
this day, the NAACP defends donor privacy, as does the ACLU, 
and the Nation's largest LGBT advocacy group. This principle is 
so important that those left-leaning groups joined with a major 
Koch-funded group to oppose California's effort to abuse the 
Schedule B donors' list then required on IRS forms.
    Disclosure is a weapon, as even your witnesses, Mr. 
Chairman, at the hearing last year where I had the honor to 
testify, tacitly admitted. They said if I thought the left had 
more dark money than conservatives, I should want disclosure. 
Their logic? Donors in the groups they support are hurt by 
disclosure, so I should seek it to hurt the left. But I do not 
wish to harm donors and groups I disagree with, and I 
respectfully urge you to end your campaign to harm donors and 
groups you disagree with.
    Another way I disagree with the witnesses today is the 
excessive emphasis on (c)4 groups, misplaced for several 
reasons.
    First is the supposed threat of foreign intervention. 
Professor Hackney spins out ingenious possibilities, but is 
skimpy with actual examples. When I testified to the IRS in its 
decision to drop Schedule B donor lists for (c)4s and other 
groups, I observed how little evidence exists. I despise 
foreign interference in our elections, but most likely that 
rarely happens this way, because no rational villain abroad 
would look at our political system and think (c)4s hold the 
keys to the kingdom.
    Look at the money. Statistics can be sliced many ways, but 
let's take the largest dark money number I can find, the more 
than $1 billion Ms. Ravel mentioned. She likely was citing a 
report from the left-leaning OpenSecrets which estimated $1.05 
billion in 2020. OpenSecrets also gave total election spending 
as $14.4 billion. So dark money is about 7 percent. But this 
ignores the even larger money in the (c)3 world raised by 
groups active in political activity in its broadest sense, as 
Professor Hackney helpfully puts it.
    Capital Research Center doesn't have complete 2020 data, 
but for the 2018 cycle we estimated public policy (c)3 money at 
around $20 billion, compared to around $5 billion for hard 
political dollars. Dark money is a distant third.
    We should focus much more on (c)3s. I am a Catholic not a 
Manichee, so I do not think the political spectrum divides all 
good on one side, all evil on the other. But alas, abuses among 
(c)3s have a strong partisan tilt, leftward toward the 
Democratic Party.
    Just this week, Capital Research Center found another 
example of (c)3 abuse in a report from Vox, revealing emails 
from a Democratic super PAC. Writing donors, the super PAC 
describes the 2020 cycle's, quote, ``single most effective 
tactic for ensuring Democratic victories, namely (c)3 voter 
registration focused on underrepresented groups in the 
electorate,'' close quote.
    The super PAC even explains the tax advantages. Well-
designed (c)3 voter registration is, on a pre-tax basis, quote, 
``two to five times more tax-effective at netting additional 
Democratic votes than the tactics that campaigns will invest 
in. Because 90 percent of the contributions we are recommending 
for voter registration and get-out-the-vote efforts will go to 
(c)3 organizations and hence are tax deductible,'' after taxes, 
``such programs are closer to four to 10 times more cost-
effective. They are also eligible recipients of donations from 
donor-advised funds and private foundations.''
    I ask my fellow witnesses, do we want this in the (c)3 
world? These schemes are the culmination of decades of left-
wing (c)3 voter registration abuse. Liberal reporter Sasha 
Issenberg in his book The Victory Lab describes the Carnegie 
Foundation's registration and turnout drives as, quote, ``a 
backdoor approach to ginning up Democratic votes outside the 
campaign finance laws that apply to candidates, parties, and 
political action committees.''
    Here let me apologize for a mistake in my written 
testimony. I said Karl Rove had not used (c)3s to do 
registration and get out the vote, only (c)4s, but I was wrong. 
He only used 527 groups and party committees, never (c)3 or 
(c)4 money.
    Mr. Chairman, let me plead with you to find a way to have 
the Ford Foundation and its (c)3 allies rise to the level of 
Karl Rove's political morality and end their partisan 
registration work.
    [The prepared statement of Mr. Walter appears in the 
appendix.]
    Senator Whitehouse. Does that conclude your testimony?
    Mr. Walter. Yes.
    Senator Whitehouse. Thank you, Mr. Walter.
    Mr. Hackney, in the wake of the original look at the IRS 
into the 501(c)4 abuse, there was a battering that the agency 
took, a storm of right-wing disapproval by politicians, media 
outlets, dark money groups, charges to bring criminal referrals 
against one employee, efforts to impeach the IRS Commissioner. 
Did that storm of abuse have any effect, do you believe, on 
enforcement motivation within the agency?
    Mr. Hackney. I absolutely believe it did. It impacted the 
way the employees of the IRS feel, the way the institution of 
the IRS feels. It put both the employees at risk in operating 
within that space, and it put the mission of the IRS at risk 
within that space. And I don't think it was fairly done. I 
agree with the bipartisan report.
    Senator Whitehouse. Well, the reports afterwards appear to 
have confirmed that it was not fair. But never mind. We talked 
about the FEC reporting being inconsistent with the IRS 
reporting. To your knowledge, has the IRS ever inquired into 
that discrepancy, or asked the Department of Justice to look 
into whether those discrepancies under oath amounted to false 
statements?
    Mr. Hackney. To my knowledge, from observing outside, I 
have never seen that take place. I've never seen them move in 
those ways.
    Senator Whitehouse. And with respect to foreign use of 
these dark money avenues, have you ever seen the IRS take any 
investigative action to explore foreign use of dark money 
influence channels?
    Mr. Hackney. I have not, and I believe Commissioner Rettig 
recently testified that he does not know of any of that order.
    Senator Whitehouse. So, let's say that we start with the 
49.9 percent, and just round it to 50 for the sake of doing the 
math. If you give it to one--let's say you give $8 million. You 
give it to organization one, and organization one can spend $4 
million on politics, and then it can give the rest of its money 
to organization two, which having received $4 million, can then 
spend $2 million on politics and give the rest of its money to 
organization three, which can then spend $1 million on politics 
and give the remainder to organization four, which can spend 
half a million dollars on politics and, at the end of the day, 
93.75 percent of the money has been spent on politics because 
of coordination among the groups.
    And if you really wanted to play your cards right, you 
could give, let's say, a million dollars to each of five groups 
that coordinated to spend half and give half to the next one, 
spend half, give half to the next one. You would have a closed 
circle of spin-cycle donations. And at the end of the day, the 
donor would have achieved the goal of getting 93.75 percent--
actually with five, it would be another cut, so it would be 
more like 96 percent--of this money into politics, 
notwithstanding the 50-percent restriction.
    Setting aside the merits of the 50-percent restriction, 
which I think is idiotic, has the IRS ever inquired into some 
systematic attempts to get around that rule by these sort of 
spin-cycle donations among coordinating entities?
    Mr. Hackney. To my knowledge, they have not. I believe it 
is something that could be attacked. But in this current 
environment, I do not see it happening. I do not see them 
having the information to take that kind of situation on.
    Senator Whitehouse. Ms. Ravel, you have been in the Federal 
Election Commission seat yourself. You are aware of the concern 
of foreign money trying to influence our elections. In fact, we 
have seen Facebook political advertisements paid for, 
denominated in rubles, which apparently was something that the 
geniuses at Facebook could not figure out was potentially a 
problem.
    What should we be doing? How big a risk is foreign money 
coming through these avenues of influence? And what should we 
be doing about it?
    [Pause.]
    Senator Whitehouse. You may still be on mute.
    Ms. Ravel. Okay.
    Senator Whitehouse. You're there.
    Ms. Ravel. There is a really big risk of foreign money. And 
I saw it when I was at the Federal Election Commission. We knew 
that there was foreign money that was being spent in these 
avenues. And despite what people have said about OpenSecrets, 
while they are a data group, they are very good at analyzing 
these issues. And they themselves have seen evidence of foreign 
money coming into the United States' elections. And I think it 
is a huge risk. We know it is illegal. We know that foreign 
actors are not supposed to have influence on our electoral 
process.
    So it is a failure not to have better disclosure in this 
situation that is really significant.
    Senator Whitehouse. And what----
    Ms. Ravel. And they----
    Senator Whitehouse. Go ahead.
    Ms. Ravel. I was going to go a little bit off script, if 
that is okay, and refer to the issue that you asked Mr. 
Harper----
    Senator Whitehouse. Mr. Hackney, you mean?
    Ms. Ravel. Yes.
    As the Chair----
    Senator Whitehouse. Talking about the coordination among 
groups, and their limit?
    Ms. Ravel. Yes.
    Senator Whitehouse. Have you actually seen that happening?
    Ms. Ravel. I had seen it happen when I was Chair of the 
California Fair Practices Commission. We knew that there was a 
group, the Center to Protect Patients' Rights, that was a Koch-
related organization. And a lot of their money went to 
501(c)4s, and it was exactly what you described. And so the 
amount of money that was ultimately spent to influence a ballot 
measure election was in the millions of dollars--$16 million, 
to be precise.
    Senator Whitehouse. And to your knowledge, there has never 
been a single ounce of effort expended by the IRS to inquire 
into the problem of how a coordinated spin cycle of donations 
can defeat the 50-percent exemption so that actually they all 
end up spending way more than 50 percent, but just go through 
the charade of giving each other the money.
    Ms. Ravel. That's correct.
    Senator Whitehouse. Thank you.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Walter, I appreciate your candor in stating that, while 
many of the (c)4 groups utilizing donations through the tax-
exempt process don't align with your political views, your 
respect for confidentiality for everyday Americans holds more 
value than your political leanings.
    Could you elaborate on some of the left-aligned, Democrat-
aligned organizations that oppose increased donor disclosure 
proposals, and what concerns those groups have raised?
    Mr. Walter. Certainly, Senator. As I said, the three most 
important left-wing groups which have happily worked in court 
to fight Schedule B disclosure, for instance--which is the 
donors' list on an IRS 990 form--are the NAACP, whose name is 
enshrined in the leading constitutional case in the whole area; 
the ACLU; and the Human Rights Campaign, which is the largest 
LGBT group. And obviously they believe that their members and 
their organizations need their donors' privacy respected.
    And since, from the beginning of the republic we have had 
anonymous speech, I think that is not unreasonable.
    Senator Thune. Mr. Smith, you state in your prepared 
testimony that the DISCLOSE Act is problematic as both a matter 
of policy and constitutional law because it would, among other 
things, focus attention on the individuals and donors 
associated with sponsoring organizations rather than on the 
communications message, exacerbating the politics of personal 
destruction and further coarsening political discourse.
    Could you explain a little more in depth what you mean when 
you say that the DISCLOSE Act will ``exacerbate the politics of 
personal destruction and further coarsen political discourse''?
    Mr. Smith. One of the problems that has influenced American 
politics in recent years I think is well known to everyone in 
this room, which is the tendency to engage in ad hominem 
attacks on individuals, overheated rhetoric, and so on. And I 
think by placing an emphasis on disclosure--and this is even 
aside from the constitutional issues, just as a policy matter--
this emphasis on who is speaking, who is really speaking, is 
probably poisonous to our system.
    I also reject the notion that if, for example, a 501(c)4 
group, the Sierra Club, spends the money, or the National Rifle 
Association spends the money or something, that somehow it is 
not their money. They are the groups spending the money, and it 
is their money. And unless the donations they have received are 
earmarked for something, the person who gave them some money no 
longer has any control over it.
    So, this kind of essential focus on who is speaking, I 
think is quite wrong, and it is one of the reasons why the 
Supreme Court has long protected Americans in their 
affiliations, in their memberships, and in their political 
views. And it does not only go to joining groups. It has gone 
to all the great cases from the Red Scare of the 1950s to the 
Hollywood Seven. The effort was to not make it so that people 
could not speak publicly lest they be blacklisted and 
blackballed and harassed by people. That is not good for, not 
healthy for our politics.
    Senator Thune. Mr. Hackney, since last year's massive IRS 
data leak, or hack, of private taxpayer information, with which 
the left-leaning ProPublica went on to publicize confidential 
taxpayer details, there has been no meaningful follow-up from 
the administration.
    My Republican colleagues and I on this committee have 
repeatedly pressed the administration for accountability, and 
the response has essentially been silence.
    You are a former IRS employee. How do you think this 
unauthorized disclosure of private taxpayer information and the 
total lack of accountability from the administration impacts 
trust between everyday Americans and the IRS?
    Mr. Hackney. So, it is a troubling disclosure. We don't 
know where it came from. I hope there is an investigation into 
it. So I appreciate that that may take some time, and it is a 
significant matter, and I hope the administration is giving it 
great care.
    Senator Thune. Mr. Walter, you write in your prepared 
statement, and I quote, that ``no (c)3 entity should be allowed 
to fund or execute voter registration and get-out-the-vote, or 
GOTV,'' end quote. You further write that ``failing that, it 
should be clearly permissible to all, and the uncertainty that 
surrounds it leads reds to fear the next Lois Lerner if they 
dare try it, while blues use fig leaves like civic 
participation to cover their naked partisanship as they pursue 
it with gusto.'' That is a quote.
    Can you elaborate on that point, particularly as it relates 
to political activity of foundations? And what other types of 
political activities are the (c)3s engaged in?
    Mr. Walter. Thank you, Senator.
    Well, as I said, and I believe demonstrated rather 
thoroughly, there is massive (c)3 voter registration funded by 
(c)3 private foundations, conducted by (c)3 public charities. 
Now the governing rule in the IRS world for this is that that 
sort of thing is permissible only on a nonpartisan basis. And 
the IRS further spells out that you can't just have the 
intention not to be partisan in your voter registration and 
get-out-the-vote. You have to have an effect that is 
nonpartisan, that does not assist one candidate or party.
    Well, that sadly is not remotely the case. I quoted for you 
a Democratic super PAC that is gleeful about how this is better 
than giving money to campaigns, they very clearly say--multiple 
times better, more bang for the buck.
    The most extreme example, I would say, is in the 2020 
election when one billionaire, Mark Zuckerberg's family, took 
money out of donor-advised funds at the Silicon Valley 
Community Foundation, gave it to two (c)3s that were run by 
(c)4 Democratic veterans, who then distributed that money to 
over 2,000 government election offices in almost every State. 
And as we have been very careful to document--and all our data 
is publicly available; you can download it and crunch the 
numbers yourself--that money went with great disproportion to 
Democrat vote-rich areas, and in those areas made a tremendous 
difference for the Democratic Party's presidential candidate.
    So I think this was a serious scandal that needs to be 
addressed, and I am certainly not aware of any activities by 
the IRS to enforce these regulations.
    Senator Thune. Thank you, Mr. Chairman.
    Senator Whitehouse. I am informed that Senators Menendez 
and Warren are trying to get here, so to give them a little bit 
of time to do that, and with the ranking member's permission, I 
will ask about the Trump administration's repeal of the 
disclosure requirement to the IRS, and what the absence of that 
information to the IRS does to the ease and fairness of 
enforcement by the IRS, and particularly with regard to the 
sort of coordinated network example that I gave. I will ask Mr. 
Hackney that first, and then if Ms. Ravel wants to add 
anything, I will invite her, and with any luck Senators Warren 
or Menendez will be here by then. And if not, I will give 
Senator Thune a chance for another question, just in the spirit 
of fair play. And if none of that has happened, then we will 
conclude the hearing.
    Mr. Hackney. Thank you. Great question. So this is the 
Schedule B to the Form 990 that folks file. And the IRS has 
long requested this information. Since 1943 or 1942 it has 
requested this information--since the form began--and received 
it. And the IRS had kept that in place over 70-some odd years, 
and then suddenly decided they no longer needed the 
information.
    I think they are wrong on that. I think it actually matters 
to tax collection. I think it matters to ancillary laws. I 
think it has an enormous impact.
    One of the things I pointed out in a recent article is 
there was a prosecution going on in Ohio, and one of the bits 
of testimony was, ``Hey, by the way, you can get away with 
bribery today because no one will know whether this thing is 
happening.'' It is of significant concern.
    IRS knows information reporting matters. It collects 
information from all sorts of folks--from low-income, from 
international transactions--but suddenly in this space it 
thinks it is okay to turn off the information collection? I 
think it is going to have a significant, problematic effect on 
the collection of revenue, on the equal enforcement of the 
laws, and people's belief that the laws are being equally 
enforced. Because, as I stated in my opening statement, this 
thing redounds to wealthy interests who are willing to skirt 
the law. I think it is a problem. I hope that they reconsider.
    Senator Whitehouse. In this space of entities that also 
enjoy enormous anonymous political influence, it is kind of 
interesting that that is the space that gets carved out.
    Ms. Ravel, did you have anything to add?
    Ms. Ravel. I think he said it very well. And what it really 
impairs is an already somewhat dysfunctional process that the 
IRS has in not identifying those people who are violating the 
law. And it is impossible for them to increase the ability to 
enforce the law, as was said previously, and I think that that 
is their function. They were meant to do that under the IRS 
regs, and so that is a really bad idea that unfortunately came 
about recently to make it difficult for the IRS, even more 
difficult than it has been, to enforce the law.
    Senator Whitehouse. Thank you.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Smith, in your prepared testimony you state that 
perhaps the most important feature of the FEC's design is its 
equal-sized blocs of Commissioners, three from each party. One 
of the Democrats' key initiatives in S. 1, the so-called ``For 
the People Act,'' was to change the structure of the FEC from a 
six-member body to a five-member body, subject to, and designed 
for, partisan control.
    Could you explain to the committee why it would be a 
mistake to restructure the FEC into an agency designed for 
partisan control?
    Mr. Smith. Sure. We need to understand that the FEC was 
created in the wake of Watergate and abuses of the IRS by the 
Nixon administration. And at the time, it was agreed by leaders 
in both parties and Congress that it was vitally important to 
avoid that type of executive branch control of an organization 
that directly regulates political campaigns and political 
speech.
    You know, obviously any agency can have a sort of a 
partisan bent to the policies it adopts, but they typically are 
very indirect. We don't have that kind of thing where one 
agency can just come in and say, no, you Democrats, you can't 
do that, but you Republicans can. So this degree that the 
agency had to be bipartisan, that was the fundamental point of 
the agency, the fundamental issue on which all agreed in 
setting up the agency.
    And I note that, in the modern era, whenever the FEC is 
attacked as partisan, the first response of others is to say 
that it takes four votes. You have to have a majority that in 
some degree is bipartisan. And I think that that is in fact 
true, and I think it would very greatly damage the credibility 
of the FEC to have a partisan majority, or a single director 
appointed by the President.
    Senator Thune. Do we still have people coming, Mr. 
Chairman?
    Senator Whitehouse. I can't guarantee it. We have a whole 
array--we have 28 votes stacked up, and again we have the 
repercussions of the Alito hand grenade. So, it is a very busy 
day, and I cannot guarantee that anybody else will come.
    So, we will leave the hearing open for 2 weeks. You may get 
other questions that come in in that first week, and we would 
be delighted if you would give us the favor of your responses 
to those questions.
    By way of a closing statement, I will say that we have now 
entered a political era in which dark money groups funded by 
powerful special interests now on occasion actually out-spend 
the political campaigns of the actual candidates. And whatever 
communication goes on behind the scenes between whoever is 
behind the outside spending, whether it is a super PAC or 
another group, and the candidates themselves, is completely 
unregulated. But the notion that information doesn't travel in 
politics is an idiotic notion, spectacularly disproved by 
history.
    So the idea that there really are firewalls is simply not 
credible in practical reality. The result is advertisements 
paid for by entities that do not really exist, and that hide 
whoever it is that really exists who is behind them, because 
there is not accountability for what they say; hence the 
degeneration of American political speech and the arising of 
the phrase ``tsunami of slime'' to describe political speech. 
It was Citizens United itself, the decision that I have violent 
disagreements with on many angles--but they did say that there 
is a nexus between secrecy and corruption in politics. And they 
specifically made that a predicate of the case in order to 
allow the unlimited money in.
    Then of course, that did not prove true, and they did not 
have the chance to rebuild. So repeatedly, I have gone to the 
Supreme Court to say, ``Hey, you were wrong.'' You were 
factually wrong that there will be effective disclosure. I 
think we are up to how many billions of dollars in dark money 
spent--$6 billion since that decision, something like that. So 
there is $6 billion of proof that the Supreme Court got it 
wrong in its reliance on effective disclosure. And on several 
occasions, I have gone to the court and said, ``You got it 
wrong.''
    On one case, I went in bipartisan fashion with Senator 
McCain, who was a legendary advocate for honest elections, and 
in our bipartisan brief we said, ``Hey, what you said was going 
to happen is not happening. You were wrong. You need to 
correct.''
    And the fact that the Supreme Court never corrected, even 
when the newspapers, the FEC filings, and bipartisan briefs 
coming into it told them that they had been wrong, I think is a 
blot on the Court.
    So I intend to continue to work to try to clean up this 
mess. And just to be clear, the efforts that I will undertake 
to clean this up will apply to both sides. So the conversation 
about whether Democrats do better, or Republicans do better, 
whether Democrats are guilty or Republicans are guiltier, who 
is playing fair, or who is not, it all needs to stop to restore 
decency and accountability in American politics.
    And I will note a recent decision in my United States Court 
of Appeals for the First Circuit--Rhode Island is part of the 
First Circuit--where a very distinguished Rhode Islander, Judge 
Bruce Selya, recently just upheld a Rhode Island law requiring 
disclosure, using these very arguments.
    The Supreme Court declined to review it, and I think that 
is the argument that makes the better case here. We are 
citizens of the United States. And as citizens of the United 
States, we have responsibilities. And in order to discharge 
those responsibilities, we need information. And a very 
important piece of the information that we require to be good 
citizens of the United States is who the hell is behind the 
megaphone that is blaring at us. Because you might very well 
discover that you can discount the voice, once you know who it 
is.
    If somebody sets up Rhode Islanders for peace and puppies 
and prosperity, and comes and smears me all over the place in 
Rhode Island, that is one thing. If it is Marathon Petroleum, 
or Exxon, that is a very different thing. And Rhode Island 
voters will sort that information out very quickly. In fact, it 
may be to my advantage to have negative ads run against me in 
Rhode Island by Exxon Mobil. So they hide. And I do not think 
that is a fair way to go.
    Senator Menendez has arrived, and I would be delighted to 
recognize him for a period of questioning.
    Senator Menendez. Thank you, Mr. Chairman. And thank you 
for holding the hearing, as well as keeping it going.
    For 151 years, the National Rifle Association of America, 
commonly known as the NRA, has operated as a tax-exempt social 
welfare organization. In order to receive the privileges of 
being a tax-exempt organization, namely not paying tax on its 
revenues, the NRA must follow the same laws that apply to all 
tax-exempt social welfare organizations.
    One, the organization must be focused on its stated mission 
or primary purpose.
    Two, the organization's resources must be used to benefit 
society, not for self-enrichment or private benefits.
    And three, the organization must, under penalty of perjury, 
file annual reports with the IRS showing that they are not 
violating principles one and two.
    Since at least 2008, the NRA has repeatedly and flagrantly 
violated each of these three principles, a trifecta of bad 
behavior. Their stated primary purpose is to, quote, ``protect 
the Second Amendment, promote public safety, provide 
marksmanship and gun safety training, promote competitive 
shooting, and improve hunter safety.''
    But in recent years, the organization has spent less than 
10 percent of its budget on this mission. Instead, while mass 
shootings have ravaged communities across the country, killing 
2,500 children and teens each year, the organization became a 
fear-mongering political media company promoting a lifestyle of 
loving assault rifles equipped with high-capacity magazines, 
and calling anyone who questioned it a socialist or just simply 
trying to, quote, ``take them away.''
    The pinnacle of the NRA's diversion from its stated purpose 
was its launch of NRA TV in 2016, which had little to do with 
upholding the Second Amendment. Instead, it pandered in culture 
war tropes, including calling then-President Obama language 
that I would not use here; blaming the Manchester Arena bombing 
on multiculturalism, socialism, and gender bending; and 
perpetuating former President Trump's deep state conspiracies.
    The NRA itself, in its suit against its PR company that ran 
NRA TV, later called this content, quote, ``a dystopian 
cultural rant that veered into distasteful and racist 
territory'' at a tune of $20 million a year.
    So my question, with that preface, Professor Hackney, is, 
would the NRA spending only 10 percent of its budget on its 
primary purpose, and instead spending on items like NRA TV, 
warrant close scrutiny, maybe even an investigation by the IRS?
    Mr. Hackney. Well, pretty significantly about the NRA, 
particularly as the judge was considering dissolving them, I 
think the NRA is a great example of an organization that shows 
why we need good regulation in this area.
    The secrecy promotes corruption. The ability of their folks 
to operate outside of the light has encouraged significant 
problematic actions. And the folks who care about the NRA's 
mission should care about that.
    So, having a good IRS there to do that, I do believe there 
should be a closer look at the NRA--and I have stated so in 
news articles before--by the IRS.
    Senator Menendez. Well, thank you. Now let me say, the 
relationship between the NRA and its public relations firm, 
Ackerman McQueen, that ran NRA TV, is also problematic.
    The New Yorker, in its expose on the financial dealings of 
the NRA, describes the relationship between the NRA and its PR 
firm as, quote, ``so intertwined that it is difficult to tell 
where one ends and the other begins.'' The article details 
overall payments to the public relations firm of $40 million 
each year, including payments of millions of dollars to 
figureheads on NRA TV. It also claims that Oliver North, the 
NRA's president, was paid through Ackerman McQueen.
    Lastly, it says that, quote, ``Many NRA employees have long 
suspected Ackerman of inflating the cost of services that it 
provides.''
    Professor Hackney, if these allegations are true and the 
NRA has been paying inflated costs to its PR firm, would this 
warrant an investigation or even close examination by the IRS? 
What about the claims that the president of the NRA was paid 
through an outside contractor?
    Mr. Hackney. So I will focus in on the fact that, through 
that arrangement, there has been a lot of taking of things from 
the NRA. It is trying to carry out its actual mission, but much 
money has moved outside of it to people who control the 
organization and have found that it is not appropriate.
    I believe there should be a closer look at that as a result 
of those. That is, to protect the folks who care about this 
mission from self-dealing and other acts by those who control 
the organization.
    Senator Menendez. And finally, if I may, over the past 5 
years the Attorney General of New York, Letitia James, has 
alleged that the NRA diverted millions of dollars from the NRA 
to pay for its executives' rides on private planes; travel to 
Africa, Lake Cuomo, the Bahamas, Budapest; designer suits 
purchased on Rodeo Drive; gifts to friends; memberships at golf 
clubs; and golden parachute arrangements, which included 
million-dollar mansions and seven-figure salaries.
    So, Professor, would the NRA's spending on these items 
violate the organization's requirement to protect against 
private inurements, and if true, would this warrant an 
investigation or even a closer examination by the IRS?
    Mr. Hackney. The Attorney General has put forth a 
substantial allegation that should be taken very seriously. 
There has been copious reporting in this regard. I think any 
organization--Democrat, Republican, whatever interests--that 
engaged in such transactions should have a closer look by the 
IRS.
    Senator Menendez. I appreciate your insights, and I yield 
to my distinguished colleague from Massachusetts.
    Senator Warren. Thank you very much, Senator Menendez. And 
thank you all for being here.
    So, giant companies and billionaires are drowning our 
political system in cash, corrupting our democracy. And a big 
way they do this is by funneling cash anonymously through so-
called dark money groups.
    These tax-exempt groups do not disclose their donors, even 
if they spend hundreds of millions of dollars to influence our 
elections. As the tiniest of guard rails, these groups are 
supposed to spend less than half of their money on politics. 
But poor enforcement allows them to get away with a whole lot 
more than that.
    Professor Hackney, you not only study these issues as an 
academic, you spent 5 years at the IRS working on them. So I 
want to work through just a hypothetical here. Let's say there 
is an anti-tax billionaire who wants to spend unlimited amounts 
of cash on an anonymous political campaign to slash IRS 
funding. An under-resourced IRS will struggle to catch him even 
if he cheats on his taxes. And if his dark money groups 
illegally spend over half their cash on political campaigns, 
the under-resourced IRS is not likely to find it.
    So, Professor Hackney, say one of the billionaires channels 
millions through one group, and then has that group donate over 
50 percent of the cash into another group, which then spends 
all of it, 100 percent of it, lobbying against the IRS funding.
    Does that kind of simple shell game, one-two, actually 
trick the IRS into thinking that the first group is apolitical?
    Mr. Hackney. Because there has been so little enforcement 
in this area, I think the only answer is ``yes,'' they are not 
seeing this, and they recently got rid of information reporting 
regarding that. So I think the answer is ``yes.''
    Senator Warren. Wow! It is just a huge gap in our 
enforcement. So we have this billionaire who can use a simple 
shell game to trick the IRS. But then the billionaire is also 
supposed to report political spending to the Federal Election 
Commission.
    Ms. Ravel, I understand you are online with us. You were 
Chair of the FEC, so let's say this billionaire's political 
nonprofit reports over $15 million in election spending to the 
FEC. If the same nonprofit told the IRS that it spent less than 
$10 million on elections--the same amount of money, they just 
give two different reports in two different places--would they 
get away with it?
    Ms. Ravel. Yes, they have been getting away with it. And we 
had some conversation about the CREW report that spoke of a 
number of situations where that has happened, including 
relating to the NRA, by the way, that we were just talking 
about. But one of their reports related to, in 2018, a Federal 
PAC called Conservative Alliance, that ran ads and mailed 
pieces, and they told the FEC about how much money--they did it 
through Prosperity Alliance, a Virgina 501(c)4 that made 
political contributions. And the FEC got that information, but 
they told the IRS on their tax return, under penalty of 
perjury, that they had not engaged in any political activity, 
and they did not file a Schedule C report.
    And then subsequently it happened again, and 78.4 percent 
of the nonprofit's money was spent on political ads and the 
like again, and they also then filed a report with the FEC and 
failed to file a report on Schedule C with the IRS, and yet 
said to the IRS that they also did not engage in political 
activity.
    And the IRS never did anything about that.
    Senator Warren. So what I described as a hypothetical, you 
are telling me has not only happened, but that it has happened 
repeatedly, basically.
    And, Mr. Hackney, I see you shaking your head as well.
    There is a lot we need to do to fix the issue of big money 
in politics. For one, Congress needs to give the IRS the 
resources that it needs to go after tax-cheating dark money 
groups and eliminate the appropriations riders that prevent the 
IRS from clarifying the rules in this area.
    But while we are working to try to pass some legislation 
here in Congress, the IRS needs to think about what it can do 
right now to start shining some light on this ocean of dark 
money.
    Professor Hackney, are there steps that the IRS can take 
right now, without a change in the law, to stop illegal 
political spending by nonprofits, such as looking at public FEC 
data and reinstating high-dollar donor reporting requirements 
for 501(c)4 organizations?
    Mr. Hackney. I know of no reason that they could not use 
such publicly readily available information that the taxpayers 
themselves have reported. And absolutely I believe the IRS 
needs to reinstate the requirements that 501(c)4 organizations 
disclose their substantial donors. I think it makes a big 
difference in tax collection, and it makes a big difference in 
our belief that the laws are being equally enforced.
    Senator Warren. So we need to change the law to give them 
more tools. We need to fund them to give them more tools. But 
the IRS needs to step up as well and make pretty basic 
comparisons like this.
    There is a lot we need to do to defend our democracy, but 
the IRS can and should take these concrete steps to limit the 
role of big money and try to get it out of politics, to ensure 
that the government is working for everyone. These billionaires 
and giant corporations, they think they can buy our elections, 
and I think it is time to stand up and demand a government that 
is truly a government of the people, by the people, and for the 
people.
    Thank you very much for being here. And I now recognize 
Senator Cortez Masto, and virtually hand the gavel to you, 
Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Senator Warren.
    Let me follow up on this question by Senator Warren. And, 
Ms. Ravel, let me talk with you about it. Recently--and this is 
very disturbing to me as a former Attorney General--I read an 
article in The New York Times, and it is titled ``Donations 
Steered to Trump Super PAC by Canadian Are Found To Be 
Illegal.'' And it describes how a Canadian billionaire helped 
steer $1.75 million in donations to the America First Action 
super PAC, and the FEC found this to be an illegal foreign 
contribution. They fined this Canadian billionaire--and this is 
$975,000 this billionaire was fined. It's the largest in the 
history of the Commission, and yet despite it being illegal, 
this billionaire may get that $1.75 million back because, as a 
part of the settlement agreement with the FEC, they gave the 
America First Action PAC the option to return the money to the 
donor who committed the illegal donation, or to donate it to a 
nonprofit, or redirect it to the U.S. Treasury.
    So, this does not make sense to me. Does it make sense to 
you that with a massive illegal donation made to a PAC by a 
foreign donor somehow there is the ability to send that money 
back to that donor instead of disgorging that to the U.S. 
Treasury and holding them accountable and penalizing them for 
the illegal activity?
    Ms. Ravel. It does not make sense, but for the FEC this is 
groundbreaking, that they were even able to find that there was 
impropriety there, because it is so difficult to have four 
votes.
    It seems to me that the FEC, what they should have been 
doing is potentially uniting with DOJ and utilizing the DOJ 
Criminal Division that has the ability to look at issues like 
this and potentially bring some kind of a criminal action. But 
unfortunately, there is not a lot of connections and 
conversations between the DOJ and the FEC either on these 
issues.
    Senator Cortez Masto. Well, let me ask you this, because it 
seems to me, even in the statutory enforcement provisions that 
the FEC has, just on the fines and disgorgement, they have the 
ability to mandatorily ensure that that money did not get 
returned back to that donor. And it should have been disgorged 
to the U.S. Treasury as a penalty.
    Does that require us to change, Congress to change the law 
to make it mandatory so there is no such discretion to allow 
this type of return of capital to somebody who violates the 
laws here in the United States?
    Ms. Ravel. It will take that action. And I think it is 
important for it to happen. Because now that we know, in 
particular because this was a foreign donor, it is illegal, 
patently, and so it is something that needs to be looked at by 
Congress to provide that ability to the FEC.
    Senator Cortez Masto. Thank you. I could not agree more. 
And I am looking at legislation. I just think it is so 
outrageous that this foreign donor was able to get the funds 
back, and we do have to hold people accountable and penalize 
them for violating our laws, particularly when it comes to 
civil fines like this.
    We need more transparency and accountability in our 
campaign finance laws at all levels. So, thank you.
    I am going to yield the remainder of my time. I am not sure 
if there are any other of my colleagues, either in person or in 
the room, who would like to go next.
    Hearing Clerk. Senator, there are no members in the hearing 
room, so you are free to close the hearing. The record is open 
for 2 weeks.
    Senator Cortez Masto. All right; thank you.
    So, thank you to the panelists, everybody who joined us 
today. The record will be open for a 2-week period for any of 
my colleagues who want to submit any additional questions to 
the panelists.
    And thank you so much for this incredible conversation and 
hearing today, and this committee hearing is adjourned.
    Thank you, everyone.
    [Whereupon, at 3:32 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


   Prepared Statement of Philip Hackney, Associate Professor of Law, 
                 University of Pittsburgh School of Law
    Chair Whitehouse, Ranking Member Thune, members of the committee, 
thank you for inviting me here today to speak with you about a matter 
of great importance to the operation of the democratic order of the 
United States. I understand you have asked me to speak to the issue of 
Federal income tax laws and IRS enforcement related to the political 
activity of tax-exempt entities.

    I am an associate professor of law at the University of Pittsburgh 
School of Law where I primarily teach tax law courses. I specialize in 
the Federal tax treatment of nonprofit organizations. From 2006-2011, I 
worked in the Office of the Chief Counsel of the IRS in Washington, DC 
overseeing the tax-exempt sector. There I helped to oversee the 
drafting of regulations, the overall program of auditing tax exempt 
organizations, and IRS litigation on matters related to tax laws 
applicable to nonprofits and government entities. That work necessarily 
interacted in a robust way with politics. The IRS oversees dark money 
organizations, section 527 political organizations, and charities that 
engage in politics in its largest sense. Today, I write, research, and 
speak about these organizations and the regulatory regime applicable to 
them.\1\
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    \1\ I note that in addition to my experience at the IRS, this 
testimony is informed in significant part by articles I have written, 
including Philip Hackney, ``Political Justice and Tax Policy: The 
Social Welfare Organizations Case,'' 8 Tex. A&M L. Rev. 271 (2021) 
[hereinafter ``Political Justice''] and Philip Hackney, ``Dark Money 
Darker? IRS Shutters Collection of Donor Data,'' 25 Fla. Tax Rev. 140 
(2021) [hereinafter ``Dark Money Darker'']. I also rely in small part 
on testimony I provided to the Pennsylvania House Committee on 
Oversight February 7, 2022.

    I understand the committee is interested in whether the tax laws 
and IRS enforcement are up to the task of overseeing the tax issues 
associated with the political activities of tax-exempt organizations. 
While from my writing you can see that I think the tax laws governing 
the tax-exempt realm are wanting, our overall legal structure is not 
bad. It is justifiable at least. Where we fall down as a Nation in this 
space is in the enforcement. As I will discuss below, we do not 
allocate enough resources to this arena, and we do not institutionally 
offer the support necessary to enforce these laws. These failures do 
not favor one party over the other but favor those interests in the 
country with the means and the willingness to abuse that structure. 
---------------------------------------------------------------------------
Primarily that redounds to certain wealthy interests.

    Within the tax structure of politics in its broadest sense it is 
worth noting that neither political campaign expenditures nor lobbying 
expenditures are deductible under the Internal Revenue Code 
(``Code'').\2\ In effect, Congress sees these as personal expenditures 
that ought not receive a subsidy through the income tax. Indeed, 
Congress forces the contributor of appreciated property, such as 
corporate stock, to a section 527 political organization to recognize 
gain on that transfer under the Code.\3\ This is distinctly different 
from most contributions of property. Gifts of appreciated property in 
general do not trigger an income tax gain.\4\
---------------------------------------------------------------------------
    \2\ 26 U.S.C. Sec. 162(e). The U.S. Supreme Court upheld the 
prohibition on deducting political campaign expenses in Cammarano v. 
United States, 358 U. S. 498 (1959).
    \3\ 26 U.S.C. Sec. 84.
    \4\ See Boris I. Bittker and Lawrence Lokken, ``Federal Taxation of 
Income, Estates and Gifts,''  40.3 (2021, WG&L). I have argued 
Congress ought to subject contributions of appreciated assets to social 
welfare organizations to the income tax on the gain just as it does to 
section 527 organizations under 26 U.S.C. Sec. 84. See ``Political 
Justice,'' supra note 1, at 328.

    In this testimony, first, I will describe the tax law that applies 
to these organizations and then I will discuss the enforcement 
environment including both a description of the resources available to 
the IRS and a discussion of the institutional challenges faced by the 
IRS. As you will see in part III, the IRS does not have the budget to 
enforce the tax laws on the books, but also often fails to make use of 
simple information to enforce these laws that matter both in collection 
of the revenue and our democratic order.
         i. tax-exempt organizations and politics introduction
    The IRS tax-exempt division oversees a range of nonprofit entities 
that engage in various types of political activity in its broadest 
sense. Some of the activities of these organizations is also overseen 
by the FEC. The entities I will focus upon include section 527 
political organizations, section 501(c)(3) charitable organizations, 
section 501(c)(4) social welfare organizations, and section 501(c)(6) 
business leagues.\5\
---------------------------------------------------------------------------
    \5\ Section 501(c)(5) labor unions might be listed here as well, 
but because of robust regulation and disclosure regarding their 
activity via other regulatory bodies, the IRS role in oversight of 
these organizations is much less significant. See, e.g., Labor-
Management Reporting and Disclosure Act, 29 U.S.C. Sec. Sec. 401-531 
(2012). Extensive reports about the financial activities of many labor 
unions are available on the Department of Labor website, at https://
www.dol.gov/agencies/olms/public-disclosure-room.

    When I say political activity in its broadest sense, I am referring 
to a combination of intervention in a political campaign, lobbying, and 
---------------------------------------------------------------------------
activities close to both, sometimes referred to as issue advocacy.

    In tax law, intervention in a political campaign has its most 
salient meaning with respect to charitable organizations.\6\ This 
political campaign intervention prohibition is colloquially referred to 
as the ``Johnson Amendment.'' It means the exempt organization cannot 
participate or intervene, ``directly or indirectly, in any political 
campaign on behalf of or in opposition to any candidate for public 
office.''\7\ In other words, in campaigns for public office (Federal, 
State, and local) the charity itself cannot directly or indirectly 
encourage the public to vote for or against candidates. I use that 
definition when I refer to political campaign intervention.
---------------------------------------------------------------------------
    \6\ 26 U.S.C. Sec. 501(c)(3).
    \7\ Treas. Reg. Sec. 1.501(c)(3)-1(c)(3)(iii).

    Lobbying refers to efforts to encourage members of a legislative 
body to propose, support, or oppose legislation.\8\ Finally, there is 
issue advocacy. In issue advocacy, an organization may educate the 
public broadly about a political topic with the intention of swaying 
the public toward a particular political solution. In its most specific 
context, issue advocacy involves advocating about a political solution 
while simultaneously identifying a candidate for office. Typically, 
these communications let the reader or viewer draw their own conclusion 
about whether to vote for or against that candidate. This sometimes 
leads to political campaign intervention.
---------------------------------------------------------------------------
    \8\ Treas. Reg. Sec. 1.501(c)(3)-1(c)(3)(ii).
---------------------------------------------------------------------------
           ii. tax-exempt organizations and politics, the law
    This part II will describe section 527 political organizations, 
section 501(c)(3) charities, section 501(c)(4) social welfare 
organizations, section 501(c)(6) business leagues, and then discuss 
information return obligations of tax-exempt organizations.
a. Section 527 Political Organizations
    Prior to the 1970s, the IRS mostly ignored the tax implications of 
political committees or organizations.\9\ It saw the contributions to a 
political committee as a gift and therefore non-taxable to the entity 
or individual.\10\ Congress enacted section 527 of the Code in 1975 to 
manage the taxable matters created by these political committees and 
organizations.\11\ In 2000 and 2002, Congress amended the statute to 
require disclosure of donors from section 527 organizations that did 
not specifically come within the FEC's jurisdiction.\12\
---------------------------------------------------------------------------
    \9\ IRS, I. IRC 527--Political Organizations, Exempt Organizations 
CPE Text (1989), https://www.irs.gov/pub/irs-tege/eotopici89.pdf.
    \10\ See, e.g., Rev. Proc. 68-19, 1968-1 C.B. 810.
    \11\ Act of January 3, 1975, Pub. L. No. 93-625, Sec. 10, 88 Stat. 
2108, 2116-19 (codified as amended at Sec. 527); see also Congressional 
Research Service, ``Political Organizations Under Section 527 of the 
Internal Revenue Code'' (2008), https://crsreports.congress.gov/
product/pdf/RS/RS21716/4.
    \12\ Pub. L. 106-230; Pub .L. 107-276; see also Congressional 
Research Service, ``Political Organizations Under Section 527 of the 
Internal Revenue Code'' (2008), https://crsreports.congress.
gov/product/pdf/RS/RS21716/4.

    Political organizations are organized and operated primarily for 
what is called an ``exempt function.'' An exempt function includes the 
``function of influencing or attempting to influence the selection, 
nomination, election, or appointment of any individual to any Federal, 
State, or local public office or office in a political 
organization.''\13\ A section 527 organization still maintains a tax-
exempt status, but is subject to a complicated tax, primarily on its 
investment income. A section 527 organization that anticipates 
receiving gross receipts in excess of $25,000 a year generally must 
give notice to the IRS within 24 hours of its establishment.\14\ Unlike 
a social welfare organizations, a section 527 organization must 
publicly disclose substantial information about its receipts of 
contributions and expenditures.\15\ Congress considered extending these 
same disclosure obligations to social welfare organizations as well, 
but never has.\16\ The IRS has provided guidance as to when certain 
activity is considered an exempt function activity under section 527 
for social welfare organizations as well as business leagues and labor 
unions.\17\ If a social welfare organization, business league or labor 
union engages in activities categorized as exempt function activity, 
the organization is subject to the tax under section 527(f). An 
organization described in section 501(c) could alternatively create a 
segregated fund to operate as a political organization under section 
527.\18\
---------------------------------------------------------------------------
    \13\ 26 U.S.C. Sec. 527.
    \14\ They must file with the IRS a Form 8871 found here: https://
www.irs.gov/forms-pubs/about-form-8871.
    \15\ 26 U.S.C. Sec. 527(j). Note that Political Committees that 
already have the obligation to file with the FEC do not have to comply 
with the section 527(j) disclosure requirements. See also Form 990, 
Return for Organization Exempt from Income Tax, Schedule B Schedule of 
Contributors Instructions; Form 8872, https://www.irs.gov/forms-pubs/
about-form-8872.
    \16\ See, e.g., Donald Tobin, ``Campaign Disclosure and Tax-Exempt 
Entities: A Quick Repair to the Regulatory Plumbing,'' 10 Election L.J. 
427, 430 and FN 21 (2011) (citing H. Rep. No. 106-702, at 9-11 and H. 
Rep. No. 106-702, at 40-41).
    \17\ Rev. Rul. 2004-6, 2004-1 C.B. 328.
    \18\ 26 U.S.C. Sec. 527(f)(3).
---------------------------------------------------------------------------
b. Charitable Organizations
    Charitable organizations are exempt from tax under section 501(a) 
of the Code as described in section 501(c)(3) of the Code.\19\ A 
charitable organization must be organized and operated exclusively for 
religious, charitable, scientific, or educational purposes, provided no 
part of the organization's net earnings inures to the benefit of any 
private shareholder or individual.\20\ A charitable organization may 
not engage in more than an insubstantial amount of lobbying and is 
completely prohibited from intervening in a political campaign.\21\ 
Finally, the organization cannot violate public policy.\22\
---------------------------------------------------------------------------
    \19\ 26 U.S.C. Sec. 501(a) and (c)(3).
    \20\ 26 U.S.C. Sec. 501(c)(3).
    \21\ Id.
    \22\ Bob Jones Univ. v. U.S., 461 U.S. 574 (1983) (holding 
organization not exempt from income tax as a charitable organization 
because it violated public policy by racially discriminating against 
students by restricting dating among students of different races).

    An organization that qualifies as a charitable organization obtains 
a number of important benefits. The first is that it is able to accept 
tax-deductible contributions from its donors.\23\ Though generally only 
relatively high-income donors are today able to make use of the 
charitable contribution deduction,\24\ where a donor is able to take 
advantage of the deduction, the government effectively makes a big part 
of the contribution to the charity--equal to the top marginal tax rate 
of the donor.\25\ In other words, if a donor had a 40 percent top 
marginal tax rate and made a $1,000 contribution to a charitable 
organization, the government contributes $400 to the organization and 
the donor contributes $600. Contributions to charitable organizations 
are also deductible from the trust, gift, and estate taxes.\26\ 
Additionally, a charitable organization generally owes no tax on its 
earnings unless it operates an unrelated trade or business.\27\ 
Charities are allowed to issue tax-exempt bonds.\28\ There are many 
other benefits that come with the charitable designation at the 
Federal, State and local level including exemptions from property tax 
and State and local income tax.
---------------------------------------------------------------------------
    \23\ 26 U.S.C. Sec. 170.
    \24\ This is because Congress significantly raised the standard 
deduction in the 2017 Tax Act, sec. 11021, Pub. L. 115-7 (December 22, 
2017). The Tax Policy Center for instance estimates that it reduced the 
number of households deducting their charitable contributions from 21 
percent of households to about 9 percent of households, https://
www.taxpolicycenter.org/briefing-book/how-did-tcja-affect-incentives-
charitable-giving.
    \25\ See Joint Committee on Taxation, ``Present Law and Background 
Relating to the Federal Tax Treatment of Charitable Contributions,'' 
JCX-2-22, 34 (March 17, 2022), https://www.jct.
gov/publications/2022/jcx-2-22/ (making this essential point: ``the 
value of the tax deduction to the taxpayer is the amount of the 
donation multiplied by the taxpayer's marginal tax rate'').
    \26\ 26 U.S.C. Sec. Sec. 642, 2055, and 2522.
    \27\ 26 U.S.C. Sec. 511.
    \28\ 26 U.S.C. Sec. 145.

    Though occasionally charitable organizations intervene in a 
political campaign in a way that is clear,\29\ many charitable 
organizations engage in political activity in its broadest sense. In 
the political sphere, most charitable organizations rely upon either a 
religious or educational purpose to support their claim to exemption. 
Religious organizations will often assert that they are speaking from a 
religious perspective to lobby, engage in issue advocacy, or sometimes 
to advocate for a candidate in a political campaign. Educational 
organizations rely upon the fact that charitable educational 
organizations can educate ``the public on subjects useful to the 
individual and beneficial to the community.''\30\ There are many think 
tank advocacy groups that today qualify under section 501(c)(3) by 
educating the populace about important ideas to our governance. For 
instance, Heritage Foundation, the conservative think tank, is 
recognized by the IRS as a charitable organization,\31\ as is Center 
for American Progress, the progressive think tank.\32\ While I am not 
arguing that either of these organizations engages in political 
campaign intervention, they are examples of organizations involved in 
the broad sense of political activity.
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    \29\ See, e.g., Eugene Scott, ``Pastors Take to Pulpit to Protest 
IRS Limits on Political Endorsements,'' CNN (October 1, 2016).
    \30\ Treas. Reg. Sec. 1.501(c)(3)-1(d)(3).
    \31\ Heritage Foundation, Form 990 (2019), https://
projects.propublica.org/nonprofits/display_990/237327730/
02_2021_prefixes_23-25%2F237327730_201912_990_2021021717708700.
    \32\ Center for American Progress, Form 990 (2019), https://
projects.propublica.org/nonprofits/display_990/300126510/
02_2021_prefixes_27-31%2F300126510_201912_990_2021021917725620.

    As noted above, a charitable organization that seeks to maintain 
its exempt status may not intervene in a political campaign.\33\ This 
means that the organization's representatives when speaking for the 
charity may not directly or indirectly encourage the public to vote for 
or against a candidate for political office. This definition is broader 
than the election activity overseen by the FEC.\34\ Notably, if the 
charity were able to intervene in a political campaign, donors would 
have a means to deduct their political campaign activity. More 
problematically, those in the highest tax brackets would be most 
advantaged by such a system. In effect, this would mean the government 
would support the political interests of the wealthy at 40 cents on the 
dollar and most everyone else at 0 cents on the dollar. The IRS has 
tools in the Code to apply a tax on a charity, and its management, when 
the charity violates this limitation.\35\
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    \33\ 26 U.S.C. Sec. 501(c)(3).
    \34\ The best statement from the IRS of what it views as a 
violation of this limitation is found in Rev. Rul. 2007-41, 2007-25 
I.R.B. 1421.
    \35\ 26 U.S.C. Sec. 4955. Additionally, in egregious situations, 
the IRS can take immediate action under 26 U.S.C. Sec. Sec. 6852 and 
7409.

    Congress also limits the amount of lobbying in which a charity can 
engage.\36\ The Code provides that ``no substantial part of the 
activities'' can consist in ``carrying on propaganda, or otherwise 
attempting, to influence legislation.''\37\ The regulations suggest 
that lobbying involves ``contacting legislators or urging the public to 
contact them to propose, support, or oppose legislation, or advocating 
the adoption or rejection of legislation.''\38\ It is not clear how 
much lobbying is too much to become a ``substantial part.''\39\ Part of 
the challenge is determining how to think about activities. Similar to 
political campaign intervention, should activities be measured in time, 
expenditure, or something else? There is some guidance, as Congress has 
implicitly set that amount at not greater than 20 percent of 
expenditures when it enacted section 501(h) of the Code.\40\ This 
allows charities to elect this regime such that the charity will know 
beforehand whether or not it will be complying with the law. But 
charities who have not elected the section 501(h) regime are still 
governed by the ``substantial part'' of activities language.
---------------------------------------------------------------------------
    \36\ 26 U.S.C. Sec. 501(c)(3).
    \37\ Id.
    \38\ Treas. Reg. Sec. 1.501(c)(3)-1(c)(3). It also notes this 
applies as well to an organization whose purpose can only be attained 
via legislation.
    \39\ Haswell v. United States, 500 F.2d 1133 (Ct. Cl. 1974), cert. 
denied, 419 U.S. 1107 (1975) (finding a range between 16.6 percent and 
20.5 percent of total expenditures over 4 years to be a substantial 
part).
    \40\ 26 U.S.C. Sec. Sec. 501(h) and 4911(c)(2).

    These limitations have passed constitutional muster. For instance, 
the U.S. Supreme Court upheld the constitutionality of the limitation 
on lobbying under the First Amendment and the Equal Protection clause 
in Regan v. Taxation with Representation.\41\ In an opinion by Justice 
Rehnquist, the Court stated: ``[w]e held that Congress is not required 
by the First Amendment to subsidize lobbying. In these cases, as in 
Cammarano, Congress has not infringed any First Amendment rights or 
regulated any First Amendment activity. Congress has simply chosen not 
to pay for TWR's lobbying.''\42\ The Court highlights that those who 
run a charity have the option of also operating a section 501(c)(4) 
social welfare organization in order to engage in substantial lobbying, 
simply without the ability for donors to deduct their 
contributions.\43\ In a footnote, the Court notes that the IRS allows 
the same people who control the charity to also control the social 
welfare organization, as long as the organizations scrupulously account 
for the monies and ensure no monies intended for the charity are used 
to support the social welfare organization's activity.\44\ This theme 
of the flexibility of the tax exempt organization structure to 
accomplish various purposes related to politics was relied upon by the 
D.C. Circuit Court of Appeals to uphold the Constitutionality of the 
prohibition on political campaign activity of a church in Branch 
Ministries v. Rossotti.\45\
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    \41\ Regan v. Taxation with Representation, 461 U.S. 540 (1983) 
(citing Cammarano v. United States, 358 U.S. 498, 513 (1959)).
    \42\ Id. at 546.
    \43\ Id. at 544.
    \44\ Id. at 544 FN 6.
    \45\ Branch Ministries v. Rossotti, 211 F.3d 137, 143 (D.C. Circuit 
Ct. of Apps. 2000) (noting that the section 501(c)(3) church leaders 
could form a section 501(c)(4) organization, which in turn could form a 
Political Action Committee to speak about a campaign).

    In addition to the political aspects of charities, much of the 
regulatory architecture found in section 501(c)(3) works simultaneously 
to prevent fraud on charity and prohibit evasion of income tax. For 
instance, Congress prohibits the inurement of the earnings of the 
charity to a private shareholder or individual.\46\ This both protects 
funds set aside for charitable purpose and ensures that the 
organization is not operating a tax shelter for the individuals who 
control the organization. The Code is designed to only provide the 
benefits given to charitable organizations that are engaged in 
benefitting the public and not avoiding the income tax.\47\ In addition 
to the inurement prohibition, Treasury regulations require that 
charities be operated for a public purpose and not a private one.\48\ 
This limits the amount of private benefit that a charity can 
provide.\49\ For instance, a charity cannot be set up to dredge a 
waterway where the primary beneficiaries are private homeowners rather 
than the public at large.\50\ Again, generally this is designed to 
prevent abuse of charities by directing them away from working to help 
private individuals and businesses instead of and towards helping 
charitable beneficiaries. One more provision is worth noting here, 
Congress prevents certain charities from engaging in what are known as 
excess benefit transactions.\51\ In general, this provision imposes a 
tax upon an individual who has some control over a charity and uses 
that control to take from that charity something of value to which they 
are not entitled.\52\
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    \46\ 26 U.S.C. Sec. 501(c)(3); Treas. Reg. Sec. Sec. 1.501(c)(3)-
1(c)(2) and 1.501(a)-1(c) (defining private shareholder or individual).
    \47\ See Treas. Reg. Sec. 1.501(c)(3)-1(d)(1).
    \48\ Treas. Reg. Sec. 1.501(c)(3)-1(d)(1)(ii).
    \49\ Id; see also Treas. Reg. Sec. 1.501(c)(3)-1(d)(1)(iii) 
examples.
    \50\ See Ginsberg v. Commissioner, 46 T.C. 47 (1966).
    \51\ 26 U.S.C. Sec. 4958. This provision applies to public 
charities (not private foundations) and social welfare organizations. 
Congress subjects private foundations to a more restrictive regime 
including significant limitations on self-dealing under 26 U.S.C. 
Sec. 4941.
    \52\ Id.

    In order to hold charities accountable for proving their exemption, 
to ensure the proper collection of tax revenue, and to provide 
important information to the public, charities must annually file a 
Form 990 with the IRS.\53\ I discuss this more below in part II(d).
---------------------------------------------------------------------------
    \53\ 26 U.S.C. Sec. 6033.
---------------------------------------------------------------------------
c. Dark Money Organizations
    What are ``dark money organizations'' and how do they relate to tax 
and political activities of tax-exempt organizations? Dark money 
organizations refer to tax-
exempt organizations that engage in political advocacy that may rise to 
the level of political campaign intervention. The moniker ``dark'' 
means that the public has little access to knowledge about who funds 
these organizations because the organization typically does not 
publicly disclose contributions received under campaign finance laws, 
nor publicly disclose via the IRS as a section 527 political 
organization. Social welfare organizations, described in section 
501(c)(4), and business leagues, described in section 501(c)(6), are 
the common tax-exempt organizations that fit in the dark money 
category. Each of these organizations is exempt from the income tax 
under section 501(a). Though the IRS used to require dark money 
organizations to file information about substantial donors with the IRS 
on Schedule B to the Form 990, in 2020, the IRS recently ended the 
requirement.\54\
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    \54\ 85 Fed. Reg. 31959 (May 28, 2020) (codified at 26 CFR 56) T.D. 
9898. See also ``Dark Money Darker,'' supra note 1.

    What is the benefit of being a tax-exempt social welfare 
organization or business league? These organizations are unable to 
accept charitable contributions deductible by the donors under section 
170 of the Code. However, just like a charity, money earned in one of 
these exempt organizations is not subject to the Federal income tax as 
long as the activity is consistent with the organization's exempt 
purpose.\55\ Those who contribute to a social welfare organization, or 
a business league may be able to deduct contributions to the 
organization if the expense qualifies as a business expense,\56\ as it 
typically does in the case of business league dues, or if the expense 
qualifies for some other deduction. Additionally, a donor can 
contribute appreciated property like stock and not trigger gain for tax 
purposes. Conversely, when such property is contributed to a section 
527 political organization, gain is triggered to the donor.\57\ This 
provides a way of obtaining a deduction of a sort and makes the dark 
money organization a more desirable destination for such assets than a 
political organization. Finally, Congress has clarified that the gift 
tax does not apply to contributions to either a social welfare 
organization or a business league.\58\
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    \55\ 26 U.S.C. Sec. 501(a), (c)(4), (6). An exempt organization 
that operates an unrelated business is subject to the unrelated 
business income tax though under 26 U.S.C. Sec. 511.
    \56\ 26 U.S.C. Sec. 162.
    \57\ Cf. 26 U.S.C. Sec. 84 (donor who contributes appreciated 
property to 26 U.S.C. Sec. 527 political organization owes income tax 
on the gain associated with the appreciated property).
    \58\ 26 U.S.C. Sec. 2501(a)(6).

    One other commonality of these two organizations is that if either 
engages in exempt function activity as that term is defined in section 
527 then as noted above in part II(b), the exempt organization owes a 
tax under section 527(f).\59\ The amount of that tax is set at the 
lesser of net investment income or the expenditure on the exempt 
function activity.\60\ If there is no discernible expense to point to, 
there is no tax; similarly, if there is no net investment income in the 
year there is no tax as well. In Revenue Ruling 2004-6 the IRS provided 
guidance on when social welfare organizations, business leagues and 
labor unions engage in too much exempt function activity and become 
subject to the disclosure rules of section 527.\61\
---------------------------------------------------------------------------
    \59\ 26 U.S.C. Sec. 527.
    \60\ 26 U.S.C. Sec. 527(f).
    \61\ Rev. Rul. 2004-6, 2004-1 C.B. 328.
---------------------------------------------------------------------------
            i. Social welfare organizations
    Social welfare organizations include ``[c]ivic leagues or 
organizations not organized for profit but operated exclusively for the 
promotion of social welfare . . . and no part of the net earnings of 
such entity inures to the benefit of any private shareholder or 
individual.''\62\ The regulations suggest a social welfare purpose is 
furthered through ``bringing about civic betterments and social 
improvements.''\63\ One court suggested that such a purpose is found in 
``a community movement designed to accomplish community ends.''\64\
---------------------------------------------------------------------------
    \62\ Id.
    \63\ Treas. Reg. Sec. 1.501(c)(4)-1(a)(2).
    \64\ Erie Endowment v. United States, 316 F.2d 151, 156 (3d Cir. 
1963).

    Studies suggest political organizations in number make up a small 
part of the social welfare sector.\65\ Social welfare organizations 
also include health maintenance organizations, civic social clubs like 
Kiwanis and Rotary clubs, homeowners' associations, and kid's sports 
clubs.\66\ Still, social welfare organizations participate in political 
activity in its broadest sense and inject substantial dollars into that 
world. Some of that political work furthers a social welfare purpose. 
For instance, lobbying can further a social welfare purpose.\67\ 
However, a social welfare organization does not further its purpose 
when it intervenes in a political campaign.\68\
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    \65\ Jeremy Khoulish, ``From Camps to Campaign Funds: The History, 
Anatomy and Activity of 501(c)(4) Organizations,'' Urban Institute, 6 
(2016).
    \66\ Id.
    \67\ Rev. Rul. 68-656, 1968-2 C.B. 216.
    \68\ Treas. Reg. Sec. 1.501(c)(4)-1(a)(2)(ii).

    Though the statute uses the term ``exclusively'' when describing 
how much a social welfare organization must further its exempt purpose, 
Treasury regulations state that a social welfare organization must 
``primarily'' further a social welfare purpose.\69\ When the U.S. 
Supreme Court interpreted similar ``exclusively'' language in the 
context of a charitable organization and social security it stated: 
``an organization must be devoted to [its exempt] purposes exclusively. 
This plainly means that the presence of a single non-[exempt] purpose, 
if substantial in nature, will destroy the exemption regardless of the 
number or importance of truly [exempt] purposes.''\70\ The Second 
Circuit Court of Appeals in a social welfare organization case, 
Contracting Plumbers, explicitly rejected the idea that the regulation 
by using the term ``primarily'' had liberalized the exclusively 
standard for a social welfare organization.\71\ The court stated: ``we 
adhere to the rule that the presence of a single substantial non-exempt 
purpose precludes exempt status regardless of the number or importance 
of the exempt purposes.''\72\ In fact, when the IRS rejects the 
application of a charity or a social welfare organization and issues a 
denial letter, it typically uses this formulation, i.e., ``you are 
operated for a substantial non-exempt purpose.''\73\ How is the 
statutory and regulatory language operationalized? In other words, what 
does it mean to be exclusively operated for a social welfare purpose? 
How do you measure that? Some attorneys have operated on the belief 
that if an organization can maintain its exempt status if it makes sure 
to engage in more than fifty percent of expenditures that further its 
exempt purpose annually.\74\ A corollary to this would be that a social 
welfare organization can spend 49 percent of its time and expenditures 
on political campaign intervention, as long as the other 50 + .1 
percent is focused on social welfare activity. This position seems to 
cut against the language of the Court in Better Business Bureau: an 
activity that makes up 49 percent of an organizations purpose would 
seem to ``substantial in nature.''
---------------------------------------------------------------------------
    \69\ Id.
    \70\ Better Business Bureau of Washington D.C. v. U.S., 326 U.S. 
279, 283 (1945). This decision predates the implementation of the 
unrelated business income tax. Ellen P. Aprill, ``The IRS's Tea Party 
Tax Row: How `Exclusively' Became `Primarily,' '' Pac. Standard (June 
7, 2013), http://www.psmag.com/politics/the-irss-tea-party-tax-row-how-
exclusively-became-primarily-59451/.
    \71\ Contracting Plumbers Co-op. Restoration Corp. v. United 
States, 488 F.2d 684, 686 (2d Cir. 1973).
    \72\ Id.
    \73\ See, e.g., Letter 202216018, https://www.irs.gov/pub/irs-wd/
202216018.pdf (emphasis added).
    \74\ See Ellen P. Aprill, ``Examining the Landscape of Section 
501(c)(4) Social Welfare Organizations,'' 21 N.Y.U. J. Legis. and Pub. 
Pol'y 345, 346-47 (2018) (noting that some practitioners take this 
position); see also James Fishman, Stephen Schwarz and Lloyd Mayer, 
Nonprofit Organizations, 496 (5th Ed. 2015) (noting that the question 
is a facts and circumstances test but that many practitioners take the 
position that as long as the organization does less than 50 percent 
non-social welfare purpose activity it should still qualify). The IRS 
in 2013 after the Tea Party controversy created Letter 5228. In it, the 
IRS adopted a safe harbor of a sort for a certain set of organizations 
where it used a 60-percent threshold. The IRS would approve an 
application of an organization that could represent it would spend 40 
percent or less in time and expenditures on ``on direct or indirect 
participation or intervention in any political campaign.'' IRS Letter 
5228 (Rev. 9-2013), https://www.irs.gov/pub/irs-tege/letter5228.pdf.

    It can be difficult for the IRS to make the call between activity 
that might be considered issue advocacy and activity that crosses the 
line into political campaign intervention.\75\ In 2013, the IRS issued 
proposed regulations with the intent to make it clearer when such lines 
are crossed in the social welfare organization context.\76\ But, in 
Consolidated Appropriations Acts since 2016 Congress has blocked the 
IRS from implementing rules to clarify this space. In the Consolidated 
Appropriations Act of 2022, for example, Congress prohibited the IRS 
and the Treasury Department from issuing rules about section 501(c)(4) 
organizations.\77\ It fixes the status of the law regarding these 
organizations with the ``standard and definitions as in effect on 
January 1, 2010, which are used to make such determinations . . . for 
purposes of determining status under section 501(c)(4) of such Code of 
organizations created on, before, or after'' the Act.\78\
---------------------------------------------------------------------------
    \75\ The IRS consideration of the application for exemption of the 
major political social welfare organization associated with Karl Rove, 
Crossroads GPS, is a good example. Though the IRS initially proposed 
denying social welfare status to the organization because many of the 
ads it ran appeared to be political campaign intervention, the IRS 
Appeals Office granted the organization status after Crossroads filed 
an appeal with the IRS Appeals Office. See Robert Maguire, ``How 
Crossroads GPS Beat the IRS and Became a Social Welfare Group,'' 
OpenSecrets (February 12, 2016) https://www.opensecrets.org/news/2016/
02/how-crossroads-gps-beat-the-irs-and-became-a-social-welfare-group/.
    \76\ Guidance for Tax-Exempt Social Welfare Organizations on 
Candidate-Related Political Activities, (REG-134417-13) 78 FR 71535-01, 
2013-52 I.R.B. 856, (November 29, 2013).
    \77\ H.R. 2471, Div E, title I, sec. 123 (2022) https://
rules.house.gov/sites/democrats.rules.
house.gov/files/BILLS-117HR2471SA-RCP-117-35.pdf.
    \78\ Id.

    Like charities, a social welfare organization cannot allow its 
earnings to inure to the benefit of a private shareholder or 
individual.\79\ Additionally, the private benefit limitation discussed 
with regard to charities in part II(b), and the tax under section 4958 
on excess benefit transactions applies to social welfare organizations 
like described above with respect to charities.\80\
---------------------------------------------------------------------------
    \79\ 26 U.S.C. Sec. 501(c)(4).
    \80\ 26 U.S.C. Sec. 4958(e) (applicable tax-exempt organization 
includes ``any organization which . . . would be described in paragraph 
(3), (4), or (29) of section 501(c) and exempt from tax under section 
501(a)'').

    After legislation in 2015, any organization that intends to operate 
as a social welfare organization must provide notice to the IRS of its 
intention within 60 days of its formation.\81\ The organization files a 
Form 8976 to meet this notice requirement. Social welfare organizations 
must file a Form 990 just like a charity.\82\ I will discuss this 
requirement more below in part II(d).
---------------------------------------------------------------------------
    \81\ 26 U.S.C. Sec. 506.
    \82\ 26 U.S.C. Sec. 6033.
---------------------------------------------------------------------------
            ii. Business leagues
    Business leagues present many of the same issues as do social 
welfare organizations. They are exempted from the income tax under 
section 501(c)(6) and include ``[b]usiness leagues, chambers of 
commerce, real-estate boards, boards of trade, or professional football 
leagues.''\83\ A business league must promote a common business 
interest and direct its activities towards the improvement of business 
conditions in one or more lines of business as distinguished from the 
performance of particular services for individual persons.\84\ These 
organizations broadly support various industries or professions through 
education, advertising, networking, lobbying.\85\ Similarly to social 
welfare organizations, a business league is prohibited from allowing 
its earnings to inure to a private shareholder or individual. Though 
the term is not expressly used in the Treasury regulations or the Code, 
it is understood that a business league must primarily operate for its 
exempt purpose.\86\
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    \83\ 26 U.S.C. 501(c)(6).
    \84\ Treas. Reg. Sec. 1.501(c)(6)-1.
    \85\ For a detailed discussion of the activities and types of 
business leagues, see Philip Hackney, ``Taxing the Unheavenly Chorus: 
Why Section 501(c)(6) Trade Associations Are Undeserving of Tax 
Exemption,'' 92 Den. U. L. Rev. 265 (2015).
    \86\ See, e.g., American Auto Ass'n v. Comm'r, 19 T.C. 1146, 1159 
(1953) (``petitioner was primarily a service organization. Its 
principal activities, as disclosed by our findings of fact, consisted 
of performing particular services, and securing benefits of a 
commercial nature for its members) (emphasis added); see also, John 
Francis Reilly, Carter Hull, and Barbara Allen, IRC 501(c)(6) 
Organizations, IRS EO CPE Text, K-20 (2003), https://www.irs.gov/pub/
irs-tege/eotopick03.pdf (``the activities of the organization cannot be 
primarily directed to the performance of particular services for 
individual persons'').

    As with social welfare organizations, lobbying is a permissible 
purpose of a business league.\87\ The Office of the Chief Counsel has 
determined that political campaign intervention does not further a 
business league purpose.\88\ The practical result of this regime is 
that business leagues can do unlimited lobbying, assuming it furthers 
the organization's purpose, and can under tax law intervene in a 
political campaign as long as that is not the business league's primary 
purpose.\89\
---------------------------------------------------------------------------
    \87\ Rev. Rul. 61-177, 1961-2 C.B. 117.
    \88\ See IRS Gen. Couns. Mem. 34,233 (December 3, 1969). Campaign 
finance law also significantly impacts the operation of business 
leagues in the political campaign sphere. For instance, a business 
league, as a corporation, is subject to the law that they use 
``separate segregated funds'' as controlled political action committees 
to make contributions to candidates for Federal political campaigns. 52 
U.S.C. 30118; 11 CFR Sec. Sec. 114.1(a)(2)(iii) and 114.5.
    \89\ Inspector Gen. for Tax Admin., Review of the Processing of 
Referrals Alleging Impermissible Political Activity by Tax-Exempt 
Organizations, Ref. Num. 2019-10-006, 3 (October 4, 2018).
---------------------------------------------------------------------------
d. Information Reporting Requirements
    Most organizations exempt from income tax under section 501(a) of 
the Code must file an annual information return ``stating specifically 
the items of gross income, receipts, and disbursements, and such other 
information for the purpose of carrying out the internal revenue 
laws.''\90\ This is the Form 990, the annual information return for IRS 
tax purposes.\91\ The return both serves a means of ensuring the 
organization complies with its tax status, by providing information 
that could allow the IRS to detect if there is any avoidance of tax and 
provides the public information to hold these organizations publicly 
accountable.
---------------------------------------------------------------------------
    \90\ 26 U.S.C. Sec. 6033.
    \91\ IRS, Form 990, Return of Exempt Organization Exempt From 
Income Tax, https://www.irs.gov/pub/irs-pdf/f990.pdf. The IRS and the 
Treasury Department enacted a regulation in 1942 requiring tax-exempt 
organizations to file a Form 990 for tax years beginning in 1941. T.D. 
5125 (IRS TD), 1942-1 C.B. 101, 1942. Congress followed that regulation 
up in 1944 with a requirement for a tax information return for certain 
tax-exempt organizations. The Revenue Act of 1943, Pub. L. No. 78-235, 
58 Stat. 28 implementing then Sec. 54.

    The Form 990 in generally available to the public pursuant to the 
Code,\92\ and has been publicly accessible since 1950.\93\ The public 
disclosure of the returns arguably brings ``some measure of 
organizational accountability to various constituencies, including 
current and prospective donors, organization employees and patrons, 
other exempt entities, and the citizenry at large.''\94\ The Joint 
Committee on Taxation has suggested ``[d]isclosure of information 
regarding tax-exempt organizations also allows the public to determine 
whether the organizations should be supported--either through continued 
tax benefits and contributions of donors--and whether changes in the 
laws regarding such organizations are needed.''\95\ The Independent 
Sector suggests the unique role of nonprofits in our society as 
voluntary organizations requires more public disclosure.\96\
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    \92\ 26 U.S.C. Sec. 6104(b).
    \93\ Revenue Act of 1950, H.R. 8920, 81st Cong. Sec. 341 (1950).
    \94\ Caroline K. Craig, ``The Internet Brings `Cyber-
Accountability' to the Nonprofit Sector,'' 13 J. Tax'n Ex. Org. 82 
(2001).
    \95\ Staff of the Joint Comm. on Taxation, 106th Cong., Study of 
Disclosure Provisions Relating to Tax-Exempt Organizations, at 5 
(2000); see also Lloyd Hitoshi Mayer, ``The Promises and Perils of 
Using Big Data to Regulate Nonprofits,'' 94 Wash. L. Rev. 1281, 1297-98 
(2019).
    \96\ Evelyn Brody, ``Sunshine and Shadows on Charity Governance: 
Public Disclosure as a Regulatory Tool,'' 12 Fla. Tax Rev. 183, 212 
(2012).

    Up until recently, most exempt organizations were required to 
disclose to the IRS, but not the public, the substantial donors to the 
organization during the taxable year.\97\ That requirement to disclose 
substantial donors was required in the first Form 990 for the 1941 tax 
year.\98\ Congress later statutorily required this donor information 
from charitable organizations in the 1969 Tax Act.\99\ Today, the 
information is collected on Schedule B to the Form 990 and requires the 
disclosure of substantial donors generally meaning those who donated 
the greater of $5,000 or 2 percent of total donations to the nonprofit 
during the year.\100\ Congress prohibits the public disclosure of the 
names and addresses of contributors of all but private foundations and 
political organizations.\101\ Though the Treasury Department and IRS 
long required other exempt organizations to disclose this information 
via regulation and the Form 990, in 2020, the Treasury Department and 
the IRS finalized regulations ending that requirement for all but 
charitable organizations.\102\
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    \97\ IRS, Form 990, Return of Organization Exempt from Tax, https:/
/www.irs.gov/pub/irs-pdf/f990.pdf.
    \98\ See Form 990 EO CPE text describing how the 1941 Form 990 
required disclosure of substantial donors (those donating $4,000 or 
more) on Form 990. Done initially in 1943 to develop the information 
needed to determine whether the organizations at hand ought to be 
exempt from taxation. See Senate Finance Committee Report in the 
Revenue Bill of 1943, p. 21, https://www.finance.senate.gov/imo/media/
doc/SRpt78-627.pdf. The Revenue Act of 1943 was not enacted until 
February 1944 because of a Presidential veto, https://www.loc.gov/law/
help/statutes-at-large/78th-congress/session-2/c78s2ch63.pdf. Pub. L. 
No. 235, 78th Cong., 2d Sess. (February 25, 1944).
    \99\ Tax Reform Act of 1969, Pub. L. No. 91-172, 83 Stat. 487.
    \100\ Schedule B, Form 990, https://www.irs.gov/pub/irs-pdf/
f990ezb.pdf.
    \101\ 26 U.S.C. Sec. 6104(b).
    \102\ Guidance Under section 6033 Regarding the Reporting 
Requirements of Exempt Organizations, 85 Fed. Reg. 31959 (May 28, 2020) 
(codified at 26 CFR 56) T.D. 9898.

    The ending of the collection of this information was a mistake on 
the part of the IRS. The IRS needs the information regarding 
substantial donors from not just charitable organizations, but also the 
dark money organizations in order to protect the revenue and as a means 
to deter tax avoidance. The ending of the collection of that 
information also likely impacts the integrity of the campaign finance 
system as individuals can contribute to social welfare organizations 
with the knowledge that there is no information going to any part of 
---------------------------------------------------------------------------
the government regarding these contributions.

    To police the inurement provision, the IRS needs to know 
substantial contributors because these are individuals who can control 
the organization.\103\ The IRS has no reliable way to know this 
information without the exempt organization directly disclosing it to 
the IRS. Substantial donors are not public facing in the way officers 
and directors of a nonprofit corporation are public facing. The same 
goes for enforcing the excess benefit transaction tax imposed for 
charities and social welfare organizations. The IRS needs to know the 
individuals who control the organization and substantial contributors 
fall into this category.\104\ The IRS cannot truly enforce this tax 
Congress imposed without the information. Substantial contributor 
information can aid the IRS in enforcing the private benefit limitation 
as well. Finally, if the IRS wants to keep track of related dark money 
organizations that might try to avoid the primarily test by working in 
tandem to maximize the amount of money they can use to engage in 
political campaign intervention, Schedule B can provide essential 
information to see such relationships.\105\
---------------------------------------------------------------------------
    \103\ The Supreme Court recently struck down as facially 
unconstitutional under the First Amendment a State law in California 
requiring charities soliciting donations in the State of California to 
disclose substantial donors identified on Schedule B to the IRS Form 
990. Americans for Prosperity Foundation v. Bonta, 141 S.Ct. 2373 
(2021). I submitted an amicus brief in Americans for Prosperity along 
with 11 other nonprofit scholars supporting the State of California in 
its effort to protect its ability to require this donor information 
from charities. Brief of Amici Curiae Scholars of the Law of Non-Profit 
Organizations in Support of Respondent, Americans for Prosperity 
Foundation v. Bonta, 141 S.Ct. 2373 (2021) (Nos. 19-251 and 19-255). 
The Court was careful to note that its opinion applied to neither 
campaign finance nor to tax law. Id. at 2389.
    \104\ 26 U.S.C. Sec. 4958(c)(3)(B)(i) (including ``substantial 
contributor'' in the group of individuals who can violate the excess 
benefit transaction tax).
    \105\ The idea here is a donor could contribute $1 million to a 
social welfare organization. That first social welfare organization 
could spend 49 percent on political campaign intervention and send 50 
percent of the money to another social welfare organization. That 
second organization does the same thing. Via this strategy, the 
organization theoretically is accomplishing social welfare organization 
purposes through contributing to another social welfare organization 
but is indeed almost exclusively accomplishing political campaign 
activity. It is hard to see how such a scheme could be considered to 
qualify under section 501(c)(4), but without the donor information on 
Schedule B it should be much more difficult for the IRS to detect such 
transactions. Schedule I to the Form 990 helps in part but the Schedule 
B combined with the Schedule I would enable the IRS to see such 
transactions quicker and more reliably.

    Requiring disclosure to the IRS acts as a deterrent to tax 
avoidance as well.\106\ The Treasury Department notes that tax 
noncompliance is highest where there is no third-party reporting.\107\ 
The Treasury Department highlights the need to ``strengthen reporting 
requirements,''\108\ and notes that enforcement activity itself is not 
a driver of reducing the tax gap.\109\ In its 2001 study, the IRS found 
that about 45 percent of compliance has to do with information 
reporting.\110\ Given the significant lack of enforcement of the tax 
laws from the IRS as discussed below in part III, ending this 
requirement to disclose substantial donors becomes even more damaging.
---------------------------------------------------------------------------
    \106\ See ``Dark Money Darker,'' supra note 1, at 170-75.
    \107\ See Office of Tax Policy, U.S. Dep't of Treasury, ``A 
Comprehensive Strategy for Reducing the Tax Gap,'' 8 (2006), available 
at https://www.irs.gov/pub/irs-news/comprehensive_strategy.
pdf.
    \108\ Id. at 9.
    \109\ Id. at 13.
    \110\ See IRS, ``Tax Year 2001 Tax Gap Update,'' 2 (2007); see also 
Leandra Lederman, ``Essay: Reducing Information Gaps to Reduce the Tax 
Gap: When Is Information Reporting Warranted?'', 78 Fordham L. Rev. 
1733, 1738 (2010).

    The tax law in the exempt organization space works in part as a 
back-up to campaign finance law. In addition to tax law, Congress 
regulates many nonprofit organizations to the extent they are engaged 
in campaign finance.\111\ Nonprofits have long been involved in the 
electoral system,\112\ and the United States has tried to regulate the 
campaign finance of corporate entities since 1907 when Congress enacted 
the Tillman Act under President Theodore Roosevelt.\113\ This system of 
law focuses on expenditure limits, contribution limits, and disclosure. 
Though a series of cases over the years has struck down certain parts 
of the system enacted by Congress, it remains in force today.\114\ 
Knowledge of donors to nonprofits is relevant to the enforcement of 
that law. For instance, the system prohibits foreign actors from 
contributing to campaigns for public office or making expenditures for 
political campaigns.\115\ To the extent a social welfare organization 
takes money from foreign operators to influence a campaign, the FEC 
cares. Some argue indeed that the lack of public disclosure of 
substantial donors to social welfare organizations is making nonprofits 
a disclosure shelter, and thereby undermining the nonprofit sector's 
credibility.\116\
---------------------------------------------------------------------------
    \111\ Federal Election Campaign Act of 1971, Pub. L. No. 92-225, 86 
Stat. 3 (codified as amended at 2 U.S.C. Sec. Sec. 431-455).
    \112\ Lloyd Hitoshi Mayer, ``When Soft Law Meets Hard Politics: 
Taming the Wild West of Nonprofit Political Involvement,'' 45 J. Legis. 
194, 196 (2019).
    \113\ Ch. 420, 34 Stat. 864 (1907). See Federal Election Commission 
v. Beaumont, 539 U.S. 146 (2003) (holding that the corporate political 
contribution ban applied to nonprofit corporations).
    \114\ Citizens United v. FEC, 558 U.S. 310 (2010); SpeechNow.org v. 
FEC, 599 F.3d 686 (D.C. Cir. 2010) (en banc), cert. denied, 562 U.S. 
1003 (2010).
    \115\ 52 U.S.C. Sec. 30121; 11 CFR Sec. 110.20. See Norman I. 
Silber, ``Foreign Corruption of the Political Process through Social 
Welfare Organizations,'' 114 NW. U. L. Rev. Online 104 (2019).
    \116\ Roger Colinvaux, ``Social Welfare and Political 
Organizations: Ending the Plague of Inconsistency,'' 21 N.Y.U. J. 
Legis. and Pup. Pol'y 481 (2018).

    The IRS in its final regulations eliminating the disclosure 
requirement suggested that neither campaign finance nor State nonprofit 
law was part of its mission. It argued, thus, that it need not consider 
comments suggesting that it was important for the IRS to maintain the 
requirement to help States enforce nonprofit law and campaign finance 
laws. I have argued that the IRS was wrong that it need not take other 
law into consideration. Congress has designed the tax law to work in 
tandem with other enforcement agencies both Federal and State and 
local.\117\
---------------------------------------------------------------------------
    \117\ For example, Congress enhanced 26 U.S.C. Sec. 527 in 2000 to 
augment the FEC's roll in overseeing campaign finance by creating an 
IRS reporting regime for those political organizations that did not 
need to file reports with the FEC. Congress directs the IRS to work 
with State agencies as they revoke exemption from charitable 
organizations in 26 U.S.C. Sec. 6104. As a practical matter the IRS 
works regularly with other agencies such as the Federal Bureau of 
Investigation, the Department of Justice, the Federal Communications 
Commission, and the Department of Labor to ensure that the Federal laws 
are enforced.

    What penalties does the IRS have at hand to manage failures to file 
---------------------------------------------------------------------------
Form 990s or false information on Form 990s?

    Section 6652 penalizes either a failure to file an information 
return or to file a complete return.\118\ The penalty on the 
organization is $20 a day with a maximum for smaller organizations of 
$10,000 and of larger organizations at $50,000.\119\ The IRS has stated 
that a return that leaves out material information is an incomplete 
return that can be penalized.\120\ The IRS has suggested that 
``materiality depends upon what the Service requires to administer the 
tax laws.''\121\ Additionally there are criminal penalties, such 
section 7206 which applies when someone ``[w]illfully makes and 
subscribes any return, statement, or other document, which contains or 
is verified by a written declaration that it is made under the 
penalties of perjury, and which he does not believe to be true and 
correct as to every material matter.''\122\ These criminal charges 
require a high burden of proof and are not often used by the IRS except 
typically in egregious cases.
---------------------------------------------------------------------------
    \118\ 26 U.S.C. Sec. 6652(c).
    \119\ Id.
    \120\ IRS Office of Chief Counsel, PMTA 01357, Memorandum from 
James Brokaw to David Fish, November 2, 2007, https://www.irs.gov/pub/
lanoa/pmta01357_7359.pdf. Rev. Rul. 77-162.
    \121\ Id.
    \122\ 26 U.S.C. 7206.
---------------------------------------------------------------------------
                          iii. irs enforcement
    What resources does the IRS have at its disposal to ensure 
taxpayers are complying with the law? A review of the trend over the 
past 10 years suggests the IRS does not have the resources, human or 
capital, needed to enforce the current tax law.\123\ Furthermore, the 
IRS places low budget priority on the exempt organization sector likely 
because it delivers little in tax revenue.\124\
---------------------------------------------------------------------------
    \123\ See, e.g., Paul Keil and Jesse Eisinger, ``How the IRS Was 
Gutted,'' ProPublica (December 11, 2018). See also Leandra Lederman, 
``The IRS, Politics, and Income Inequality,'' Tax Notes, 1329 (March 
14, 2016).
    \124\ Much of this part II(d) comes from ``Dark Money Darker,'' 
supra note 1, at 175-79.

    While the economy grew, Congress shrunk the IRS budget over the 
past decade. The Congressional Budget Office (``CBO'') reports that the 
IRS budget fell by 20 percent in real (inflation-adjusted) dollars 
between 2010 and 2018.\125\ This resulted in a 22-percent decrease in 
employees working at the agency, and a 30-percent decline in 
enforcement employees.\126\ IRS Data Books show the IRS went from over 
94,000 full time equivalent (``FTEs'') employees in FY 2010 to 73,554 
FTEs in FY 2019.\127\ Furthermore, some of the most specialized 
employees in the enforcement sphere saw declines of 35 percent for 
revenue agents and 48 percent for revenue officers.\128\ Individual 
examinations fell by 46 percent in that period with only 0.6 percent of 
individuals facing an examination by the end of that period.\129\ While 
high income individuals were generally audited at a rate higher than 
other individuals, the audits of high-income individuals fell at a 
greater rate than all other individuals.\130\ Corporate examinations 
fell by 37 percent.\131\
---------------------------------------------------------------------------
    \125\ Congressional Budget Office, ``Trends in the Internal Revenue 
Service's Funding and Enforcement,'' 1 (2020).
    \126\ Id.
    \127\ Internal Revenue Service, Data Book, 74 Table 31 (2019); 
Internal Revenue Service, Data Book, 66 Table 29 (2010).
    \128\ Id.
    \129\ Id. at 2.
    \130\ Id.
    \131\ Id.

    What happened to the IRS in its tax-exempt organization group? The 
Government Accountability Office (``GAO'') in 2014 recognized that the 
budget cuts at the IRS led to less enforcement in the tax-exempt 
sector.\132\ The IRS workforce on exempt organization matters shrank 
about 5 percent from 2010 (889 FTEs) to 2013 (842 FTEs).\133\ That 
workforce then shrank significantly to around 550 FTEs by FY 2019.\134\ 
There was a change in the exempt organizations group at the IRS after 
the Tea Party controversy of 2013 \135\ where many employees of exempt 
organizations moved over to the Chief Counsel to manage guidance 
projects from that office. In 2014, it was reported that around 45 
employees from the IRS were being moved over to the Office of Chief 
Counsel of the IRS in a realignment.\136\ However, even if 45 moved 
over, that does not explain the precipitous drop.
---------------------------------------------------------------------------
    \132\ GAO, ``Better Compliance Indicators and Data, and More 
Collaboration with State Regulators Would Strengthen Oversight of 
Charitable Organizations,'' 19 (2014).
    \133\ Id.
    \134\ IRS, TEGE, Fiscal Year 2019 Accomplishments, Pub. 5329 
(2020).
    \135\ For more on this matter see Philip T. Hackney, ``Should the 
IRS Never `Target' Taxpayers? A Consideration of the IRS Tea Party 
Affair,'' 49 Val. L. Rev. 453 (2015). The Treasury Inspector General 
for Tax Administration (TIGTA) later concluded that the IRS treated 
both conservative and liberal groups in the same way in the IRS 
determination process. Inspector Gen. for Tax Admin., Review of 
Selected Criteria Used to Identify Tax-Exempt Applications for Review, 
Ref. Num. 2017-10-054 (September 28, 2017), https://www.treasury.gov/
tigta/auditreports/2017reports/201710054fr.pdf. The Senate Finance 
Committee's Bipartisan Investigative Report concluded similarly in 
2015. Senate Finance Committee, The IRS's Processing of 501(c)(3) and 
501(c)(4) Applications for Tax-Exempt Status Submitted by ``Political 
Advocacy'' Organizations from 2010-2013, Sen. Rep. 114-119 (August 5, 
2015), https://www.congress.gov/congressional-report/114th-congress/
senate-report/119/1.
    \136\ Diane Freda, ``Move of 45 IRS TE/GE Employees to Chief 
Counsel's Office Slated for FY 2015,'' Bloomberg Law News (May 14, 
2014). Some of those 45 came from employee plans. One article from the 
time suggests it was only 22 employees from the exempt organizations 
group that moved over. Lauren Simpson, ``IRS Controversy and 
Restructuring,'' Nonprofit Law Blog (May 29, 2014), https://
www.pbwt.com/exempt-org-resource-blog/nonprofit-law-blogirs-
controversy-changes-tege.

    The main functions of the exempt organizations group are running an 
application system called the determinations process, and an 
examination program. In determinations, as annual applications have 
increased annual rejections from the IRS have significantly 
decreased.\137\ In FY 2019, the IRS reviewed over 101,000 applications 
for exempt status, it rejected only 66 of those applications.\138\ 
Comparatively, in FY 2010, the IRS reviewed over 65,000 of such 
applications and rejected 517.\139\ Admittedly, a large number of 
applicants withdraw their applications before denial and this statistic 
has the potential to be misleading. When looking at examinations, it is 
impossible to have a perfect figure given the way the data is reported 
in the IRS Data Book, but of all the returns filed and all the returns 
examined in 2010, which likely includes some double counting of 
organizations (and includes sizable employment tax returns), the IRS 
had about a .38 percent examination rate.\140\ In 2019, comparatively, 
even with the double counting problem, the examination rate shrinks to 
0.15 percent at best.\141\ TIGTA counted the rate in 2019 at 0.13 
percent.\142\
---------------------------------------------------------------------------
    \137\ Philip Hackney, ``The Real IRS Scandal Has More to do with 
Budget Cuts than Bias,'' The Conversation (April 15, 2018).
    \138\ IRS, Data Book, 27, Table 12 (2019).
    \139\  IRS, Data Book, 56, Table 24 (2010).
    \140\ IRS, Data Book, 4, Table 2, 33, Table 13 (2010).
    \141\ IRS, Data Book, 4, Table 2, and 54 Table 21 (2019).
    \142\ Inspector Gen. for Tax Admin., Obstacles Exist in Detecting 
Noncompliance of Tax-Exempt Organizations, Ref. No. 2921-10-013, 6 
(2021).

    This erosion of the IRS workforce and enforcement happened while 
the tax-
exempt sector grew. Though a comparison of IRS data between 2010 and 
2019 seems to suggest that total tax-exempt organizations shrunk,\143\ 
the sector has grown in size of assets. It is difficult to get good 
current statistics on nonprofits. There are many problems with the data 
from the IRS including the fact that not all organizations file 
returns\144\ or do not file returns that provide any significant 
data,\145\ and we have no reason to believe all organizations file 
their returns accurately. Nevertheless, a look at IRS data from Forms 
990 suggests assets and revenue have increased quite a bit in the 
sector over the decade.\146\ In 2010, with a little over 186,000 
charitable organization Form 990s filed, the charitable sector held 
over $2.9 trillion in assets and almost $1.6 trillion in revenue.\147\ 
In comparison, in 2017 over 217,000 charitable organizations filed Form 
990s reporting over $4.3 trillion in assets and almost $2.3 trillion in 
revenue.\148\ Using that same data, again from reporting on Forms 990, 
for exempt organizations including 501(c)(4)-(9) in 2010 there were 
approximately $547 billion in assets and $360 billion in revenue.\149\ 
In 2017, those amounts grew to approximately $767 billion in assets and 
$387 billion in revenue.\150\
---------------------------------------------------------------------------
    \143\ IRS, Data Book, 56, Table 25 (2010); IRS, Data Book, 30 Table 
14 (2019).
    \144\ After Congress added 26 U.S.C. Sec. 6033(h) to the Code in 
2006, and the IRS implemented what it calls the Form 990-N (e-
Postcard), churches are likely far and away the largest group of 
charities that file no IRS return.
    \145\ Form 990-N provides little in the way of information 
regarding the organization.
    \146\ IRS, SOI Tax Stats--Charities and Other Tax-Exempt 
Organization Tax Statistics, Form 990--Balance Sheet and Income 
Statement Items.
    \147\ Id. 2010.
    \148\ Id. 2017.
    \149\ Id.
    \150\ Id.

    Thus, the enforcement environment for the IRS is poor both at the 
IRS in general and at the division that oversees tax-exempt 
organizations in particular. When compared to the size of the sector 
the IRS is reviewing, the idea that the IRS might be able to use human 
resource heavy examinations to ensure compliance is laughable. It is 
not going to work. Though I will not go into this here, State 
enforcement is even more anemic. Efforts, such as those recommended by 
GAO, for the IRS to make better use of data available is going to be 
the only way the IRS in this current environment can make headway 
against tax abuse. Robust information reporting thus needs to be the 
---------------------------------------------------------------------------
norm.

    As noted above, the IRS often has given short shrift to the tax-
exempt organization enforcement side of its house. This is likely in 
part because the sector simply does not generate revenue, and it comes 
with enforcement that has potential political danger if not handled 
with care. Nevertheless, it seems possible and important for the IRS to 
do more in this space with publicly available campaign spending reports 
filed with the FEC. Many cases noted by Citizens for Responsibility and 
Ethics in Washington where social welfare organizations represent one 
thing to the FEC regarding making independent expenditures and then 
reporting nothing to the IRS on the Form 990 are troubling. Such cases 
seem to present prima facie cases of substantial political campaign 
intervention that at the least ought to be investigated. They also 
present questionable statements on Form 990s.
                             iv. conclusion
    Thank you for inviting me to speak about the laws and enforcement 
governing the political activities of tax-exempt organizations. The tax 
laws are built fairly well to prohibit the deduction of campaign 
expenditures and to promote a strong nonprofit sector. There are 
problems with that architecture. For instance, Congress could consider 
requiring donors to recognize gain on the contribution of appreciated 
assets to a dark money organization. This would end an indirect means 
of deducting political activity. Additionally, it would help if the IRS 
were permitted to issue rules clarifying the boundaries of political 
campaign activity for social welfare organizations. However, the legal 
architecture works reasonably well in theory to ensure the government 
is not subsidizing campaign-related contributions through the Code and 
to ensure a well-ordered nonprofit sector. That said, the current 
anemic IRS budget, the lack of enforcement action by the IRS, and the 
failure to collect substantial donor information from dark money 
organizations creates a crisis. There is good reason to believe that 
taxpayers are able to take advantage, and indeed are taking advantage, 
of this system. These factors undermine confidence in the tax system, 
the equal enforcement of the law, and our ability to operate a fair 
democratic system. Therefore, I urge Congress to increase the IRS 
budget to a level that allows the IRS the ability to properly enforce 
the tax laws. But, institutionally, I believe the IRS needs to be 
pushed and given support to enforce these laws that help work toward a 
more fair democratic order.

                                 ______
                                 
          Questions Submitted for the Record to Philip Hackney
                 Questions Submitted by Hon. John Thune
    Question. How does the IRS determine whether voter registration and 
related activities that are funded by 501(c)(3) private foundations, or 
executed by 501(c)(3) public charities, violate the legal requirement 
of nonpartisanship? If violations occur, how is the IRS supposed to 
respond?

    Answer. Though nonpartisanship plays a role in this particular 
question, the legal issue the IRS must consider is the prohibition on 
intervening in a political campaign, often colloquially called the 
Johnson Amendment. Under section 501(c)(3) a charity may not 
``participate in, or intervene in (including the publishing or 
distributing of statements), any political campaign on behalf of (or in 
opposition to) any candidate for public office.'' As I noted in my 
testimony, this means that the organization's representatives when 
speaking for the charity may not directly or indirectly encourage the 
public to vote for or against a candidate for political office. The 
most direct guidance the IRS provides on this question is found in 
Revenue Ruling 2007-41. Notably, a charity can further its charitable 
purposes through voter education activity and through get out the vote 
work if ``conducted in a non-partisan manner.'' As Rev. Rul. 2007-41 
states: ``voter education or registration activities conducted in a 
biased manner that favors (or opposes) one or more candidates is 
prohibited.'' In the two examples the IRS provides in that revenue 
ruling, the key factor that seems to come out is that the IRS needs to 
assess whether the organization is taking actions in conducting this 
work that biases voters toward or away from one candidate or another. 
As long as an organization is registering everyone, and not pushing a 
particular position that is well identified with particular candidates 
running, then most of this type of work will satisfy the requirements 
Congress set forth in the Code. Technically, there is no amount of 
intervention in a political campaign that is allowed. However, the IRS 
has taken an approach that education of nonprofits is an important 
value. Congress implicitly accepts that the IRS can take this more 
lenient approach to the issue as it has provided tools to the IRS to 
apply excise taxes under section 4955 in lieu of or in addition to 
revocation. It thus typically will assess the egregiousness of the 
violation and enter into agreements with charities that violate the 
norm to not engage in such conduct again and to adopt procedures that 
will help prevent such violations in the future. In egregious 
situations the IRS can also take immediate action under 26 U.S.C. 
Sec. Sec. 6852 and 7409.

    Question. The 2015 Senate Finance Committee bipartisan 
investigation into the targeting of taxpayers resulted in a number of 
findings. One of the findings was that a contributing factor to the 
IRS's management problems was the decentralization of its employees, 
including some who worked from home as often as 4 days per week, and 
managers who remotely supervised employees 2,000 miles away. This was 
several years before COVID.

    Do you think such a decentralized organizational structure has 
inhibited IRS performance for taxpayers, or for that matter, increased 
the likelihood of data leaks or hacks of private taxpayer information?

    Answer. As I said in my testimony, I believe that the number one 
thing that has negatively impacted IRS performance is a deficient 
budget. I believe the deficient budget is more likely to cause such 
challenges than a move to modern work styles.

    Question. TIGTA recently reported that the IRS destroyed tens of 
millions of unprocessed returns in 2021.

    While the IRS has since stated there were ``no negative taxpayer 
consequences as a result of this action,'' how do you think the IRS's 
decision to destroy taxpayer information impacts trust between 
taxpayers and the agency, particularly for taxpayers who meet their 
filing obligations only to see the agency selectively destroy filed 
documents?

    Answer. Anytime the IRS is considering how to deal with taxpayer 
information, it needs to bring the utmost care to the issue. The 
deficient budget the IRS faces and the deficient information technology 
system at its disposal make these problems likely to occur and cause 
the trust issues you suggest.

    Question. Is it correct that Lois Lerner was exonerated in the 
later investigations of the targeting controversy?

    Answer. No one has brought charges in the matter. An exhaustive 
review I conducted of the matter showed no laws prohibited the actions 
taken by the IRS in these initial determinations of tax-exempt status. 
Indeed, I have argued and still contend that the choice to centralize 
review of these organizations made good sense. It allowed the IRS to 
get the right decision on all of these cases and apply the law with as 
little bias as possible. This committee's own report, and a later TIGTA 
report, indeed showed that the IRS did not act in a biased manner. Many 
organizations both conservative and liberal were treated to similar 
procedures. The matter could have been managed by that office much 
better than it was. Some of the questioning of applying organizations 
was poorly designed and the IRS took much too long to come to a 
decision. But, I don't believe you need exoneration from poor 
management.

                                 ______
                                 
          Prepared Statement of Hon. Ann Ravel, Former Chair, 
                      Federal Election Commission
    Chairman Whitehouse, Ranking Member Thune, and distinguished 
members of the subcommittee:

    Special tax benefits for non-profit organizations, including 
501(c)(4)s and 501(c)(6)s, were intended by Congress to encourage 
organizations promoting and operating exclusively as social welfare 
organziations or business leagues and other associations not organized 
for profit. Since 1959, the IRS regulations provided that an 
organization is operated exclusively for the promotion of social 
welfare if it's engaged in promoting in some way the common good and 
general welfare of the community. And an IRS decision held that if an 
organization is primarily political, it cannot be a 501(c)(4) or a 
501(c)(6) trade association.

    Because Federal tax law governs the extent to which tax-exempt 
organizations may engage in activities to support candidates without 
jeopardizing the organization's tax exempt status and whether such 
activity requires public disclosure or payment of tax, political 
expenditures and activities must be reported on the Form 990.

    Due to the Citizens United v. FEC decision, a lack of enforcement, 
and a new IRS rule enacted in 2020 which eliminated donor reporting 
requirements to the IRS for 501(c)(4) organizations, organizations that 
have tax-exempt status are a major source of anonymous large political 
contributions, because donors are not required to identify themselves 
either to the IRS or to the public. As a consequence of these factors, 
some groups that receive tax benefits for ``social welfare work'' have 
been emboldened to engage in excessive political spending.

    The lack of disclosure requirements has undermined some of the 
basis tenets of the law relating to campaign contributions and 
expenditures and the importance of full disclosure of the money in 
politics. In the Citizens United Supreme Court decision, Justice 
Kennedy upheld disclosure requirements in campaign finance, stating 
that disclosure ``provides the electorate with information'' to ensure 
``that voters are fully informed about the person or group who is 
speaking,'' and also ensures that ``people are able to evaluate the 
arguments to which they are being subjected.'' Notably, Justice 
Kennedy, supported by seven other Justices, held that ``the 
transparency enables the electorate to give proper weight to different 
speakers and messages,'' and ``citizens can see whether elected 
officials arein the pocket of so-called moneyed interests.'' (Citizens 
United v. Federal Election Commission, 130 S. Ct. 876, 916 (2010).)

    After the Citizens United decision, there was a surge in the 
formation of politically focused organizations seeking to obtain IRS 
approval as (c)4s. In 2012, at least $250 million passed through the 
(c)4s into efforts to elect candidates, an 80-fold increase from 8 
years prior. (Maya Miller, ``How the IRS Gave Up Fighting Political 
Dark Money Groups,'' ProPublica, April 18, 2019.)

    Since the IRS rule enacted in 2020 eliminated donor reporting 
requirements to the IRS, the problem of political dark money has been 
exacerbated.

    While the flood of money began and continued after Citizens United, 
more than $1 billion in dark money flooded the 2020 elections. The lack 
of disclosure to the IRS of 501(c)(4)donors has also had a significant 
impact on the rise of political dark money. Because donors are aware 
that there will be no IRS enforcement of the law relating to political 
money, they know that they have free rein to violate the law. This 
dramatic increase in spending by financiers whose identities remain 
hidden from the very public they are paying to influence poses a 
serious threat to America's autonomy and the public's right to know who 
is influencing our elections and the policy decisions that come along 
afterwards.

    In 2021, based on what has been reported to the FEC, there has 
already been $115,817,584 million spent by 501(c)s in outside political 
spending, according to Anna Massoglia at OpenSecrets. This figure does 
not include information from the recent FEC deadline.

    And, more likely will be spent soon, according to a recent article 
in Axios. Axios reported that The Common Sense Leadership Fund, a 
501(c)(4) which does not disclose donors, has already ``steered half a 
million dollars'' to its new political action committee, the Eighteen 
Fifty-Four Fund, anticipating that its new group will spend in excess 
of $10 million--and potentially much more--on midterm contests.''\1\
---------------------------------------------------------------------------
    \1\ Lachlan Markay, ``First Look: New GOP Group's `Eight Figure' 
Midterm Blitz,'' Axios, April 20, 2022, https://www.axios.com/gop-
group-midterm-blitz-b939b84e-25d5-4f90-ae9a-0f45cee072
62.html.

    In 2015, the political director, Carl Forti, of American 
Crossroads, which is the ``sister Super PAC'' to Crossroads GPS, 
admitted the reason for the establishment of Crossroads GPS, a 
501(c)(4). He was quoted on a panel at the Annenberg Public Policy 
Center of the University of Pennsylvania remarking that ``disclosure 
was very important for us, which is why the 527 [American Crossroads] 
was created. But some donors didn't want to be disclosed, and 
therefore, a (c)(4) [Crossroads GPS] was created.''\2\
---------------------------------------------------------------------------
    \2\ Peter Overby, ``Group Behind Election Ads Weighs in on Tax 
Deal,'' NPR, December 14, 2010, https://www.npr.org/2010/12/14/
132060878/Conservative-Group-Wades-Into-Tax-Debate.

    Similarly, the biggest donor to Future Forward USA was its own 
---------------------------------------------------------------------------
501(c)(4) nonprofit group which doesn't disclose its donors.

    The IRS rule eliminating donor reporting requirements has not only 
encouraged dark money, but the clear prohibition of foreign money 
influencing United States' elections will also be circumvented by 
foreign donors contributing to 501(c)(4)s, knowing that the IRS will 
make it easier for them to expend unlimited sums of money to influence 
our elections with no consequence. The regulation has provided an easy 
opportunity for foreign actors to secretly funnel money to elections 
through such 501(c)s. This is happening at a time when our democracy is 
at risk, and when we know that there are ongoing campaigns by foreign 
actors to undermine public confidence in our democratic institutions.

    A report from the Government Accountability Office, dated February 
3, 2020, ``Campaign Finance: Federal Framework, Agency Rules and 
Responsibilities, and Perspectives,'' found that the IRS doesn't even 
check nonprofit tax records for signs of illegal foreign money in 
United States elections. The government oversight office was told by 
IRS officials that ``examiners do not review the national origin of 
sources of donations'' in non-profit annual tax returns, claiming that 
the IRS ``plays no role in enforcing'' campaign finance rules governing 
foreign money in elections.\3\
---------------------------------------------------------------------------
    \3\ See also, OpenSecrets, `` `Dark money' groups steering millions 
to support elections,'' Anna Massoglia, February 7, 2020, https://
opensecrets.org/news/2020/02/dark-money-steers-millions-to-super-pacs-
2020/.

    The money spent on campaigns from undisclosed sources is an 
increasingly significant problem in the United States' civic life. Dark 
money from anonymous sources has seeped into all levels of government 
and political processes, from Federal and State elections, to spending 
to support politicians' agendas, judicial nomination processes, 
---------------------------------------------------------------------------
redistricting, voting rights and other issues impacting America.

    According to a new report by Matt Corley and Adam Rappaport at 
CREW, entitled ``The IRS Is Not Enforcing the Law on Political 
Nonprofit Disclosure Violation,''\4\ their investigation found that for 
much of the time since Citizens United, ``the IRS didn't revoke any 
section 501(c)(4) group's tax-exempt status for violating the law's 
limits on their political spending.''
---------------------------------------------------------------------------
    \4\ Matt Corley and Adam Rappaport, ``The IRS Is Not Enforcing the 
Law on Political Nonprofit Disclosure Violations,'' April 28, 2022, 
https://www.citizensforethics.org/reports-investigations/crew-reports/
the-irs-is-not-enforcing-the-law-on-political-nonprofit-disclosure-
violations/.

    The CREW report concluded that: ``The IRS appears to have been 
notably lenient in enforcing the basic rules on disclosure and 
transparency by section 501(c)(4) groups engaged in politics. CREW and 
others have identified dozens of these kinds of violations, many of 
which were brought directly to the IRS's attention through complaint 
letters to the agency. Some section 501(c)(4) groups, for example, 
disclosed their political spending to the Federal Election Commission 
(FEC) and other government agencies, but told the IRS under penalty of 
perjury in their tax returns that they did not engage in any political 
activity or misrepresented the amount they spent. Others simply failed 
to file their tax returns or filed them only after complaints were 
---------------------------------------------------------------------------
filed against them.''

    The CREW report made clear that the IRS has shirked its duty to 
review the FEC filings to assure that the filings of politically active 
501(c)(4s) are consistent and truthful. There should be greater 
coordination between the IRS, the FEC, and also the DOJ, to assure that 
the law they each agency has responsibility to enforce is not being 
evaded. As the Chair and Commissioner of the Federal Election 
Commission from 2013-2017, I was concerned that Federal agencies that 
have overlapping missions such as the FEC, IRS and DOJ did not consult 
or coordinate on information regarding violations of Federal law. This 
unwillingness to work together to enforce the law continues to today, 
and the resulting negligence is detrimental to the American people.

    It is wrong for the IRS to allow partisan political operatives to 
establish phony social welfare organizations that to not have to pay 
their fair share of tax and instead collectively expend hundreds of 
millions of dollars from secret sources into our elections. Rather than 
carry out their election spending through section 527, which was 
enacted for this purpose, but requires donor disclosure, political 
groups are masquerading as 501(c)(4)s solely to keep political spenders 
anonymous.

    Congress never intended that social welfare organizations should 
exist as conduits for secret political spending. In exchange for the 
tax exemption, the law requires these non-profits to engage exclusively 
in the promotion of social welfare.\5\ The IRS has said that social 
welfare activities do not include political campaign intervention.\6\
---------------------------------------------------------------------------
    \5\ 26 U.S.C. section 501(c)(4).
    \6\ 26 CFR 1.501(c)(4)-(1)(a)(2)(ii).

    No bright line IRS standard exists as to how much and by what 
measure the IRS should evaluate a social welfare organization's 
furtherance of its primary purpose. Together with a lack of 
enforcement, this circumstance has provided the path for political 
organizations on the right and the left to pose as social welfare 
organizations and to spend enormous amounts of money from undisclosed 
sources on elections. The lack of a bright line standard, however, is 
not a justification for not enforcing the law. The IRS can and should 
enforce the law where there is clear and substantial information (such 
as from the FEC disclosures) to find a violation. To entirely abstain 
---------------------------------------------------------------------------
from enforcement is not acceptable.

    Americans of both parties have consistently agreed that there is 
too much money in politics--and that much of that money comes from a 
tiny, highly unrepresenative segment of the population that purchases 
outsized influence over government decisions. And, there is an 
increasing distrust in government.

    This is why we should expect the IRS to do its job and enforce the 
law. Impartial and consistent enforcement of the law governing 
nonprofit political spending is squarely within the IRS's mandate and 
authority. The IRS should hold political groups on all sides 
accountable if they misappropriate the privileges of the social welfare 
organization's structure.

    Furthermore, donor disclosure should be reinstated on the Form 990, 
both for (c)(4)s, but also for (c)(6)s.

    Some have observed that (c)(3) money has been granted to (c)(4)s 
for ``general support'' but is actually ultimately used for electoral 
activity. Consequently, there should be better oversight over how funds 
from 501(c)(3) organizations are ultimately used by recipients.

    Finally, the IRS and Treasury Department should update the social 
welfare regulations to provide clarity around the standard to determine 
whether an organization is operated exclusively for the promotion of 
social welfare. To do this, Congress would need to repeal and stop 
including a rider in must-pass appropriations that has prevented the 
IRS and Treasury Department from taking this step. This dark money 
rider has kept voters in the dark as to who is behind political 
spending that influences elections. The regulations that need to be 
updated were written decades before the Supreme Court decided Citizens 
United and changed how corporations, including nonprofit corporations 
can spend money in political campaigns, including by contributing to 
super PACs. These social welfare organizations were never intended to 
operate as de facto political committtees, and the regulations need to 
be updated to preserve voters right to know who is influencing 
elections.

    Most critics of the IRS acknowledge that the task can be nuanced 
and difficult. But it is important for the IRS to do its job and 
provide oversight.

                                 ______
                                 
          Questions Submitted for the Record to Hon. Ann Ravel
                 Questions Submitted by Hon. John Thune
    Question. Since last year's massive IRS leak or hack of private 
taxpayer information, in which the left-leaning ProPublica went on to 
publicize confidential taxpayer details, there has been no meaningful 
follow-up from the Biden administration.

    How do you think this unauthorized disclosure of private taxpayer 
information--and the lack of accountability from the administration--
impacts trust between taxpayers and the IRS?

    Answer. The unauthorized disclosure of private taxpayer information 
is the subject of an investigation by the IRS and DOJ. This 
investigation, as I understand it, remains underway. Consequently, 
before commenting on the impact on trust between taxpayers and the IRS, 
it is necessary to have a better understanding from the investigation 
of the facts of the ProPublica matter.

    Question. How would you compare the concerns over political 
activity engaged by 501(c)(3) organizations to 501(c)(4) organizations?

    Answer. Political activity by 501(c)(3)s and (c)(4)s raise concerns 
over the same underlying issues--social welfare groups or charitable 
nonprofits which are engaging in activity for political purposes, 
including supporting or opposing a candidate for public office, and 
directly or indirectly participating or intervening in any political 
campaign on behalf of or in opposition to any candidate for elective 
public office, while receiving tax benefits. Since the large amount of 
undisclosed money that is spent on these direct or indirect political 
activities through the mechanism of (c)(4)s is greater than with 
(c)(3)s, this activity creates a lack of trust in the integrity of our 
electoral process. While some are concerned with (c)(3)s engaging in 
voter education activity, and actively encourage people to participate 
in the electoral process by voter registration and get out the vote, 
such activity is not prohibited if it is conducted in a nonpartisan 
manner, because 501(c)(3)s have an important role in helping to educate 
the public.

    Question. What do you find to be the greatest dangers of donor 
disclosure for 501(c)(3) and 501(c)(4) organizations and their donors? 
What historical examples of harm do you find most disturbing?

    Answer. The greatest issue with donor disclosure for these 
organizations and their donors is the concern that disclosure of their 
contributions will lead to threats, harassment, or reprisals. The 
concerns about this are only meritorious when the threats, harassment, 
or reprisals could lead to violence. As Justice Scalia wrote in Doe v. 
Reed, ``Requiring people to stand up in public for their political acts 
fosters civic courage, without which democracy is doomed.'' Most of 
these concerns have been found by the courts to be unfounded, and some 
organizations are primarily concerned that such disclosure will deter 
contributions, which is hardly a danger.

    Historically, in the case of NAACP v. Alabama (1958), the State 
Government in Alabama demanded that the NAACP turn over the names of 
the rank and file members of the organization. The NAACP refused to do 
so because, as one of the only active civil rights organizations in the 
South, the members of the organization were exposed to violent attacks. 
For years there had been a history of physical attacks and violence 
inflicted on Black civil rights groups in the South, so their concerns 
about such violence were not solely an assumption, and there was an 
acute threat of harm if they were required to turn over such 
information to the State. For that reason, the Supreme Court determined 
that they did not have to disclose the information about their members.

                                 ______
                                 
           Prepared Statement of Bradley A. Smith, Chairman, 
                       Institute for Free Speech
    Chairman Whitehouse, Ranking Member Thune, and members of the 
subcommittee, on behalf of the Institute for Free Speech, thank you for 
inviting me to testify at this hearing on ``Laws and Enforcement 
Governing the Political Activities of Tax-Exempt Entities.''

    The Institute for Free Speech is a nonpartisan, nonprofit 501(c)(3) 
organization focused on promoting and protecting the First Amendment's 
political rights of speech, press, assembly, and petition. I founded 
the Institute in 2005, after completing my term as Commissioner at the 
Federal Election Commission (FEC), because it had become clear to me, 
both as an academic and then in my time as a Commissioner, that the 
public is greatly misinformed about laws regulating political speech, 
including the extent and content of such laws, their real-world 
effects, and their enforcement. The Institute has worked tirelessly to 
bring an honest, nonpartisan approach to these issues.
                            i. introduction
    For many reasons, the enforcement of campaign finance and other 
laws regulating political speech is a highly complex issue. Most 
importantly, such laws must be carefully crafted in order to avoid 
infringing on First Amendment rights. Unfortunately, too often these 
laws have not been carefully written, and when such laws are combined 
with criminal penalties, they provide a breathtakingly powerful tool 
for elected officials and government employees to use to try to silence 
or hinder political opposition.

    Ironically, the last time I was asked to testify at a hearing 
dedicated to political activity by tax-exempt organizations was in 2013 
before the Senate Judiciary Committee's Subcommittee on Crime and 
Terrorism, then chaired by Senator Whitehouse. At that hearing, a 
witness called by the majority Democrats noted that he was 
``optimistic'' about the ability of the Internal Revenue Service to 
regulate political speech, praising the agency as ``scrupulously fair 
and nonpartisan'' and singling out the then-Director of the Exempt 
Organization Division, Lois Lerner, for particular praise. (Committee 
on the Judiciary, Subcommittee on Crime and Terrorism, 113th Cong., 
April 9, 2013, p. 70-71 (Supplemental Statement of Gregory L. Colvin).) 
One month later, Ms. Lerner ``told a stunned audience of tax attorneys 
in Washington that the IRS had delayed and obstructed the tax exemption 
applications from conservative-sounding organizations,'' and later that 
month, the U.S. Treasury Inspector General made public a report 
confirming and detailing the nature of the targeting. (Michael Wyland, 
``Whatever Happened to the IRS Tax Exemption Scandal?'', Nonprofit 
Quarterly, August 22, 2017.) Now here we are again, with another 
Democratic Senate majority facing fierce political headwinds, and it 
appears that a small group of Senators is looking to respond by trying 
to further involve the IRS in regulating political speech.

    The temptation to use regulation and enforcement for political 
advantage is bipartisan. Let's begin by considering the very first 
prosecution brought under the Federal Election Campaign Act of 1971: A 
suit against the National Committee for Impeachment, brought by the 
Justice Department under then-President Richard Nixon.

    On May 31, 1972, a 2-page ad appeared in The New York Times that 
featured the headline ``A Resolution to Impeach Richard Nixon as 
President of the United States.'' The ad, which cost $17,850, was paid 
for by a group consisting of several lawyers, at least one law 
professor, a former United States Senator, and several other citizens 
of modest prominence, calling themselves the National Committee for 
Impeachment. In addition to criticizing President Richard Nixon, the ad 
recognized an ``honor roll'' of several Congressmen who had introduced 
a resolution that called for the President's impeachment. In response, 
the United States Department of Justice moved swiftly, getting a 
Federal district court to enjoin the National Committee for Impeachment 
and its officers from engaging in further political activity. Even 
though the ad did not discuss the upcoming election or urge anyone to 
vote in any particular manner, the government argued that the Committee 
was violating the Federal Election Campaign Act of 1971 because its 
efforts had the potential to ``affect'' the 1972 presidential election, 
and the Committee had not properly registered with the government to 
engage in such political activity.

    Ira Glasser, who was an executive director of the American Civil 
Liberties Union, noted that the government ``wrote a letter to The 
Times threatening them with criminal prosecution if they published such 
an ad again. . . . Soon after, the ACLU itself sought to purchase space 
in The Times in order to publish an open letter to President Nixon, 
criticizing him for his position on school desegregation. The letter 
made no mention of the election and indeed, until many decades later, 
the ACLU never supported or opposed any candidate for elective office. 
Fearful of government reprisal based on the government's threatening 
letter from the previous case, The Times refused to publish the ad.''

    In both cases, these groups' First Amendment rights were eventually 
vindicated. However, during the time it took to win these cases, much 
speech about elected officials and public affairs was thwarted. 
Further, fighting the prosecutions came at great expense and much 
anxiety for those who simply sought to speak out about their 
government.

    The history of criminal and tax enforcement of campaign finance law 
had largely been one of political prosecutions that should serve as a 
warning to this body. The first case in which the U.S. Supreme Court 
clearly accepted the idea that regulation of political speech could be 
constitutional--which it did over the vigorous dissents of Justices 
William O. Douglas and Earl Warren--was United States v. Auto Workers, 
352 U.S. 567 (1957). That case, as legal historian Allison Hayward has 
shown, was brought by the Eisenhower administration to seek to quash 
union political power after the merger of the AFL and the CIO. 
Fortunately, though the Supreme Court refused to quash the prosecution 
before trial as unconstitutional, the government was unable to get a 
conviction. See Allison R. Hayward, ``Revisiting the Fable of Reform, 
45 Harv. J. Legis. 421 (2008).

    The Eisenhower administration was merely following its predecessor, 
the Truman administration, which had engaged in a series of political 
prosecutions aimed at auto dealers in Michigan in the late 1940s. In 
those cases, the U.S. Attorney prosecuted only reluctantly, viewing the 
violations as minor (in the case of some defendants) to non-existent 
(in the case of others), and as raising serious constitutional issues. 
But politicians in Washington insisted--apparently, like today, for 
political reasons--on ``aggressive enforcement.'' Like today, the major 
news columnists of the day, most notably Drew Pearson, were enlisted to 
whip up public fervor, with Pearson presumably benefiting from a stream 
of leaks from the Attorney General's office in Washington. 
Nevertheless, perhaps foreshadowing such prosecutions as that of John 
Edwards, ``once in court, prosecutors could not win a conviction, and 
jurors expressed distaste for enforcing this criminal statute against 
this kind of activity.'' Indeed, the entire series of prosecutions was 
based on the belief of large-scale violations ``that, as it turned out, 
did not exist.'' But the prosecutions were directed from Washington 
because ``chilling auto dealers and other corporate managers from 
making contributions to Republicans served the administration's 
political agenda.'' See Allison R. Hayward, ``The Michigan Auto Dealers 
Prosecution: Exploring the Department of Justice's Mid-Century Posture 
Toward Campaign Finance Violations,'' 9 Election L. J. 177 (2010).

    The IRS has frequently been the tool of choice to harass political 
opposition. President Franklin Roosevelt used it to harass newspaper 
publishers, including William Randolph Hearst and Moses Annenberg 
(publisher of The Philadelphia Inquirer). He also used the IRS 
investigations to harass political rivals including Huey Long and 
Father Coughlin, and prominent Republicans including former Treasury 
Secretary Andrew Mellon.

    In the 1960s, President Kennedy's IRS Commissioner Mortimer Caplin, 
who later founded the law firm of Caplin and Drysdale, established the 
``Ideological Organizations Audit Project'' for the express purpose of 
auditing and harassing conservative opponents of the President. In a 
letter to Treasury Secretary Henry Fowler, Caplin noted, ``We 
recognized the sensitivity of just going after [the] right wing, so we 
wanted to add both left- and right-wing groups for balance.'' 
Illustrating the bipartisan nature of partisan abuse of the IRS, Caplin 
noted that adding left-wing groups was dicey because many, ``had 
already been given a difficult time during the Eisenhower years.'' The 
agency also requested investigations of corporate backers of various 
nonprofits involved in civic discussion.

    Under the Nixon administration, the IRS was given a list of Nixon's 
``enemies'' and thousands of groups were targeted. It was because of 
this long chain of abuses that Congress finally made it illegal to use 
the IRS for political intelligence gathering and gain in the 1970s. See 
John A. Andrew, The Power to Destroy: Political Uses of the IRS From 
Kennedy to Nixon (Ivan R. Dee 2002); John A. Andrew, The Other Side of 
the Sixties (Rutgers Univ. Press 1997); David Burnham, A Law Unto 
Itself: The IRS and the Abuse of Power (Random House 1990).

    Given this history, and additional structural problems discussed 
below, the Institute for Free Speech believes that the IRS should not 
be engaged in the minutiae of regulating political or politically 
related speech at all.

    If an entity with a social welfare purpose is deemed a political 
committee (``PAC'') under Federal or State law, it ought to be 
regulated by the IRS as a 26 U.S.C. (``IRC'') Sec. 527 organization. If 
it is not a political committee, its election campaign speech would not 
be its primary purpose and thus such a social welfare group would fall 
under 26 U.S.C. Sec. 501(c)(4). This straightforward approach would 
harmonize the IRS's rules with those of the Federal Election 
Commission, the body entrusted by Congress with ``exclusive 
jurisdiction'' for civil enforcement of the nation's campaign finance 
laws. 52 U.S.C. Sec. 30106(b)(l).

    This approach would also recognize that in a democracy, political 
education and the discussion of public affairs not only should but must 
fall within the definition of ``social welfare'' and ``educational'' 
activities that constitute exempt activities under Sec. 501(c)(4). 
Nothing in the statute requires exclusion of these functions from the 
definition of social welfare. Finally, and most importantly, this 
straightforward approach offers real clarity without dragging the IRS 
further into the thicket of political speech regulation, a tangle from 
which it--and the Service's reputation for the neutral, nonpartisan 
collection of revenue--might never recover.

    In a 2013 special report to Congress following the IRS targeting 
scandal, then-National Taxpayer Advocate Nina Olson feared that the 
scandal came about because ``[t]he IRS, a tax agency, is assigned to 
make an inherently controversial determination about political activity 
that another agency may be more qualified to make.'' See Nina Olson, 
Special Report to Congress: Political Activity and the Rights of 
Applicants for Tax-Exempt Status (2013). As she wrote in her report:

        It may be advisable to separate political determinations from 
        the function of revenue collection. Under several existing 
        provisions that require non-tax expertise, the IRS relies on 
        substantive determinations from an agency with programmatic 
        knowledge.

        Potentially, legislation could authorize the IRS to rely on a 
        determination of political activity from the Federal Election 
        Commission (FEC) or other programmatic agency. Specifically, 
        the FEC would have to determine that proposed activity would 
        not or does not constitute excessive political campaign 
        activity.

    In fact, no legislation is needed. The IRS could today rely on FEC 
determinations. The FEC is more qualified to make such determinations 
not only because of its expertise but also because of its structure, 
which poses less of a risk of partisan enforcement.
                ii. the nature of the fec versus the irs
    Understanding the FEC and its design is important to understanding 
the problems of using another agency designed for one thing--say, the 
smooth functioning of securities markets, regulation of broadcasting, 
or tax collection--for another purpose, such as regulation of campaign 
spending and speech about politics and public affairs.

    Perhaps the most important feature of the FEC's design is its 
bipartisan makeup. Most Federal independent agencies are directed by a 
board or commission with some guaranteed level of bipartisan makeup. 
Only the FEC and the U.S. International Trade Commission have equal 
size blocks of commissioners, with 3 from each major party, and only 
the FEC requires four votes of out six commissioners for most actions.

    The reason for the FEC's unique design should be obvious. If some 
measure of guaranteed bipartisanship is viewed as a valuable thing in 
most independent agencies, this bipartisanship would seem essential for 
an agency whose core mission is to regulate political speech in ways 
that can determine who wins and who loses elections. This is a question 
both of preventing actual abuse of the agency for partisan gain and 
preventing the appearance that the agency's decisions are motivated for 
partisan gain. In short, there is a strong argument for why the FEC is 
structured as it is, which is to prevent one party from changing the 
regulatory regime or using the enforcement process for partisan gain.

    The FEC also has an enforcement process that aims to resolve 
matters through conciliation rather than fines or litigation. This, 
too, has drawn much criticism from those seeking ``stronger'' 
enforcement. But this process also exists for a reason. The 
overwhelming number of complaints submitted to and violations found by 
the FEC are not due to corruption but inadvertent violations of the 
law. Many are nothing more than administrative violations against the 
state.

    The cost to a political candidate of having been found to have 
``violated the law,'' however, can be great; the rewards to a zealous 
prosecutor or even FEC Commissioner or General Counsel who is seen to 
be crusading for ``clean elections'' are perhaps even greater in the 
other direction. Therefore structuring the system around voluntary 
conciliation agreements is an intentional means to depoliticize the 
complaint process. Again, placing primary enforcement responsibility 
with the Justice Department, the IRS, or another agency whose process 
is geared to leveling direct sanctions dramatically alters the balance 
in the direction of partisan enforcement, and does so in a way that may 
reward overly aggressive prosecution by government officials in this 
sensitive First Amendment area.

    Thus, while it is true that almost all government agencies have 
structural features to insulate them from politics, the FEC has more 
political safeguards than most agencies, and it has them for very 
compelling reasons.

    The IRS faces far fewer situations regarding election speech in its 
everyday business than does the FEC. Its culture and expertise are 
therefore quite different from that of the FEC, which regularly faces 
these issues. Indeed, one reason for the frustration some express with 
the FEC has been the critics' unwillingness to accept the 
constitutional restraints under which the FEC operates. Those who seek 
to push regulation onto other agencies often do so precisely because 
they seek to bypass such constitutional sensitivities that are, and 
ought to be, a hallmark of the FEC--the agency charged by Congress with 
``exclusive civil enforcement'' of campaign finance laws.
                      iii. problems of enforcement
    Vague election laws combined with criminal penalties are a recipe 
for abusive political prosecutions. It is a threat both to the First 
Amendment and to honest government. In the case of the Michigan auto 
dealers, which I discuss above, prosecutors were unable to gain 
convictions in cases that went to trial; but the threat of prison time 
convinced many defendants to plead no contest and pay fines.

    Similarly, as the unsuccessful prosecution of John Edwards proved, 
much of campaign finance law is vague, complicated, or both. Because of 
the potential infringement on civil liberties, Congress should avoid 
adding criminal penalties to existing or new campaign finance laws. 
Arguably, there are already too many provisions that provide for 
criminal penalties. The Bipartisan Campaign Reform Act of 2002 extended 
the statute of limitations for many criminal violations of campaign 
finance laws, made more provisions of the law subject to criminal 
sanctions, and required the United States Sentencing Commission to 
issue guidelines for campaign finance law violations. Other recent 
high-profile political prosecutions for vague allegations of campaign 
finance laws have similarly come apart at the seams, as in the 
prosecution of Ted Stevens. Unfortunately, far too often the damage is 
done by the time the law catches up to the hysteria. Stevens was 
convicted just days before the election, which he lost by less than 1 
percent of the vote, and only vindicated posthumously after a plane 
crash.

    The message we should send to the American people is that political 
participation is a good thing, not a bad thing. For half a century, the 
message of those who advocate for stricter campaign finance laws has 
been that political participation is bad, that people who donate are 
only out for themselves, and that political speech is, quite literally, 
dangerous. It is no wonder that the confidence in democratic 
institutions has declined.
The Need for Campaign Finance Law Simplification
    The Federal election laws and regulations now contain over 376,000 
words. But this just scratches the surface of election law. There are 
over 1,900 advisory opinions and 7,900 enforcement actions that provide 
guidance on what these vague laws might mean. As the Supreme Court 
noted in Citizens United, ``Campaign finance regulations now impose 
`unique and complex rules' on `71 distinct entities.' These entities 
are subject to separate rules for 33 different types of political 
speech. The FEC has adopted 568 pages of regulations, 1,278 pages of 
explanations and justifications for those regulations.'' (Citing brief 
for seven former Chairmen of FEC.)

    Congress's vague laws often can't even be interpreted by the FEC. 
For example, in August 2012, the FEC considered an Advisory Opinion 
Request for the National Defense Committee, filed by our organization 
asking whether seven proposed ads would trigger FEC regulation. The FEC 
said three of the ads would not trigger FEC regulation, but it could 
not render an opinion on the other four ads, and could not decide on 
whether the group had to register with the FEC. Last year, the FEC 
considered 13 Advisory Opinion Requests but failed to provide an 
opinion in three of those requests. In one Advisory Opinion rendered by 
the agency, it agreed the proposed activity was allowed by the law but 
could ``not agree on a rationale for this conclusion.'' And yet most 
practitioners will tell you--correctly, in my view--that the FEC 
regulations are clearer than the regulations that the IRS already 
applies when examining political activity by nonprofit organizations. 
The problem is not the FEC; it is the law.

    The most pressing need for Congress is to make campaign finance law 
a lot simpler. How can we expect the FEC or Justice Department to 
fairly enforce laws no one can understand? It is literally impossible 
to navigate campaign finance laws without a lawyer, and even then, your 
lawyer might not be able to give you a straight yes or no answer. 
Worse, many lawyers without campaign finance expertise will give 
incorrect answers.

    As a result, well-meaning citizens often stumble into breaking 
these laws, in part because the thresholds on regulated speech are 
absurdly low. For example, current law requires reporting of all 
independent expenditures over just $250.
                   iv. constitutional considerations
    In Buckley v. Valeo, the Supreme Court noted that ``a major purpose 
of . . . [the First] Amendment was to protect the free discussion of 
governmental affairs, . . . of course includ[ing] discussions of 
candidates.'' (Buckley v. Valeo, 424 U.S. 1, 14 (1976) (quoting Mills 
v. Alabama, 384 U.S. 214, 218 (1966)).)

    The Federal Election Campaign Act (FECA) and its subsequent 
amendments sought to regulate such First Amendment activity. In an 
effort to clarify First Amendment boundaries of regulable political 
activity, Buckley set the standard for regulation of political speech 
and association. Consequently, Buckley's examination of FECA provides 
an essential guide.

    In Buckley, the Court expressed concern about the effects vague 
laws have upon the freedom of speech. Not only may a vague law be 
applied inconsistently or arbitrarily, but such a law might also 
``operate to inhibit protected expression by inducing citizens to steer 
far wider of the unlawful zone.'' (Id at 41 n. 8.) Thus, a speaker may 
``hedge and trim'' before speaking. (Id. at 43.) The First Amendment 
needs ``breathing space to survive, [and so] government may regulate in 
the area only with narrow specificity.'' (Id. (quoting NAACP v. Button, 
371 U.S. 415, 433 (1963)).) In the political arena, the specificity 
requirement is particularly important, because discussion of public 
policy issues frequently overlaps with discussion of political 
candidates:

        For the distinction between discussion of issues and candidates 
        and advocacy of election or defeat of candidates may often 
        dissolve in practical application. Candidates, especially 
        incumbents, are intimately tied to public issues involving 
        legislative proposals and governmental actions. Not only do 
        candidates campaign on the basis of their positions on various 
        public issues, but campaigns themselves generate issues of 
        public interest. (Id. at 42.)

    Of course, FECA attempted to divine this difficult distinction, but 
the Buckley court found that it failed to avoid the vagueness problem.

    FECA originally attempted to impose an expenditure cap: ``[n]o 
person may make any expenditure . . . relative to a clearly identified 
candidate during a calendar year which . . . exceeds $1,000.'' (Id. at 
39.) In addition to constitutional problems with the $1,000 cap, the 
Court found that the phrase ``relative to a clearly identified 
candidate'' was vague. (Id at 44.)

    The Court crafted an elegant solution. Because the phrase 
``relative to a clearly identified candidate'' left speakers with no 
opportunity to know in advance whether their conduct was regulated 
political speech or unregulated issue speech, the Court was compelled 
to narrow the interpretation of the phrase. To avoid vagueness, FECA 
had to ``be construed to apply only to expenditures for communications 
that in express terms advocate the election or defeat of a clearly 
identified candidate for federal office.'' (Id.) To provide clarity to 
this phrase, the Court included the highly influential footnote 52, 
which limited regulable speech to ``express words of advocacy of 
election or defeat, such as `vote for,' `elect,' `support, `cast your 
ballot for,' `Smith for Congress,' `vote against,' `defeat,' [and] 
`reject.' '' (Id. at 44 n. 52.)

    The key, then, is recognizing that the line between discussion of 
issues and discussion of candidates is, at best, blurry. The harm of 
vague regulation is its potential to cause a would-be speaker to keep 
silent due to uncertainty about how the law will be applied. Thus, to 
remain within the bounds of the Buckley decision, regulation should err 
on the side of avoiding such chill, by providing objective rules that 
can be uniformly applied and providing clarity in a manner that 
maximizes the free exchange of ideas guaranteed by the First Amendment. 
As Chief Justice Roberts has noted, in such cases ``the tie goes to the 
speaker, not the censor.'' (FEC v. Wis. Right to Life, Inc., 551 U.S. 
449, 474 (2007) (``WRTL II'') (Roberts, C.J., concurring).)

    In addition to drawing a line between issue speech and political 
speech, the Supreme Court has recognized the need to protect freedom of 
association from undue and excessive disclosure, most recently in 
Americans for Prosperity Foundation v. Bonta. 594 U.S. __, 141 S.Ct. 
2373 (2021); see also, e.g., Gibson v. Florida Legislative Comm., 372 
U.S. 539 (1963); Shelton v. Tucker, 364 U.S. 479 (1960); Bates v. 
Little Rock, 361 U.S. 516 (1960); NAACP v. Ala. ex rel. Patterson, 357 
U.S. 449 (1958).

    Indeed, Buckley also has much to say about protecting the freedom 
of association in the campaign finance context. Disclosure of 
information about individuals who seek to involve themselves with a 
group--or even with a politician--implicates the freedom of association 
protected by the First Amendment. (Buckley, 424 U.S. at 75.)

    The iteration of FECA considered by the Buckley Court required 
regular reporting and disclosure by ``political committees''--
organizations that made ``contributions'' and ``expenditures.'' (Id. at 
79.) The definition of ``expenditures,'' however, was vague and 
implicated the confluence of spending money on issues and spending 
money to support candidates. (Id.) Fortunately, Buckley had already 
carefully crafted an interpretation of FECA to ensure that issue speech 
was not unnecessarily entangled with the regulation of political 
speech. (Id. at 44.)

    To prevent the disclosure requirement from reaching groups that 
merely mentioned candidates in the context of issue speech, the Buckley 
court construed the relevant provisions to apply only to 
``organizations that are under the control of a candidate or the major 
purpose of which is the nomination or election of a candidate.'' (Id at 
79.) Expenditures by groups under the control of a candidate or with 
``the major purpose'' of supporting or opposing a candidate ``are, by 
definition, campaign related.'' (Id.) This language, now known as ``the 
major purpose test,'' narrowed the reach of FECA's disclosure 
provisions to protect the associational freedoms of individuals.

    As applied to individuals and groups that did not have ``the major 
purpose'' of political activity, the Buckley court narrowed the 
definition of ``expenditures'' in the same way--``to reach only funds 
used for communications that expressly advocate the election or defeat 
of a clearly identified candidate.'' (Id. at 80.) To describe the term 
``expressly advocate,'' the Court simply incorporated the examples 
already listed in footnote 52. (Id. at 80 n. 108 (incorporating Id. at 
44 n. 52).)
  v. involving the irs in policing speech may threaten tax compliance
    It is particularly important that the IRS not be converted into a 
campaign finance enforcement agency. The IRS is responsible for the tax 
code, and the history of presidential abuse of the IRS and the tax 
code--discussed above--to target political opposition, through both 
Democratic and Republican administrations, make it important that 
Congress not look to the IRS to address perceived issues in campaign 
finance.

    The collection of trillions of dollars in taxes each year is based 
on what the IRS calls the self-assessment feature of the tax laws, 
where citizens and businesses calculate and pay their taxes. If the 
agency develops a reputation as a partisan lapdog of the party in 
power, that could lead to more citizens cheating on their taxes, or 
simply failing to file, with potentially disastrous implications for 
the budget deficit. If the level of compliance with individual income 
tax laws alone were to drop just one percentage point due to a decline 
in the Service's reputation for fairness, that could cost the 
government over $250 billion in tax collections over a 10-year period.

    Contributions to 501(c)(4) organizations are not tax deductible, 
and the tax liability of existing 501(c)(4)s wouldn't significantly 
change if they were reclassified as political committees. Since the 
IRS's regulation of these groups has essentially nothing to do with tax 
collection, efforts to increase IRS regulation of political speech make 
little sense and are unrelated to the Service's mission of impartial 
revenue collection.

    This dual regulatory scheme between the FEC and IRS has created 
confusion among nonprofit groups and the public. It would be a mistake 
to continue to ask the IRS to play any role--let alone an even greater 
role--in the enforcement of campaign finance laws.
     vi. the nature and extent of the supposed ``dark money'' issue
    The decisions of the United States Supreme Court in Citizens United 
v. Federal Election Commission, 558 U.S. 310 (2010) (allowing 
corporations and unions to make independent expenditures in political 
campaigns from general treasury funds) and of the United States Court 
of Appeals in SpeechNow.org v. Federal Election Commission, 599 F.3d 
686 (en banc, 2010) (allowing independent expenditures to be made from 
pooled funds not subject to PAC contribution limits) have brought a 
renewed focus to the issue of disclosure of political spending. The 
claim has largely been that the public lacks information on the sources 
of vast amounts of political independent spending. This concern, while 
serious if true, has been artificially ramped up by many mistaken 
comments in the media about ``secret'' contributions to campaigns, as 
well as a widely held but mistaken belief that under Citizens United, 
corporations and unions may now contribute directly to candidate 
campaigns. In any case, information about political donors, it is 
believed, can help guard against officeholders becoming too compliant 
with the wishes of large spenders, and provide information that might 
be valuable to voters in deciding for whom to vote and how to evaluate 
political messages.

    There have been concerns that nonprofit organizations formed under 
section 501(c)(4) of the Internal Revenue Code have been engaging in 
extensive political campaigns using ``secret money.'' This issue, 
however, is not new. Express advocacy in favor of or against candidates 
was allowed for certain types of 501(c)(4) organizations even before 
Citizens United, as a result of the Supreme Court's ruling in Federal 
Election Commission v. Massachusetts Citizens For Life (``MCFL''), 479 
U.S. 238 (1986). That decision allowed qualified nonprofit corporations 
to conduct express advocacy through independent expenditures. These 
groups were significant and growing before the Citizens United decision 
and included groups such as the League of Conservation Voters and 
NARAL. In addition, even groups that did not qualify for the exemption 
pursuant to MCFL could and did run hard-hitting issue campaigns against 
candidates.

    For example, in 2000, the NAACP Voter Action Fund, a nonprofit 
social welfare group organized under section 501(c)(4) of the tax code, 
ran the following ad:

        Renee Mullins (voice over): I'm Renee Mullins, James Byrd's 
        daughter. On June 7, 1998 in Texas my father was killed. He was 
        beaten, chained, and then dragged 3 miles to his death, all 
        because he was black. So when Governor George W. Bush refused 
        to support hate-crime legislation, it was like my father was 
        killed all over again. Call Governor George W. Bush and tell 
        him to support hate-crime legislation. We won't be dragged away 
        from our future.

    This 30-second TV spot, featuring graphic reenactment footage, 
began running on October 25, 2000, just a few days before the 2000 
presidential election. See Bradley A. Smith, ``Disclosure in a Post-
Citizens United Real World,'' 6 U. St. Thomas J.L. and Pub. Pol'y 257 
(2012).

    This ad was perfectly legal to run at any time before 2003, with no 
donor disclosure and remained legal to run under current disclosure 
laws more than 30 days before a primary or 60 days before a general 
election between 2003 and 2007. It probably also could have been run, 
with no donor disclosure, at any time after the Supreme Court's 2007 
decision in Wisconsin Right to Life v. Federal Election Commission, 551 
U.S. 449 (2007).

    It should also be noted that neither the Citizens United nor 
SpeechNow.org decisions struck down any disclosure laws; nor has 
Congress or the FEC loosened any disclosure rules in place at the time 
those two decisions were issued in the spring of 2010. There has been 
no change in the laws governing disclosure of political spenders and 
contributors.

    Despite the focus on ``dark money,'' ``secret money,'' and 
``undisclosed spending,'' in fact, the United States currently has more 
political disclosure than at any time in its history. Candidates, 
political parties, PACs, and Super PACs disclose all their donors 
beyond the most de minimis amounts. This disclosure includes the name 
of the group, individual, or other entity that is contributing, the 
date on which it occurred, and the amount given. Indeed, these entities 
also report all their expenditures.

    Current law also requires reporting of all independent expenditures 
over $250, and of ``electioneering communications'' under 2 U.S.C. 
Sec. 30104(f). 501(c)(4) social welfare organizations must disclose 
donors who give money earmarked for political activity. All this 
information is freely available on the FEC's website.

    All broadcast political ads (like, in fact, all broadcast ads, 
political or not) must include, within the ad, the name of the person 
or organization paying for the ad. Thus, it is something of a misnomer 
to speak of ``undisclosed spending.'' Rather, more precisely, some ads 
are run with less information about the spender, and contributors to 
the spender, than some might think desirable. This recognition is 
important to understanding the scope of the issue and the importance of 
measures that seek to require more disclosure.

    Furthermore, despite record campaign spending, 2020 saw less ``dark 
money'' than any election since Citizens United. After peaking in 2012 
with an all-time high of $312.5 million (still under 5 percent of that 
year's total spending on Federal campaigns), ``dark money'' has 
dwindled, bottoming out in the 2020 cycle at roughly $102 million. That 
equals merely 0.73 percent of the election campaign's estimated $14 
billion price tag. It equates to less than 4 percent of independent 
spending in the 2020 cycle.
  vii. certain nonprofits properly engage in limited political speech
    Under Buckley, an organization becomes a political committee only 
if its ``major purpose'' is the election or defeat of candidates, as 
indicated by expenditures expressly advocating the election or defeat 
of a candidate. These political committees operate under section 527 of 
the Internal Revenue Code. Meanwhile, 501(c)(3) organizations are 
restricted from any candidate advocacy.

    There must be, therefore, some other category for organizations 
that do some candidate advocacy, but for which it is not the group's 
``major purpose.'' These are, indeed, 501(c)(4), (c)(5), and (c)(6) 
organizations--specifically, social welfare organizations, unions, and 
trade associations. To attempt to regulate such organizations as 
political committees, or to prohibit them from all candidate advocacy, 
would be unconstitutional, forcing advocacy groups to either have 
political advocacy as their major purpose or to engage in none at all.
 viii. the disclose act would chill first amendment-protected activity 
and violate the privacy of nonprofit organizations and their supporters
    Since 2010, members of Congress have introduced various iterations 
of the DISCLOSE Act, advertised as a solution to the alleged ``flood'' 
of ``dark money'' unleashed by Citizens United. The bill has failed in 
every session of Congress for the past decade largely because groups 
across the ideological spectrum consistently speak out against its 
constitutional infirmities. Yet, the latest version the bill would 
burden freedom of speech and association more broadly than most of the 
previous, failed versions.

    The bill would greatly increase the already onerous legal and 
administrative compliance costs, liability risk, and costs to donor and 
associational privacy for civic groups that speak about policy issues 
and politicians. Organizations and their supporters will be further 
deterred from speaking or be forced to divert additional resources away 
from their advocacy activities to pay for compliance staff and lawyers. 
Some groups will not be able to afford these costs or will violate the 
law unwittingly. Less speech by private citizens and organizations 
means politicians will be able to act with less accountability to 
public opinion and criticism. Consequently, citizens who would have 
otherwise heard their speech will have less information about their 
government.

    The DISCLOSE Act would unconstitutionally regulate speech that 
mentions a Federal candidate at any time under a vague, subjective, and 
dangerously broad standard that asks whether the speech ``promotes,'' 
``attacks,'' ``opposes,'' or ``supports'' (``PASO'') a candidate. This 
standard is impossible to understand and would likely regulate any 
mention of an elected official who hasn't announced their retirement.

    Notably, the PASO standard comes from a provision in the 2002 
Bipartisan Campaign Reform Act (a.k.a. ``McCain-Feingold'') that 
regulates the funds State and local party committees may use to pay for 
communications that PASO Federal candidates. The Supreme Court upheld 
the PASO standard against a challenge that it is unconstitutionally 
vague on the basis that it ``clearly set[s] forth the confines within 
which potential party speakers must act'' because ``actions taken by 
the political parties are presumed to be in connection with election 
campaigns'' (emphasis added). Thus the DISCLOSE Act would apply a 
standard written to apply to party communications to most nonprofits 
despite the fact that the presumption that expenditures are for 
election campaigns is inapplicable to communications by nonprofit 
groups.

    Numerous other components of the DISCLOSE Act are problematic, as 
both a matter of policy and constitutional law. Specifically, these 
provisions would:

        Compel groups to declare on new, publicly filed ``campaign-
related disbursement'' reports that their ads are either ``in support 
of or in opposition'' to the elected official mentioned, even if their 
ads are neither. This form of compulsory speech forces organizations to 
declare their allegiance or opposition to public officials, provides 
false information to the public, and is unconstitutional.

        Force groups to file burdensome and likely duplicative reports 
with the FEC if they sponsor ads that are deemed to PASO the President 
or members of Congress (except those who are not running for Federal 
office again) in an attempt to persuade those officials on policy 
issues.

        Force groups to publicly identify certain donors on reports 
for issue ads and on the face of the ads themselves. In many instances, 
the donors being identified will have provided no funding for the ads. 
Faced with the prospect of being inaccurately associated with what, by 
law, would be considered (unjustifiably, in many or most instances) 
``campaign'' ads in FEC reports and disclaimers, many donors will stop 
giving to nonprofits and many of these groups will self-censor.

        Focus public attention on the individuals and donors 
associated with the sponsoring organizations rather than on the 
communications' message, exacerbating the politics of personal 
destruction and further coarsening political discourse.

        Force organizations that make grants to file their own reports 
and publicly identify their own donors if an organization is deemed to 
have ``reason to know'' that a donee entity has made or will make 
``campaign-related disbursements.'' This vague and subjective standard 
will greatly increase the legal costs of vetting grants and many groups 
will simply end grant programs.
Conclusion
    Tax-exempt organizations operating under sections 501(c)(4), (5), 
and (6) of the Internal Revenue Code have a statutorily and 
constitutionally valid role to play in the discussion of both electoral 
politics and, more broadly, public affairs. Experience has shown that 
the Internal Revenue Service is not an appropriate vehicle to attempt 
to regulate the political activity of these organizations, and that 
efforts to involve the IRS in the enforcement of regulations of 
political speech has led to abuse and scandal--from the administration 
of Franklin Roosevelt through the IRS targeting scandals of this past 
decade.

                                 ______
                                 
         Questions Submitted for the Record to Bradley A. Smith
                 Questions Submitted by Hon. John Thune
    Question. What do you find to be the greatest dangers of donor 
disclosure for 501(c)(3) and 501(c)(4) organizations and their donors? 
What historical examples of harm do you find most disturbing?

    Answer. To take the second part of the question first, the story of 
the harms of donor disclosure in the modern era must highlight 
harassment of the NAACP. In the 1950s, Alabama attempted to force the 
NAACP to provide State authorities with a list of the names and home 
addresses of all of the group's members in the State. The NAACP was 
highly controversial at the time and seen by southern State governments 
as the enemy. If its individual members were identified to State 
officials at the height of Jim Crow, the risk of harassment and 
intimidation--or worse--was self-evident.

    The State's demand for donor information was clearly meant to 
intimidate supporters of the organization. By exposing large supporters 
to the NAACP, Alabama could then use the other levers of regulatory 
power at its disposal to inflict economic harm as reprisal for 
supporting the NAACP, or count on private action--including possibly 
illegal actions--to accomplish the same. Had the State succeeded in 
obtaining a list of NAACP supporters, efforts to secure civil rights in 
Alabama and all across America would have faced yet another huge 
hurdle.

    But in its 1958 decision in NAACP v. Alabama,\1\ the Supreme Court 
saved the Nation from that fate. Recognizing the inextricable link 
between privacy, freedom of association, and free speech, the Court 
unanimously ruled that the government could not force groups to 
surrender their member lists. Such ``exposure,'' as the high court 
termed it, would greatly damage organizations' ability to fulfill their 
missions. In the words of the Court, Alabama's demand restricted free 
association rights because it ``may induce members to withdraw from the 
Association and dissuade others from joining it because of fear of 
exposure of their beliefs. . . .''
---------------------------------------------------------------------------
    \1\ NAACP v. Alabama ex rel. Patterson, 357 U.S. 449 (1958).

    The harms that the segregationist South could inflict on an 
organization like the NAACP represent the most severe danger that can 
come from disclosure laws. But it is neither the only risk, nor the 
only time that courts have recognized that disclosure laws cause harm. 
In the campaign finance context, the court recognized in 1976's Buckley 
---------------------------------------------------------------------------
v. Valeo that:

        compelled disclosure, in itself, can seriously infringe on 
        privacy of association and belief guaranteed by the First 
        Amendment . . . significant encroachments on First Amendment 
        rights or the sort that compelled disclosure imposes cannot be 
        justified by a mere showing of some legitimate governmental 
        interest.\2\
---------------------------------------------------------------------------
    \2\ Buckley v. Valeo, 424 U.S. 1, 48 (1976).

    The Court has ruled that the harm of disclosure laws outweighed the 
benefit in other contexts, too. Brown v. Socialist Workers '74 Campaign 
Committee \3\ upheld the rights of an unpopular minority party to keep 
the names of its members, donors, and vendees private in order to avoid 
both ``governmental and private hostility.'' In McIntyre v. Ohio 
Elections Commission,\4\ the Court struck down an Ohio statute 
requiring political handbills advocating the passage or defeat of a 
school tax to list the names of those ``responsible therefor.'' We 
should note that in both of these instances, the speech at issue was 
directly related to campaigns, elections and politics, and yet, even in 
such circumstances, the Court saw the harms of disclosure as too high.
---------------------------------------------------------------------------
    \3\ Brown v. Socialist Workers '74 Campaign Comm. (Ohio), 459 U.S. 
87 (1982).
    \4\ McIntyre v. Ohio Elections Comm'n, 514 U.S. 334 (1995).

    Just last year, in Americans for Prosperity Foundation v. Bonta,\5\ 
the Court ruled that 501(c)3 charities have the right to keep their 
major supporters private from State Governments. The Court ruled that 
California's attempt to mandate donor reporting was not narrowly 
tailored to an important government interest for the State. It also 
found that the threats of reprisal and harassment presented at trial 
against AFPF were real.
---------------------------------------------------------------------------
    \5\ Americans for Prosperity Foundation v. Bonta 141 S. Ct. 2373 
(2021).

    There are, of course, other cases where disclosure rules have been 
upheld, typically relating to public reporting of large donations to 
candidates, political parties, and groups with a major purpose of 
supporting or opposing candidates in elections. But the Court has 
deeply scrutinized efforts to expand disclosure laws beyond their 
current bounds and has long recognized that any disclosure rule brings 
---------------------------------------------------------------------------
with it real harms to First Amendment rights.

    Critics respond that we are not living in 1950s Alabama anymore, so 
why worry? Perhaps the best way to see the threat is to look at 
specific examples of harm caused by (a) legally allowable disclosures, 
or (b) illegal disclosures of donations to nonprofit organizations 
(through either outside hacking or government malfeasance.) Any law 
that extends disclosure rules would increase the likelihood of events 
like these.

    In 2022, Tammy Giuliani made a lawful $250 donation to the Canadian 
trucker's convoy, the movement that briefly paralyzed Canada's capital 
and garnered international attention for its protest against COVID-19 
mandates.\6\ Hackers leaked information about her donation and 
thousands of others, leading to widespread threats and harassment 
against the donors. The threats forced the cafe to close.
---------------------------------------------------------------------------
    \6\ Blair Crawford, ``Threats close Stella Luna Gelato Cafe after 
owner's name appears in GiveSendGo data leak,'' Ottawa Citizen. 
February 17, 2022. Available at: https://ottawacitizen.com/news/local-
news/threats-close-stella-luna-gelato-cafe-after-owners-name-appears-
in-givesendgo-data-leak.

    In 2021, Sgt. William Kelly, a police officer in Virginia, and 
Craig Shepherd, a paramedic in Utah, made lawful $25 and $10 donations, 
respectively, to the legal defense fund of Kyle Rittenhouse, who was on 
trial for homicide after fatally shooting two men and wounding another 
during a night of riots and unrest in Kenosha, WI. Both Kelly and 
Shepherd became targets for harassment after hackers exposed donations 
to Rittenhouse's legal fund and additional details were published in 
The Guardian.\7\ Kelly was fired from his job as a Virginia police 
officer. An ABC News reporter showed up at Shepherd's house with a 
camera in tow to harass him in the name of ``reporting.'' In both 
cases, the donors had done nothing illegal and were targeted simply for 
exercising their First Amendment rights.
---------------------------------------------------------------------------
    \7\ Jason Wilson, ``US police and public officials donated to Kyle 
Rittenhouse, data breach reveals,'' The Guardian. April 16, 2021. 
Available at: https://www.theguardian.com/us-news/2021/apr/16/us-
police-officers-public-officials-crowdfunding-website-data-breach.

    In 2021, Cara Dumaplin, a registered neonatal nurse, created a 
successful Internet business helping parents of newborns with parenting 
and child-rearing advice. A business competitor shared screen shots of 
Dumaplin's political contributions showing that she had made donations 
to the reelection campaign of Donald Trump. Dumaplin made 36 donations 
between $25 and $35 to the Trump campaign--not exactly huge money.\8\ 
The screen shots of the Federal Election Commission report were widely 
shared across social media platforms. Given the vast unpopularity of 
Dumaplin's political association among her clientele, the result was no 
surprise: boycotts of her website, merchandise, and consulting services 
ensued.
---------------------------------------------------------------------------
    \8\ Rebecca Jennings, ``What happened when a beloved mom influencer 
donated to Trump,'' Vox. January 27, 2021. Available at: https://
www.vox.com/the-goods/22252360/taking-cara-babies-trump-instagram-
donation-drama.

    In 2019, Congressman Joaquin Castro tweeted out the names of 44 of 
his constituents in San Antonio who made lawful contributions to Donald 
Trump's reelection, accusing them of ``fueling a campaign of hate.''\9\ 
Donors immediately began receiving threatening phone calls, boycotts of 
the businesses where they worked, and a pressure campaign to ostracize 
them for donating to a candidate their congressman disagreed with. A 
similar story occurred in New York, where Congressman Tom Suozzi 
threatened to name and shame donors who gave to candidates that had a 
position different from his own on the SALT tax deduction.\10\
---------------------------------------------------------------------------
    \9\ Caitlin Oprysko, ``Joaquin Castro doubles down amid backlash 
over tweeting names of Trump donors,'' Politico. August 6, 2019. 
Available at: https://www.politico.com/story/2019/08/06/joaquin-castro-
trump-donors-1450672.
    \10\ Tiffany Donnelly, ``All I Want for Christmas Is Lawmakers to 
Respect Privacy,'' Institute for Free Speech. December 16, 2020. 
Available at: https://www.ifs.org/blog/christmas-lawmakers-respect-
privacy-suozzi-disclosure/.

    Stories like this are too numerous to catalogue. Yet many never 
come to light because the harassment is carried out privately and has 
its desired effect: the person stops supporting or associating with the 
group and stops speaking out about the issue. Given the ease of finding 
and spreading donor information on the Internet, disclosure-fueled 
harassment is likely to become more, not less, common over time. If 
politicians are ready to threaten donors over differences in tax 
policy, and if people are organizing boycotts and threatening 
individuals and businesses over $25 donations to candidates they don't 
like, then imagine the harms inflicted if every Planned Parenthood 
donor, every National Rifle Association member, and every Black Lives 
Matter supporter were forcibly published on a government website. That 
---------------------------------------------------------------------------
is the danger of creating new, more expansive disclosure laws.

    Question. The Biden administration recently announced that it is 
setting up a ``Disinformation Governance Board'' within the Department 
of Homeland Security.

    As an expert on free speech, do you think the Federal Government 
establishing a ``Disinformation Governance Board'' is consistent with 
the principles of the First Amendment?

    Answer. No. It is a terrible idea that would do tremendous harm to 
public trust and is wildly inconsistent with both the First Amendment 
and the spirit of free inquiry that the amendment is meant to protect. 
It is fortunate that, after significant backlash, the Department halted 
the program. I fear, however, that the administration has made its 
intentions clear, and the Disinformation Governance Board's work may 
already be continuing through other means, both inside the Department 
and in other Federal agencies. On June 16th, less than a month after 
the Board was paused, the White House announced a new Internet policy 
task force led by Vice President Kamala Harris that aims, among other 
things, to protect ``public and political figures, government and civic 
leaders, activists, and journalists'' from ``disinformation.''

    It seems that while the administration got the message that 
something called a ``Disinformation Governance Board'' housed inside 
DHS was both controversial and unpopular, they have failed to 
understand the reason why: it is not the job of the government to 
police the truth.

    The Supreme Court has consistently ruled that false speech, even 
deliberate lying, is generally protected by the Constitution. It has 
done so not because it thinks that purposeful misinformation is good, 
but because the enforcement of laws against such speech are far worse. 
As Justice Kennedy put it:

        Permitting the government to decree [deliberate false 
        statements] to be a criminal offense, whether shouted from the 
        rooftops or made in a barely audible whisper, would endorse 
        government authority to compile a list of subjects about which 
        false statements are punishable. That governmental power has no 
        clear limiting principle. Our constitutional tradition stands 
        against the idea that we need Oceania's Ministry of Truth.\11\
---------------------------------------------------------------------------
    \11\ United States v. Alvarez, 567 U.S. 709 (2012).

    Of course, there are some narrow exceptions where lying is not 
constitutionally protected speech--in cases of fraud and perjury, for 
example. But all such exceptions have clear limits. They all have 
immediate and definable harms and they are all deeply rooted in both 
our constitutional and common law traditions. A general warrant by the 
Federal Government to police speech it has deemed ``disinformation'' is 
---------------------------------------------------------------------------
quite the opposite.

    This is not a new problem. From the antebellum south fearing the 
``misinformation'' of abolitionist literature to calls to restrict 
communist speech for fears it contained false kompromat from the Soviet 
Union, there have always been some who thought the threat of divisive 
or untrue speech was worth compromising our First Amendment principles. 
And there have always been others who seek to capitalize on such fears 
in order to gain the power to punish their critics and political 
opponents. Yet even when government efforts to police truth start off 
well-intentioned, they carry a tremendous risk of abuse, bias, and 
simple error. Tolerating some false speech is the price we pay as a 
society for maintaining the free and robust exchange of ideas that is 
essential to our democracy. Luckily, throughout our history, the 
people's speech rights have eventually prevailed over attempts at 
restriction.

    To those members of the committee who think that the government 
does have a role to play in ``fighting disinformation,'' whether 
through this ill-thought-out program in the Department of Homeland 
Security or in legislation passed by this body, I would remind them 
that any such program or law will eventually be controlled or enforced 
by your fiercest political opponents. It would be extremely 
shortsighted for any administration or political party to embrace 
policies in the name of fighting ``disinformation'' that could one day 
transform into government censorship of political speech.

    And it is worth remembering that much speech that was very recently 
widely considered disinformation is now widely considered to be true. 
Look only at the recent pandemic for myriad examples. It was 
disinformation to say that the new coronavirus was airborne;\12\ 
disinformation to suggest that it was the result of a lab leak in 
China;\13\ disinformation to promote masks as an effective barrier to 
transmission;\14\ and disinformation to believe that a vaccine would be 
developed in less than a year.\15\ Now, all of these are widely 
believed by ``experts.'' In the years to come, it may be the case that 
some of these facts are once again upended and will once again be 
considered false. That's okay; such is the nature of free discourse. 
Knowledge is evaluated and challenged and reevaluated again.
---------------------------------------------------------------------------
    \12\ Dyani Lewis, ``Why the WHO took 2 years to say COVID is 
airborne,'' Nature. April 6, 2022. Available at: https://
www.nature.com/articles/d41586-022-00925-7.
    \13\ ``WHO `open' to probing `new evidence' of COVID-19 lab leak 
origin theory, accepts `key pieces of data' still missing,'' CBS News. 
June 10, 2022. Available at: https://www.cbsnews.
com/news/covid-19-origin-who-china-lab-leak-theory-open-to-new-
evidence/.
    \14\ John Bacon, `` `Seriously people--STOP BUYING MASKS!': Surgeon 
general says they won't protect from coronavirus,'' Florida Times-
Union. March 2, 2020. Available at: https://www.jacksonville.com/story/
news/healthcare/2020/03/02/seriously-people---stop-buying-masks-
surgeon-general-says-they-wont-protect-from-coronavirus/112244966/.
    \15\ Jane C. Time, ``Fact check: Coronavirus vaccine could come 
this year, Trump says. Experts say he needs a `miracle' to be right,'' 
NBC News. May 15, 2020. Available at: https://www.nbcnews.com/politics/
donald-trump/fact-check-coronavirus-vaccine-could-come-year-trump-says-
experts-n1207411.

    When you add in explicitly partisan and political ``facts,'' such 
as the debacle surrounding the private censorship of the Hunter Biden 
laptop story as ``false,'' it becomes quickly apparent that government 
enforcement of ``disinformation'' carries far greater risk of harm than 
---------------------------------------------------------------------------
of potential benefit.

    Clearly the government, and its officials, have a right to express 
their own views. But the idea of a government board making 
pronouncements on the truth or falsity of disputed issues, and 
pressuring private entities to censor disfavored speech is 
unconstitutional and rife for abuse.

    Question. Is it correct that Lois Lerner was exonerated in the 
later investigations of the targeting controversy?

    Answer. No, that is incorrect.

    Final investigations by the Treasury Inspector General for Tax 
Administration (TIGTA) \16\ and the Senate Finance Committee \17\ both 
concluded that the initial assessments of political targeting by the 
IRS were, in fact, correct. The IRS under Lois Lerner targeted 
conservative and Tea Party groups specifically because they were 
conservative and Tea Party groups.
---------------------------------------------------------------------------
    \16\ ``Inappropriate Criteria Were Used to Identify Tax-Exempt 
Applications for Review,'' Treasury Inspector General for Tax 
Administration. May 14, 2013. Available at: http://www.treasury.gov/
tigta/auditreports/2013reports/201310053fr.pdf .
    \17\ ``Bipartisan Investigative Report as Submitted by Chairman 
Hatch and Ranking Member Wyden,'' United States Senate Committee on 
Finance. August 5, 2015. Available at: https://www.finance.senate.gov/
imo/media/doc/CRPT-114srpt119-pt1.pdf.

    A counter-narrative has emerged that downplays the IRS scandal by 
claiming that because a few progressive groups also had their 
applications for tax-exempt status flagged and delayed, it is wrong to 
say the IRS was targeting based on the political speech of the groups. 
This narrative ignores the evidence about both the scale and the 
severity of the targeting against groups on the right as opposed to 
---------------------------------------------------------------------------
groups the left.

    First, this counter-narrative relies on a 2017 TIGTA audit report 
\18\ that indicated IRS review of applications for tax exemption 
included other types of suspected political activity besides 
conservative. But that report covered a time period that began in 2004, 
6 years before the 2010 inception of the ``tea party cases'' activity 
by the IRS. The Treasury press release accompanying the 2017 report 
noted numerous problems associated with attempting to compare the 2017 
TIGTA audit report with the seminal 2013 TIGTA audit report. Citing 
this report to argue that the IRS did not disproportionately target 
conservative groups starting in 2010 is a bit like arguing that the 
United States was not a major world power after World War II because 
its economy was in a depression in the 1930s.
---------------------------------------------------------------------------
    \18\ ``Review of Selected Criteria Used to Identify Tax-Exempt 
Applications for Review,'' Treasury Inspector General for Tax 
Administration. September 28, 2017. Available at: https://
www.treasury.gov/tigta/auditreports/2017reports/201710054fr.pdf.

    The numbers for the actual period of the scandal are what count--
not the numbers for the period before the IRS began targeting 
conservative groups. And what are those numbers? The IRS itself found 
---------------------------------------------------------------------------
that among those groups targeted by the IRS starting in 2010:

        Of the 84 (c)(3) cases, slightly over half appear to be 
        conservative-leaning groups based solely on the name. The 
        remainder do not obviously lean to either side of the political 
        spectrum. Of the 199(c)(4) cases, approximately \3/4\ appear to 
        be conservative-leaning, while fewer than 10 appear to be 
        liberal/progressive-leaning groups based solely on the 
        name.\19\
---------------------------------------------------------------------------
    \19\ Id. at Appendix IV.

    Thus, while it is true that IRS screening to detect political 
activity (including the infamous BOLO list) did occasionally capture 
non-conservative groups, the large majority--and clear purpose--of the 
program was the targeting of conservatives. Hundreds of right-leaning 
groups were affected compared to fewer than 10 left-
---------------------------------------------------------------------------
leaning groups.

    That alone should settle the debate, and yet it still does not 
capture the full extent of the IRS's mistreatment of conservative 
groups. The initial targeting, after all, was only the first step. The 
real damage done was in the lengthy delays in approving groups' tax-
exempt status. Here, too, the IRS found that liberally-coded groups and 
conservative-coded groups received vastly different treatment. The 2017 
TIGTA report found that most groups on the left who were ``targeted'' 
still had their tax-exempt status approved within 2 years, and the 
majority were approved in the first year. The opposite was true for 
groups on the right: the overwhelming majority were not approved in 2 
years, according to the 2013 TIGTA report.

    As the Sixth Circuit Court of Appeals put it, ``the IRS used 
political criteria to round up applications for tax-exempt status filed 
by so-called tea-party groups; . . . the IRS often took four times as 
long to process tea-party applications as other applications; . . . the 
IRS served tea-party applicants with crushing demands for what the 
Inspector General called `unnecessary information.' ''\20\
---------------------------------------------------------------------------
    \20\ U.S. v. NorCal Tea Party Patriots (In re United States), 817 
F.3d 953 (6th Cir. 2016).

    Lois Lerner herself admitted the IRS's behavior was inappropriate, 
both in the question she planted at a public tax forum in an attempt to 
get ahead of the IRS audit, and in her statement to Congress before 
invoking her Fifth Amendment right against self-incrimination. Lerner, 
of course, was found guilty of contempt of Congress. While the 
Department of Justice declined to prosecute Ms. Lerner in 2015, the 
evidence is overwhelming that the IRS Exempt Organizations Unit 
purposefully discriminated against conservative groups while she was 
---------------------------------------------------------------------------
director.

                                 ______
                                 
              Questions Submitted by Hon. Elizabeth Warren
    Question. Your organization--the Institute for Free Speech, 
formerly known as the Center for Competitive Politics--has criticized 
proposals that would require companies to disclose their political 
spending to shareholders and the public.\21\ In your testimony before 
this subcommittee, you reiterated those views.\22\
---------------------------------------------------------------------------
    \21\ The Center for Competitive Politics, ``Silencing Business: How 
Activists Are Trying to Hijack the Public Policy Debate,'' June 2014, 
https://web.archive.org/web/20140821011018/http://www.proxyfacts.org/
wp-content/uploads/2014/06/CCP-White-Paper-6.2.pdf.
    \22\ Testimony of Bradley Smith before the Senate Finance 
Committee, Subcommittee on Taxation and IRS Oversight, May 4, 2022, 
https://www.finance.senate.gov/imo/media/doc/2022-05-
04_Smith%20Testimony_US%20Senate.pdf.

    How is free speech best served by withholding this information from 
the public? Do you believe shareholders in public companies should be 
denied information that allows them to make informed investment 
---------------------------------------------------------------------------
decisions?

    Answer. It's important when considering any question of disclosure 
to take a holistic view. Every disclosure law violates one group's 
right to privacy and free association in exchange for a hoped for 
informational benefit to the public. But the calculus for whether the 
informational benefit outweighs the violation cannot be done in a 
vacuum, because the more information already publicly available, the 
less valuable each additional disclosure becomes.

    So what disclosure laws do public companies already face for their 
``political'' spending? First, public companies may form a political 
committee (PAC), which can both donate directly to candidates and other 
committees and also make expenditures directly advocating for the 
election or defeat of Federal candidates. All contributions to that 
committee come from employees of the company, not the company itself, 
and all (over a de minimis amount) are publicly disclosed. All 
contributions from that PAC to other committees are publicly disclosed. 
All expenditures (above a de minimis amount) by that committee are 
publicly disclosed. These include contributions to candidates, 
political parties, and super PACs--and in all cases, expenditures made 
by those candidates or super PACs are also publicly disclosed. 
Expenditure disclosures for all of these entities include independent 
expenditures (any ad that expressly argues for the election or defeat 
of a candidate) and electioneering communications (any broadcast, 
cable, or satellite ad that merely mentions a candidate close to an 
election.) If a corporation donates directly to a nonprofit and directs 
the nonprofit to engage in independent expenditures or electioneering 
communications, that too is publicly disclosed.

    Corporations are prohibited from giving directly to candidates at 
the Federal level, but in every State where such contributions are 
permitted, those contributions are also disclosed. If a corporation 
engages in lobbying, that too is disclosed through an equally rigorous 
and extensive set of lobbying regulations.

    The additional disclosures that some wish to impose on companies 
beyond this regime concern things that, until relatively recently, were 
not considered political at all: things like trade association dues, 
support for think tanks, research organizations, and other charities. 
To the extent these activities can influence politics, they do so 
indirectly, and the connection between the two is often tenuous. Yet 
the threat of harassment and reprisals against donors whose identities 
are publicly exposed can deter support for worthy causes. It's worth 
noting at this point that mandatory disclosure laws reaching beyond 
traditional forms of political activity have often been ruled 
unconstitutional by the Supreme Court. A line of cases dating back to 
the Court's landmark holding in NAACP v. Alabama, where Alabama sought 
to force the NAACP to expose its members, makes clear that Americans 
have a First Amendment right to support social causes privately.\23\ 
Just last year, in Americans for Prosperity Foundation v. Bonta, the 
Court held that a State's uniform demand for donor lists from charities 
was a burden on free association.\24\ The Court was unconvinced that 
the donor information was necessary for the State to ferret out fraud--
a more substantial concern than any small informational benefit to 
shareholders of proposed new disclosure requirements.
---------------------------------------------------------------------------
    \23\ NAACP v. Alabama ex rel. Patterson, 357 U.S. 449, 462-463 
(1958).
    \24\ Americans for Prosperity Foundation v. Bonta, 141 S. Ct. 2373 
(2021).

    Setting aside how the Court may view hypothetical new compelled 
disclosure laws affecting corporate donations to nonprofits, there is 
already so much disclosure regarding how corporations involve 
themselves in the political process as to make additional disclosure 
immaterial from an investment standpoint. Simply put, anyone who wants 
to invest in a company already has the capacity to learn how that 
company engages in politics. More importantly, the amounts involved are 
small enough so as to have little impact on--that is, they are 
``immaterial'' to--investment decisions. For an investor who wants to 
make a profit, new laws would be like adding an additional pixel to a 
photograph that is already high-resolution--the human eye couldn't tell 
the difference. Perhaps this is why investors have regularly voted down 
proposals for added disclosures of spending related to public affairs 
and politics, usually by very large margins.\25\
---------------------------------------------------------------------------
    \25\ See Proxy Monitor at https://www.proxymonitor.org/
ScoreCard2022.aspx (showing 27 of 29 proposals for more disclosure of 
``lobbying'' or ``political'' activity were defeated by shareholders so 
far in 2022, with an average pro-disclosure vote of just 31.6 percent).

    In fact, new disclosure laws may be harmful to shareholder value, 
and thus to prospective investors. A 2019 paper in Business and 
Politics found that firms in the United Kingdom did not benefit from 
the adoption of new corporate shareholder disclosure laws but instead 
``suffered a decline in value in the months and years that followed.'' 
Noting that their study's results upended the conventional wisdom, the 
authors concluded that ``greater oversight of corporate political 
behavior appears to hurt rather than help shareholders by increasing 
stock volatility, especially for 
higher-risk firms, and we find some evidence that it also reduces firm 
value.''\26\
---------------------------------------------------------------------------
    \26\ Saumya Prabhat and David M. Primo, ``Risky business: Do 
disclosure and shareholder approval of corporate political 
contributions affect firm performance?'', 21 Bus. and Politics 205 
(2019) (Professor Primo is an Academic Advisor to the Institute for 
Free Speech, but this paper was not written for or in conjunction with 
the Institute).

    So, what's really going on here? Given that so much corporate 
political activity is already disclosed, and additional disclosures are 
unlikely to help and may even hurt investors, why do some continue to 
push for more? The answer is twofold. One, claiming there is some 
secret cabal of public corporations hindering or halting one's 
political agenda is an easier excuse than admitting that one's policies 
are unpopular or that one's strategies were ineffective. Two, 
politicians, particularly Senators, can use their bully pulpit to 
pressure companies with threats of boycotts, protests, or other abuses 
into backing their preferred agenda or, failing that, to stay out of 
---------------------------------------------------------------------------
the policy debate altogether.

    Examples of this type of behavior are frankly too numerous to 
detail in full, but here are just a few examples of the not-so-subtle 
threats against corporations who exercise their speech rights. Last 
year, Senator Cruz suggested that corporations who oppose election 
reform bills in the States ``need to be called out, singled out, and 
cut off.''\27\ He has also sought information on corporate donations to 
the Black Lives Matter movement.\28\
---------------------------------------------------------------------------
    \27\ Senator Ted Cruz, ``Your Woke Money Is No Good Here,'' Wall 
Street Journal. April 28 2021. Available at: https://www.wsj.com/
articles/your-woke-money-is-no-good-here-
11619649421?mod=opinion_lead_pos5.
    \28\ ``Ted Cruz slams `Black Lives Matter' organization,'' The Hill 
TV. August 4, 2020. Available at: https://www.youtube.com/
watch?v=FGoEF1CYS9s.

    Some of the most prominent attempts to silence disfavored corporate 
speech have come from Senator Whitehouse, who has attempted to pressure 
large investment firms into divesting from corporations that donated to 
what he termed ``climate denier groups''--think tanks and charities 
that disagree with the Senator on climate science and/or policy.\29\ He 
also, with some regularity, threatens the Chamber of Commerce over 
policy disagreements. During one recent effort, Senator Whitehouse 
called for an investigation into the Chamber because, in his view, 
their efforts ``to defeat passage of the Build Back Better plan''\30\ 
were not adequately disclosed.
---------------------------------------------------------------------------
    \29\ Press Release from the Office of Senator Sheldon Whitehouse, 
``Whitehouse Calls on Major Investment Funds to Pay Attention to 
Companies' Funding of Climate Denier Group,'' July 11, 2019. Available 
at: https://www.whitehouse.senate.gov/news/release/whitehouse-calls-on-
major-investment-funds-to-pay-attention-to-companies-funding-of-
climate-denier-group.
    \30\ Press Release from the Office of Senator Sheldon Whitehouse, 
``Whitehouse and Warren Call for Investigation Into U.S. Chamber of 
Commerce for Lobbying Disclosure Failures Amid Build Back Better 
Lobbying Blitz,'' November 17, 2021. Available at: https://www.white
house.senate.gov/news/release/whitehouse-and-warren-call-for-
investigation-into-us-chamber-of-commerce-for-lobbying-disclosure-
failures-amid-build-back-better-lobbying-blitz.

    Senator Warren herself is not immune to the use of her station to 
punish speakers with whom she disagrees. In addition to joining Senator 
Whitehouse's call for an investigation into the Chamber of Commerce for 
not supporting Democratic proposals, Senator Warren has also used donor 
information from the Brookings Institute to disparage a report from one 
of their senior fellows, ultimately leading to the scholar's 
resignation because there was ``discomfort with Warren's letter'' at 
the liberal think tank.\31\ And just one day after her preferred 
policies were criticized in a prominent editorial by a moderate think 
tank,\32\ Senator Warren responded not to the substance of the 
critique, but by calling on banks to disclose all contributions to 
think tanks.\33\ The message to corporations was clear: support an 
organization that criticizes me or my policies, face the consequences.
---------------------------------------------------------------------------
    \31\ Philip Hamburger, ``How Elizabeth Warren picked a fight with 
Brookings--and won,'' Washington Post. September 29, 2015. Available 
at: https://www.washingtonpost.com/politics/how-elizabeth-warren-
picked-a-fight-with-brookings--and-won/2015/09/29/bfe45276-66c7-11e5-
9ef3-fde182507eac_story.html.
    \32\ Jon Cowan and Tim Kessler, ``How Elizabeth Warren picked a 
fight with Brookings--and won,'' Wall Street Journal. December 2, 2013. 
Available at: https://www.wsj.com/articles/
SB10001424052702304337404579213923151169790.
    \33\ Jonathan Chait, ``Elizabeth Warren and Centrist Democrats Are 
Already at War,'' New York Magazine. December 5, 2013. Available at: 
https://nymag.com/intelligencer/2013/12/warren-and-centrist-democrats-
are-already-at-war.html.

    In such an environment, it would be irresponsible of corporations 
to publicly expose contributions to charities, nonprofits, and trade 
associations. Shareholders and the general public would glean little 
information from such disclosures, while politicians are anxious to use 
them to make enemies lists and punish companies that oppose their 
agendas. These efforts to drive voices out of the arena threaten 
corporate profitability and the investments of millions of small 
shareholders, and would reduce the flow of information available to the 
public on important political issues. Preventing politicians from 
retaliating against those who don't support their ideas is one of the 
---------------------------------------------------------------------------
fundamental purposes of the First Amendment.

                                 ______
                                 
                Prepared Statement of Hon. John Thune, 
                    a U.S. Senator From South Dakota
    Thank you, Chairman Whitehouse. It is a pleasure to work with you 
on this subcommittee.

    The Subcommittee on Taxation and IRS Oversight is uniquely 
positioned to oversee the activities of the Internal Revenue Service, 
the executive branch agency charged with tax matters. And it is my hope 
we can use this hearing as a foundation to conduct appropriate 
oversight of the IRS and ensure that Americans' private tax-related 
information is protected.

    Today, we are here to discuss the laws and enforcement as they 
apply to the political activities of tax-exempt entities and, by 
extension, how those laws--and any proposed reforms--impact Americans' 
freedom of speech, association rights, and ability to privately give to 
causes they care about.

    Free speech is not just good in theory; it is a key driver of a 
healthy democracy. And allowing Americans to privately give to causes 
they care about is a fundamental component of protecting free speech 
and the First Amendment. Partisan legislation to force tax-exempt 
groups to choose between spreading their message and protecting donors' 
privacy runs a real, and potentially corrosive, risk of chilling 
speech.

    A few words about scope, 501(c) organizations, and the IRS. Section 
501(c) of the Internal Revenue Code describes 28 different categories 
of organizations that generally are exempt from Federal income tax. We 
will focus much of today's discussion around four categories. These 
include 501(c)(3) charitable organizations, 501(c)(4) social welfare 
organizations, 501(c)(5) labor organizations, and 501(c)(6) trade 
associations and business leagues--in other words, a wide range of 
entities that represent diverse constituencies and causes across the 
country and include churches, charities, nonprofits, foundations, 
advocacy groups, unions, and trade associations.

    The chairman has a particular interest in 501(c)(4) organizations 
and their impact on campaigns. And according to a recent New York Times 
analysis, the impact is anything but small--particularly for 
politicians on the left. The Times stated that in the last election, 
the left raised and spent more money from 501(c)(4) donors than the 
right.

    The report showed that 15 of the most politically active nonprofit 
organizations that generally align with the Democratic Party spent more 
than $1.5 billion in 2020--hundreds of millions of dollars more than a 
comparable sample group aligned with the Republican Party. There is a 
deep bench of well-funded 501(c)(4) organizations aligned with the 
Democratic Party that expressly support progressive policies and 
causes.

    Of course, there are plenty of related organizations on the right 
as well.

    The Senate Finance Committee has a long history of oversight into 
501(c) tax-
exempt entities and the IRS's treatment of such organizations. Just a 
few years ago, the committee conducted a 2-year bipartisan 
investigation into the IRS's inappropriate targeting of 501(c)(3) and 
501(c)(4) applications for tax-exempt status. The investigation, which 
culminated in 2015, found that the IRS grossly mismanaged applications 
filed by Tea Party and other conservative organizations.

    The report showed that the IRS improperly disclosed taxpayer 
information from numerous conservative organizations, and that the 
agency systematically selected conservative organizations for 
heightened scrutiny in a manner wholly different from how it processed 
applications from left-leaning organizations. Indeed, the unifying 
factor for how Tea Party applicants were handled at the IRS was not 
specific political activities, but rather an underlying political 
philosophy.

    Americans--regardless of political affiliation--deserve to have an 
IRS that will administer the tax code with fairness and integrity, and 
safeguard their private taxpayer information. Regrettably, recent 
history and current developments show the agency has fallen short.

    Since last year's massive IRS leak or hack of taxpayer information, 
which the left-leaning ProPublica obtained and then used to publicize 
confidential taxpayer details, there has been no meaningful follow-up 
from the agency or the administration. Perhaps that is because the 
unauthorized disclosure of private taxpayer data by ProPublica 
conveniently advanced a preferred political narrative on tax policy.

    More fundamentally, the apparent leak or hack of private taxpayer 
information is a serious breach of trust between Americans and their 
government. And it puts everyday citizens at risk of intimidation and 
harassment by ideological foes.

    Americans have a right to know that the personal information they 
provide to the IRS remains confidential and will not be used to target 
them or to advance partisan political agendas.

    Americans are justifiably concerned about the IRS--or, for that 
matter, any regulatory agency--collecting more sensitive taxpayer and 
donor information than is necessary, and how that collection could 
impact their lives and freedom of speech. Policymakers would be wise to 
heed their concerns.

    We have an excellent panel before us today. Thank you all for being 
here, and I look forward to hearing your testimony.

                                 ______
                                 
 Prepared Statement of Scott Walter, President, Capital Research Center
    Chairman Whitehouse, Ranking Member Thune, and distinguished 
members of the subcommittee, thank you for the honor of testifying, 
especially on problems connected to the intersection of politics and 
tax-exempt entities--something we at Capital Research Center have 
studied for decades. When I first heard the hearing's title, I assumed 
it referred to current scandals raging in both the tax-exempt sector--
such as so-called ``Zuck Bucks''--and also in the IRS itself--such as 
the illegal leaking of confidential tax returns to ProPublica.

    Just in the last few months, many more scandals have erupted. For 
instance, the political activities of billionaire Hansjorg Wyss, a non-
U.S. citizen, has caused a watchdog group to launch an FEC lawsuit. As 
The Hill summarizes the suit, Wyss allegedly ``used two nonprofit 
organizations, the Wyss Foundation [a 501(c)(3) private foundation] and 
the Berger Action Fund [a 501(c)(4) group], to contribute millions of 
dollars to the Sixteen Thirty Fund and the New Venture Fund, two so-
called dark money groups that fund liberal causes through operations 
like The Hub Project and Demand Justice.''\1\
---------------------------------------------------------------------------
    \1\ Brett Samuels, ``Watchdog group sues FEC over citizenship of 
liberal donor,'' The Hill, April 25, 2022, https://thehill.com/news/
campaign/3461903-watchdog-group-sues-fec-over-citizenship-of-liberal-
donor/.

    The Hub Project funded by this foreign billionaire was started, The 
New York Times reports, ``in 2015 by one of Mr. Wyss's charitable 
organizations, the Wyss Foundation, partly to shape media coverage to 
help Democratic causes.''\2\ The New York Times report adds ``that The 
Hub Project is part of an opaque network managed by a Washington 
consulting firm, Arabella Advisors, that has funneled hundreds of 
millions of dollars through a daisy chain of groups supporting 
Democrats and progressive causes. The system of political financing, 
which often obscures the identities of donors, is known as dark money, 
and Arabella's network is a leading vehicle for it on the left.''\3\
---------------------------------------------------------------------------
    \2\ Kenneth P. Vogel and Katie Robertson, ``Top Bidder for Tribune 
Newspapers Is an Influential Liberal Donor,'' New York Times, April 13, 
2021, https://www.nytimes.com/2021/04/13/business/media/wyss-tribune-
company-buyer.html.
    \3\ Ibid.

    Another recent controversy, exposed by Capital Research Center, 
involves the Arabella network's support for two secretive groups, 
Governing for Impact and Governing for Impact Action Fund, which are 
fiscally sponsored projects under, respectively, a 501(c)(3) and a 
501(c)(4) nonprofit managed by Arabella. The groups have 
surreptitiously worked with Biden administration officials to reshape 
dozens of controversial regulations, with $13 million of funding from 
one of billionaire George Soros's foundations.\4\
---------------------------------------------------------------------------
    \4\ See Joe Schoffstall, ``Secretive Soros-funded group works 
behind the scenes with Biden admin on policy, documents show,'' Fox 
News, April 26, 2022, https://www.foxnews.com/politics/secretive-soros-
funded-group-works-behind-scenes-biden-admin-policy-documents and 
``Governing for Impact--Influence Watch,'' Influence Watch, accessed 
April 29, 2022, https://www.influence
watch.org/non-profit/governing-for-impact/.

    Other recent exempt-organization scandals include the exposure of 
ostensible news networks designed to appear as local news outlets but 
actually efforts supported by mega-donors like Kathryn Murdoch and Reid 
Hoffman that are designed to influence the public's political views. As 
the left-leaning website OpenSecrets reports, `` `Dark money' networks 
hide political agendas behind fake news sites.'' OpenSecrets reports 
that ``ACRONYM, a liberal [501(c)(4)] dark money group with an 
affiliated super PAC called PACRONYM,'' is ``behind Courier Newsroom, a 
network of websites emulating progressive local news outlets. Courier 
has faced scrutiny for exploiting the collapse of local journalism to 
spread `hyperlocal partisan propaganda.' ''\5\ I note that an 
accompanying OpenSecrets chart describing this political influence 
operation lists three of Arabella Advisors' umbrella nonprofits, the 
501(c)(3) New Venture Fund and Hopewell Fund, and the 501(c)(4) Sixteen 
Thirty Fund:
---------------------------------------------------------------------------
    \5\ Anna Massoglia, `` `Dark money' networks high political agendas 
behind fake news sites,'' OpenSecrets, May 22, 2020, https://
www.opensecrets.org/news/2020/05/dark-money-networks-fake-news-sites/. 
See also Scott Walters, ``Democratic Donors' Disinformation Ops--
UPDATED,'' Capital Research Center, June 22, 2021, https://
capitalresearch.org/article/democratic-donors-disinformation-ops/.

[GRAPHIC] [TIFF OMITTED] T0422.001


    .epsThese kinds of political operations by exempt organizations 
disturb many Americans. Across the political spectrum, people see 
exempt organizations enjoying elite power and wealth, and employing it 
in anti-democratic ways. This concern has even led a Democrat-invited 
witness today, professor Philip Hackney, to call for abolishing private 
foundations entirely, an admittedly extreme reaction, but perhaps one 
that will grow if Congress continues to dig into the true history of 
the sector--something that could happen whichever party has control of 
Senate and House next year.\6\ I can document, mostly from left-leaning 
sources, that both the problems with the sector, and also the IRS's 
dangerous tendency to selectively enforce its rules, go back decades.
---------------------------------------------------------------------------
    \6\ ``I think we ought to eliminate tax benefits for the private 
foundation form.'' Philip Hackney, ``The 1969 Tax Reform Act and 
Charities: Fifty Years Later,'' Pittsburgh Tax Review Volume 17 (2020): 
246, https://doi.org/10.5195/taxreview.2020.116.

    I especially want to show how (c)(3) private foundations and (c)(3) 
public charities violate limits on their political activities. Let me 
begin with the Ford Foundation, because soon after I criticized it 
before Chairman Whitehouse at a Judiciary subcommittee hearing he held 
last year,\7\ he told a legal podcast that the Ford Foundation is ``an 
amazingly well-established public interest foundation that doesn't seem 
to have much in the way of a political motive or purpose.''\8\
---------------------------------------------------------------------------
    \7\ Scott Walter, ``Scott Walter Testifies to a Senate Judiciary 
Subcommittee on `Dark Money,' '' Capital Research Center, March 11, 
2021, https://capitalresearch.org/article/scott-walters-testimony-
before-the-u-s-senate-subcommittee/.
    \8\ Sheldon Whitehouse, ``Tsunami of Slime,'' transcript April 12, 
2021 from Strict Scrutiny podcast, https://strictscrutinypodcast.com/
wp-content/uploads/2021/04/Tsunami-of-Slime.pdf.

    Those words are jarring in this room, where many recognize that the 
Ford Foundation's half-century of left-wing activism has significantly 
shaped the laws governing political activities of tax-exempt entities. 
Ford's grants for partisan voter registration in 1967 so outraged 
Congress, both of whose houses were under Democratic control, that it 
passed the landmark Tax Reform Act of 1969, whose restrictions still 
largely shape what's legally permissible for private foundations and 
---------------------------------------------------------------------------
public charities.

    As professor Karen Ferguson explains in a book-length history of 
Ford, the so-called ``McGeorge Bundy amendments''--named for the 
antagonism the foundation's president directed toward the House Ways 
and Means Committee--``put strict new controls on philanthropies' 
political involvement.'' Another legal scholar adds, ``The concerns of 
Congress at which the law struck had roots reaching back for more than 
2 decades. . . .'' The Democratic staff of the Joint Committee on 
Internal Revenue Taxation, in their ``General Explanation of the Tax 
Reform Act of 1969,'' stated at the time: ``In several instances called 
to Congress' attention, funds were spent in a way clearly designed to 
favor certain candidates. In some cases, this was done by financing 
registration campaigns in certain areas. . . .''\9\ As we shall see, 
these abuses, especially involving voter registration with partisan 
results, continue through our day.
---------------------------------------------------------------------------
    \9\ Michael E. Hartmann, ``The Ford Foundation, the 1967 Cleveland 
mayoral election, and the 1969 Tax Reform Act,'' The Giving Review, 
February 3, 2021, https://www.philanthropy
daily.com/the-ford-foundation-the-1967-cleveland-mayoral-election-and-
the-1969-tax-reform-act/.

    How to respond to these serious problems? First, of course, 
Congress and the relevant executive branch authorities should 
investigate the details much more thoroughly, so that members and 
Americans at large have a richer understanding of the facts. Beyond 
---------------------------------------------------------------------------
that, I urge you, first, not to go down several wrong roads.

    Don't focus on 501(c)(4)s, for several reasons. Actual law-breaking 
by (c)(4)s should, of course, be punished appropriately, but (c)(4)s 
are not very significant in American politics, especially in terms of 
money. In the 2018 election cycle, contributions to political parties, 
candidates, and other FEC-reporting groups that OpenSecrets did not 
classify as ``dark money'' amounted to around $5 billion,\10\ whereas 
OpenSecrets-classified ``dark money'' spending was only $123 million--a 
rounding error.\11\ And more importantly both those rivers of cash 
combined are dwarfed by money flowing to 501(c)(3) ``charities'' that 
are active in public policy (think tanks, media watchdogs, advocacy 
groups). We at Capital Research Center calculated that river of money 
at approximately $20 billion for the 2018 cycle, with a left-wing 
dominance of almost four to one.\12\
---------------------------------------------------------------------------
    \10\ See OpenSecrets.org, ``Most expensive midterm ever: Cost of 
2018 election surpasses $5.7 billion,'' OpenSecrets, February 6, 2019, 
https://www.opensecrets.org/news/2019/02/cost-of-2018-election-
5pnt7bil/. Note the $5 billion includes contributions to party 
committees and outside groups that OpenSecrets classifies as FEC 
reporting, not ``pure'' pre-BCRA ``hard money.''
    \11\ See ``2018 Outside Spending, by Group,'' OpenSecrets, accessed 
April 28, 2020, https://www.opensecrets.org/outsidespending/
summ.php?cycle=2018&chrt=V&disp=O&type=U. The total is for the two-
party split (``other viewpoint'' groups excluded) for ``non-disclosing 
groups,'' which OpenSecrets explains are ``501(c) nonprofits that are 
not required to disclose their donors. Others are committees that do 
disclose their donors to the FEC, but receive nearly all their money 
from non-disclosing entities. The groups are spending money on 
independent expenditures and electioneering communications by using 
funds from their undisclosed donors.''
    \12\ Shane Devine and Michael Watson, ``Political and Policy-
Oriented Giving After Citizens United: An Update to CRC's 2017 
Analysis,'' December 17, 2020; https://capitalresearch.org/article/
political-and-policy-oriented-giving-after-citizens-united-an-update-
to-crcs-2017-analysis.

    If someone still insists (c)(4)s are a major plague, I can only 
reply that the problem comes mostly from the blue side of the spectrum, 
since in the 2018 cycle, OpenSecrets calculated blue ``dark money'' was 
$81 million versus $42 million for red money (around two to one),\13\ 
while in the 2020 cycle, blue dominance grew to $85 million versus $21 
million (four to one).\14\ The New York Times agrees with this 
conclusion; see its recent report subtitled, ``A New York Times 
analysis reveals how the left outdid the right at raising and spending 
millions from undisclosed donors to defeat Donald Trump and win power 
in Washington.''\15\ The Times added, ``While the Kochs pioneered the 
use of centralized hubs to disseminate dark money to a broader network, 
the left has in some ways improved on the tactic--reducing redundancy, 
increasing synergy, and making it even harder to trace spending back to 
donors.''
---------------------------------------------------------------------------
    \13\ https://www.opensecrets.org/outsidespending/
summ.php?cycle=2018&chrt=V&disp=O&type
=U.
    \14\ Ibid.
    \15\ Kenneth P. Vogel and Shane Goldmacher, ``Democrats Decried 
Dark Money. Then They Won With It in 2020,'' New York Times, January 
29, 2022, https://www.nytimes.com/2022/01/29/us/politics/democrats-
dark-money-donors.html.

    Every year, one of the loudest complaints about 501(c)(4) activity 
is the annual ``Captured Courts'' report that's closely identified with 
this subcommittee's chair and Senator Stabenow. This year's edition at 
least does not claim, as last year's did with no evidence whatsoever, 
that ``dark money'' was ``originally a Republican political 
device.''\16\ But this year's edition continues the refusal to 
acknowledge the existence of a left-wing network that more honest 
observers, such as the just-cited New York Times report, have 
highlighted, namely, the Arabella network that fiscally sponsored the 
groups that lead the left's battles to shape the courts.\17\ This 
omission is even more bizarre, given that this year's ``Captured 
Courts'' devotes itself almost entirely to criticizing the legal 
structure of a conservative network of nonprofits, without mentioning 
that the founders of this network--in an Axios news story ``Captured 
Courts'' itself cites--have explicitly stated that they patterned their 
network's structure after that of Arabella.\18\
---------------------------------------------------------------------------
    \16\ Senator Debbie Stabenow, Senator Chuck Schumer, and Senator 
Sheldon Whitehouse, ``Captured Courts: The GOP's Big Money Assault on 
the Constitution, Our Independent Judiciary, and the Rule of Law,'' 
Senate Democrats, May 2020, p. 20, https://www.democrats.senate.gov/
imo/media/doc/Courts%20Report%20-%20FINAL.pdf.
    \17\ Those groups active in judicial battles are the (c)(4) Demand 
Justice and the (c)(3) Fix the Court. After years as fiscally sponsored 
projects of Arabella's umbrella nonprofits, in 2021 the groups spun off 
as independent exempt organizations. See ``Demand Justice--Influence 
Watch,'' Influence Watch, accessed April 29, 2022, https://
www.influencewatch.org/non-profit/demand-justice/ and ``Fix the Court--
Influence Watch,'' Influence Watch, accessed April 28, 2022, https://
www.influencewatch.org/non-profit/fix-the-court/.
    \18\ Jonathan Swan, Alayna Treene, ``Leonard Leo to shape new 
conservative network,'' Axios, January 7, 2020, https://www.axios.com/
leonard-leo-crc-advisors-federalist-society-50d4d844-19a3-4eab-af2b-
7b74f1617d1c.html, cited in note 35 of the 2022 ``Captured Courts.''

    Of course, one understands why ``Captured Courts'' prefers to keep 
Arabella in the dark: if tax-exempt ``dark money'' is all bad, Arabella 
is much worse than the conservatives being targeted. ``Captured 
Courts'' laments $400 million raised by the conservative network from 
2014-2018, but hides the fact that Arabella's network raised $2.16 
billion in the same years. ``Captured Courts'' also complains that the 
conservative network's groups ``move money back and forth,''\19\ but in 
just 1 year, Arabella's network shuffled among its groups a sum equal 
to almost half the conservative network's entire revenues for 4 years.
---------------------------------------------------------------------------
    \19\ Senator Chuck Schumer, Senator Sheldon Whitehouse, and Senator 
Debbie Stabenow, et al., ``Captured Courts: The Impact of the Judicial 
Crisis Network's Dark-Money Scheme on Our Courts,'' Senate Democrats, 
April 2022, p. 6, https://www.democrats.senate.gov/imo/media/doc/
Captured%20Courts%20Report%204-5-22.pdf.

[GRAPHIC] [TIFF OMITTED] T0422.002


    .epsWhile conservatives have criticized Arabella, non-conservatives 
have especially critiqued the network's (c)(4) components. Politico, 
for example, called the (c)(4) Sixteen Thirty Fund a ``massive `dark 
money' network,''\20\ and The Washington Post editorial page, after 
reading Politico's report, was outraged that Sixteen Thirty's top 
donors anonymously gave $51.7 million, $26.7 million, and $10 million. 
The Post judged that Sixteen Thirty caters to ``big campaign donors who 
want to have impact but hide their identity.''\21\ Last November, an 
Atlantic interview with Arabella's then-president carried the headline, 
``The Massive Progressive Dark-Money Group You've Never Heard Of: Over 
the past half decade, Democrats have quietly pulled ahead of 
Republicans in untraceable political spending. One group helped make it 
happen.''\22\ The Atlantic asked Arabella's president, ``Do you feel 
good that you're the left's equivalent of the Koch brothers?'' The 
president replied, ``Yeah.''
---------------------------------------------------------------------------
    \20\ Scott Bland and Maggie Severns, ``Documents reveal massive 
`dark-money' group boosted Democrats in 2018: A little-known nonprofit 
called The Sixteen Thirty Fund pumped $140 million into Democratic and 
left-leaning causes,'' Politico, November 19, 2019, https://www.
politico.com/news/2019/11/19/dark-money-democrats-midterm-071725.
    \21\ Editorial Board, ``Big campaign donors have exploited a 
loophole. Congress must change the law.'' The Washington Post, November 
21, 2019, https://www.washingtonpost.com/opinions/big-campaign-donors-
have-exploited-a-loophole-congress-must-change-the-law/2019/11/21/
ab31cf3a-0bd6-11ea-bd9d-c628fd48b3a0_story.html.
    \22\ Emma Green, ``The Massive Progressive Dark-Money Group You've 
Never Heard Of,'' The Atlantic, November 2, 2021, https://
www.theatlantic.com/politics/archive/2021/11/arabella-advisors-money-
democrats/620553/.

    Don't think beefed-up IRS enforcement will cure the ills. Another 
wrong road to fixing the tax-exempt sector would be to imagine that 
more IRS enforcement of rules will eliminate all the problems. While 
some routinely broken rules do need more enforcement, that must be 
balanced against the terrible temptations the IRS places before 
administrations of both parties. From FDR through Nixon, the IRS 
repeatedly used selective enforcement as a political weapon, and entire 
books have been needed to chronicle this ugly abuse of governmental 
power.\23\
---------------------------------------------------------------------------
    \23\ For instance, David Burnham, A Law Unto Itself: Power, 
Politics, and the IRS (Oregon: Book News, Inc., 1990).

    One would think this subcommittee's chair would be especially alive 
to this danger. After all, he chaired a hearing similar to this one in 
April 2013, the culmination of more than a year's efforts by him and 
leaders of his party to repeatedly demand heightened IRS enforcement of 
political abuses by exempt groups.\24\ At that April 2013 hearing, 
these demands were highlighted yet again, with Chairman Whitehouse 
complaining the IRS ``rarely challenges a group's 501(c)(4) designation 
based on political activity.''\25\ After the hearing, the chairman's 
staff sent the Justice Department examples of conservative groups he 
had in mind for prosecution.\26\ But the very next month, the scandal 
surrounding IRS exempt organizations' then-head Lois Lerner erupted, 
after she had a question planted at a Bar Association meeting \27\ that 
allowed her to apologize for improperly targeting conservative groups 
seeking IRS recognition. She did this just ahead of the appearance of a 
damning report by the Treasury Inspector General for Tax 
Administration,\28\ which in turn caused Chairman Whitehouse to address 
the Senate on ``the scandal that the IRS appears to have targeted 
organizations for inquiry based on Tea Party affiliation. Obviously, 
that's wrong.''\29\
---------------------------------------------------------------------------
    \24\ See, for example, their February 2012 letter, https://
www.bennet.senate.gov/public/index.
cfm/2012/2/senators-call-for-irs-investigations-into-potential-abuse-
of-tax-exempt-status-by-groups-engaged-in-campaign-activity; their 
March 2012 letter, https://dailycaller.com/2013/05/17/flashback-
schumer-franken-urged-irs-to-target-tea-party-in- 2012/.
    \25\ https://www.judiciary.senate.gov/download/hearing-transcript_-
current-issues-in-campaign-finance-law-enforcement, p. 12.
    \26\ Paul Caron, ``The IRS Scandal, Day 1241,'' TaxProf Blog, 
October 1, 2016, https://taxprof.typepad.com/taxprof--blog/2016/10/the-
irs-scandal-day-1241.html.
    \27\ Abby D. Phillip, ``IRS Planted Question About Tax Exempt 
Groups,'' ABC News Network, May 17, 2013, https://abcnews.go.com/blogs/
politics/2013/05/irs-planted-question-about-tax-exempt-groups/.
    \28\ Treasury Inspector General for Tax Administration, 
``Inappropriate Criteria Were Used to Identify Tax-Exempt Applications 
for Review,'' Treasury.gov, May 14, 2013, http://www.
treasury.gov/tigta/auditreports/2013reports/201310053fr.pdf.
    \29\ https://www.whitehouse.senate.gov/news/press-releases/the-two-
scandals-at-the-irs. Sheldon Whitehouse, ``The Two Scandals at the IRS: 
As Prepared for Delivery on the Senate Floor,'' Whitehouse.Senate.gov, 
https://www.whitehouse.senate.gov/news/press-releases/the-two-scandals-
at-the-irs. After this brief concession, the Senator went on at much 
greater length about the ``other scandal,'' i.e., ``allowing big 
shadowy forces to meddle in elections anonymously.''

    This wrongness may have had a considerable political effect: a 
study by academics from Harvard's Kennedy School, Stockholm University, 
and AEI compared voter turnout in the 2010 election, when Tea Party 
groups did not face IRS suppression, with turnout in the 2012 election, 
after the IRS's scandalous obstruction blunted such groups' ability to 
organize. The study observed that the 2010 success largely occurred 
because of ``grassroots activities'' involving 501(c)(4)s, and it 
estimated that similar functioning in 2012 ``would have brought the 
Republican Party as many as 5-8.5 million votes compared to Obama's 
victory margin of 5 million.''\30\
---------------------------------------------------------------------------
    \30\ Stan Veuger, ``Yes, IRS Harassment Blunted the Tea Party 
Ground Game,'' RealClearMarkets, June 20, 2013, https://
www.realclearmarkets.com/articles/2013/06/20/
yes_irs_harassment_blunted_the_tea_party_ground_game_100412.html. 
``Obama's margin of victory in some of the key swing States was fairly 
small: a mere 75,000 votes separated the two contenders in Florida, for 
example. That is less than 25% of our estimate of what the Tea Party's 
impact in Florida was in 2010.''

    Alas, despite the scandal, Lois Lerner received little 
accountability for her actions, including for being held in contempt by 
the U.S. House of Representatives, and she continues to succeed at 
keeping a lengthy deposition of her in a major lawsuit under court 
seal.\31\ In a more recent IRS misconduct scandal there is also little 
accountability; namely, the publishing by ProPublica of private tax 
information possessed by the IRS, and then either leaked by IRS 
employees or illegally accessed by persons outside the IRS.\32\ This 
follows other scandals of leaked information, used as a political 
weapon, such as a case in which the IRS admitted it illegally disclosed 
the Schedule B donor list of the National Organization for 
Marriage.\33\ It is especially disturbing to see the Chairman of the 
Finance Committee recently sit with ProPublica for an interview and 
never raise the issue of that media outlet's use of confidential tax 
information that they almost certainly possess only because someone 
committed a crime.\34\
---------------------------------------------------------------------------
    \31\ On Petition for Writ of Mandamus, Norcal Tea Party Patriots, 
et al. v. Lois Lerner, et al. (Case No. 22-3357, 6th Cir.), filed April 
19, 2022.
    \32\ See https://www.finance.senate.gov/ranking-members-news/crapo-
brady-demand-update-on-criminal-breach-of-taxpayer-data, accessed April 
28, 2022.
    \33\ Editorials, ``IRS Admits to a Smidgeon of a Felony,'' 
Investor's Business Daily, June 27, 2014, https://www.investors.com/
politics/editorials/irs-admits-guilt-pays-settlement-to-national-
organization-for-marriage/
#::text=The%20National%20Organization%20for%20Marriage%20has
%20been%20awarded,to%20the%20pro-
gay%20marriage%20group%20Human%20Rights%20Cam
paign.
    \34\ Jesse Eisinger, Jeff Ernsthausen, and Paul Kiel, ``When 
Billionaires Don't Pay Taxes, People `Lose Faith in Democracy,' '' 
ProPublica, February 28, https://www.propublica.org/article/when-
billionaires-dont-pay-taxes-people-lose-faith-in-democracy.

    There are more reasons to think increased IRS enforcement won't 
solve all the tax-exempt sector's issues: first, as Brad Smith and the 
lawyer Gregory Colvin argued at the 2013 version of this hearing, the 
IRS is not well-designed for understanding and regulating political 
activities.\35\ That explains why the Service has never been able to 
give guidance on the topic that is even remotely clear. Demanding more 
from the IRS will only further confuse matters and deserve to be 
called, ``The DC Election Lawyers Full Employment Act.'' As Mr. Colvin 
stated, ``the fundamental problem affecting enforcement on 501(c)(4) 
nonprofits'' is that ``the tax rules are vague, unpredictable, and 
unevenly applied.''\36\ That was a decade ago and is likely to be true 
a decade hence.
---------------------------------------------------------------------------
    \35\ See https://www.judiciary.senate.gov/download/hearing-
transcript_-current-issues-in-campaign-finance-law-enforcement.
    \36\ Ibid, p. 20.

    Heightened disclosure is another false path. Brad Smith at the 2013 
hearing and today is perhaps America's most eloquent explainer of the 
grave limitations on donor disclosure's ability to improve the 
---------------------------------------------------------------------------
political activities of private groups.

    Coerced donor disclosure is now clearly seen as a weapon by many in 
politics, as was made clear when I testified last year to the Judiciary 
Subcommittee on the Federal Courts. After the hearing, I received a 
personal letter from Chairman Whitehouse, asking me to disclose Capital 
Research Center's donors. I replied that in our day, in addition to the 
traditional moral reasons for respecting anonymous giving, ``The 
practical reason for opposing disclosure arises from the very real 
threats, felt across the political spectrum, of mob harassment and 
worse. And Mr. Chairman, just as your side has more groups, active for 
more years, and possessed of far more `dark money,' so does your side 
have more mobs.'' I prefer to ``stand with the NAACP of Bull Connor's 
Alabama, and with the NAACP of today, and with the ACLU and the Human 
Rights Campaign, in opposition to government schemes to force private 
citizens to disclose their donations.''\37\
---------------------------------------------------------------------------
    \37\ Joe Schoffstall, ``Conservative Group Defends Donor Privacy as 
Sheldon Whitehouse Demands Disclosures,'' Free Beacon, April 1, 2021, 
https://freebeacon.com/democrats/conservative-group-defends-donor-
privacy-as-sheldon-whitehouse-demands-disclosures/.

    Later, in questions for the record, I was asked why, if I claim the 
left has more ``dark money,'' I object to all sides having their donors 
disclosed equally? I replied that this question fit with the testimony 
given by the head of People for the American Way (incidentally, a 
501(c)(4) incubated by the Tides Foundation),\38\ who said, ``The 
hypocrisy that you see from the right is, they claim that there's more 
dark money on the left, and yet they refuse to be transparent. Well, it 
would seem that if the first were true, then the second would be a no-
brainer.'' The logic behind this argument is clear: forced donor 
disclosure harms both the donors and the groups forced to disclose; 
therefore conservatives should support laws that will harm their 
opponents more than themselves.
---------------------------------------------------------------------------
    \38\ ``People for the American Way--Influence Watch,'' Influence 
Watch, accessed April 28, 2022, https://www.influencewatch.org/non-
profit/people-for-the-american-way/.

    As I replied then, this question reveals the central disagreement 
between the party of forced government disclosure, and the party of 
citizens' privacy: ``I do not wish to harm donors and groups I disagree 
with, and I respectfully urge you to end your campaign to harm donors 
and groups you disagree with.''\39\
---------------------------------------------------------------------------
    \39\ Scott Walter, ``Highlights from Scott Walter's Answers to 
Questions for the Record from Senator Whitehouse,'' Capital Research 
Center, April 14, 2021, https://capitalresearch.org/article/highlights-
from-scott-walters-answers-to-questions-for-the-record-from-sen-
whitehouse/.

    Rather than take these wrong roads to improving the exempt sector, 
we should recognize that the biggest reason politicized money is 
pouring into tax-exempt groups of all varieties is because of what is 
wrongly called campaign finance ``reform.'' I sympathize with those 
across the spectrum who do not like dollars going into politics because 
they do not trust politicians, and who do not like to see exempt 
dollars playing a big political role. But would there be nearly so many 
dollars going to exempt groups if campaign finance ``reform'' hadn't 
squeezed money out of parties and candidates? In The Blueprint, a book 
that reports with sympathy on the Democratic takeover of Colorado's 
politics in the years after the Bipartisan Campaign Reform Act of 2002 
(BCRA), the authors explain how big donors became more important than 
the traditional party apparatus: ``campaign finance reform had 
completely changed the rules of the game. By limiting the amount of 
money candidates and political parties could raise and spend, the new 
law had seriously weakened candidates--and all but killed political 
parties.''\40\
---------------------------------------------------------------------------
    \40\ Rob Witwer and Adam Schrager. The Blueprint: How the Democrats 
Won Colorado (and Why Republicans Everywhere Should Care) (Colorado: 
Fulcrum Publishing, 2010), 72.

    Similarly, the liberal journalist Sasha Issenberg in his 2012 book, 
The Victory Lab: The Secret Science of Winning Campaigns, reports how 
private foundations like Carnegie escape the campaign finance 
strictures that throttle political actors under FEC rather than IRS 
regulation: ``because the tax code allowed nonprofit organizations to 
run registration and turnout drives as long as they did not push a 
particular candidate, organizing `historically disenfranchised' 
communities (as Carnegie described them) became a backdoor approach to 
ginning up Democratic votes outside the campaign finance laws that 
applied to candidates, parties, and political action committees.''\41\
---------------------------------------------------------------------------
    \41\ Sasha Issenberg. The Victory Lab (New York: Crown Publishing, 
2013), 86. Emphasis added.

    It should be no surprise that a billionaire foundation like 
Carnegie reveled in escaping BCRA, because billionaire foundations 
pushed the Act through, weakening other political actors and greatly 
strengthening their own political roles. In ``Astroturf politics: How 
liberal foundations fooled Congress into passing McCain-
Feingold,'' John Fund reported in 2005 that a study by Political 
MoneyLine ``found that of the $140 million spent to directly promote 
liberal campaign reform in the last decade, a full $123 million came 
from just eight liberal foundations,'' including Carnegie, Ford, and 
Soros's Open Society.\42\ Fund quotes a talk given by a former 
executive of Pew Charitable Trusts, the biggest donor among the 
foundations at $40 million, who confessed after the bill passed that 
the target of those millions was ``535 people'' in Congress, in whose 
minds the foundations hoped ``to create an impression that a mass 
movement was afoot.''
---------------------------------------------------------------------------
    \42\ John Fund, ``Astroturf politics: How liberal foundations 
fooled Congress into passing McCain-Feingold,'' The Wall Street 
Journal, March 21, 2005, https://www.wsj.com/articles/
SB122512338741472357.

    Pew's strategist is clear that he aimed to fool you members of 
Congress: if, he confesses, you ``thought this was a Pew effort, it'd 
be worthless.'' So the conspiracy had ``to convey the impression that 
this was something coming naturally from beyond the Beltway.'' Fund 
concludes there was never a grassroots drive for campaign finance 
reform. And Pew knew it: 2 months before the bill passed, Pew Research 
Center polled Americans, asking them to rank 22 issues in order of 
importance: campaign finance reform came in dead last.\43\
---------------------------------------------------------------------------
    \43\ Scott Walter, ``Pew and the Gang Ride Again,'' Foundation 
Watch, April 2011, https://capitalresearch.org/article/pew-and-the-
gang-ride-again-citizens-free-speech-still-in-danger/.

    So, policymakers' aim should be to reverse this harmful trend that 
currently moves money out of the FEC realm--where, I note, disclosure 
is much less controversial--and into the IRS realm of exempt groups. 
This should be done not only because the IRS is not the proper 
regulator of political activity, but also because the 501(c)(3) realm 
of charity is a critical pillar of civil society, strengthening all of 
us when it nobly allows us to help each other outside politics. 
Government, and the politics that surround it, are supposed to serve 
civil society, not take over this private realm which charity requires 
---------------------------------------------------------------------------
to flourish.

    The two best levers policymakers have to move politically motivated 
money back to the FEC's world and out of the IRS exempt world are, 
first, much higher limits--or none at all--on ``hard'' dollar 
donations. Second, no (c)(3) entity--private foundation or public 
charity--should be allowed to fund or execute voter registration and 
get-out-the-vote (GOTV). Those activities are only legal now if (c)(3)s 
carry them out in nonpartisan fashion, but in this age of 
microtargeting, there is far too high a risk that they will not be 
carried out in such a fashion. Some years back, a panelist at a think 
tank talkfest urged that these voter turnout activities continue to be 
legal. When I asked her if she could name a single (c)(3) in America 
that actually conducts them on a nonpartisan basis, the room full of 
(c)(3) leaders, mostly left-leaning, laughed knowingly, while another 
panelist, Democratic pollster Celinda Lake, nodded. Even the woman I 
asked grinned for a moment before delivering a non-
answer.\44\
---------------------------------------------------------------------------
    \44\ Scott Walter, ``Lies, damned lies, and polls,'' Philanthropy 
Daily, October 7, 2014, https://www.philanthropydaily.com/lies-damned-
lies-and-polls/.

    In the interest of full disclosure, I admit that (c)(3) voter 
turnout work is an unusual instance in the political world where the 
two sides don't use the same weapons. While (c)(3) voter turnout 
operations are common among the blues, they are rare among the reds. I 
recently asked Karl Rove about this. He has done more red registration 
and GOTV than any person alive, much of it through 501(c)(4)s that 
Chairman Whitehouse urged the IRS to prosecute a decade ago. But asked 
if he had ever used (c)(3) foundation money to fund, or (c)(3) public 
charities to execute, registration and GOTV, Rove said he never had, 
---------------------------------------------------------------------------
and seemed shocked at the thought.

    I would prefer this practice be forbidden to (c)(3)s, but failing 
that, it should be declared clearly permissible to all. Currently, the 
uncertainty that surrounds it leads reds to fear the next Lois Lerner 
if they dare try it, while blues use fig leaves like ``civic 
participation'' to cover their naked partisanship as they pursue it 
with gusto.
                   other exempt organization problems
    I must add brief sketches of some of the many problems raised by 
exempt groups that we at Capital Research Center have documented.

    The Page Gardner empire. Ms. Gardner, a former Senator Ted Kennedy 
staffer, has launched multiple interlocking groups, including the 
(c)(3) Voter Participation Center and (c)(4) Center for Voter 
Information. The left-leaning groups' work has drawn criticism from The 
Washington Post (for confusing voters and not being nonpartisan),\45\ 
National Public Radio (for allegedly illegal automated calls that 
seemed aimed to suppress African-American votes for Barack Obama in a 
primary against Hillary Clinton),\46\ and ProPublica, whose headline 
explains, ``A Nonprofit With Ties to Democrats Is Sending Out Millions 
of Ballot Applications. Election Officials [in both parties] Wish It 
Would Stop.''\47\ That ``nonprofit with ties to Democrats'' is the 
(c)(3) Voter Participation Center, whose partisanship is confirmed by 
Victory Lab's liberal author: ``Even though the group was officially 
nonpartisan, for tax purposes, there was no secret that the goal of all 
its efforts was to generate new votes for Democrats.''\48\
---------------------------------------------------------------------------
    \45\ Antonio Olivo, ``Mail-in ballot applications in Virginia tap 
into worries about fraud with faulty instructions,'' Washington Post, 
August 6, 2020. https://www.washingtonpost.com/local/virginia-politics/
virginia-absentee-ballot-mixup/2020/08/06/5(c)(4)029ee-d764-11ea-930e-
d8851
8c57dcc_story.html.
    \46\ ``Group with Clinton Ties Behind Dubious Robocalls,'' NPR, 
2008. Accessed June 19, 2017, http://www.npr.org/templates/story/
story.php?storyId=90114863.
    \47\ Rosenthal, Lauren, Joshua Eaton, and Thy Anh Vo, ``A Nonprofit 
With Ties to Democrats Is Sending Out Millions of Ballot Applications. 
Election Officials Wish It Would Stop,'' October 23, 2020, https://
www.propublica.org/article/a-nonprofit-with-ties-to-democrats-is-
sending-out-millions-of-ballot-applications-election-officials-wish-it-
would-stop.
    \48\ Sasha Issenberg, The Victory Lab (New York: Crown Publishing, 
2013), 305.

    The Voter Registration Project. This (c)(3), co-located with the 
for-profit, Democratic-aligned consulting firm Grassroots Solutions, 
oversaw a secretive, multiyear, $100+-million plan to use (c)(3)s and 
(c)(4)s to turn out millions of Democratic voters in battleground 
States. The project began in 2015, when a Democratic for-profit 
consultant sent a draft plan to a Democratic-aligned PAC (EMILY's 
List), who bounced it to Hillary Clinton's campaign manager, John 
Podesta. The scheme fermented with help from the president of the 
(c)(3) Wyss Foundation, who also sent Podesta a plan version in an 
email with the subject line, ``new (c)(3) version.'' That email's 
Microsoft Word attachment has tracked changes that revealed how the 
original, partisan plan, which would only be legal for ``hard dollar'' 
entities to execute, had been reworded lightly into something (c)(3) 
foundations could fund and (c)(3) ``charities'' could conceivably get 
away with. A sample editing change: an ``enormous'' difference in 
``potential political outcomes'' in the original version became an 
enormous difference in ``potential voter participation outcomes'' in 
the ``new (c)(3) version.''\49\
---------------------------------------------------------------------------
    \49\ See Parker Thayer, ``The Left Weaponizes Charitable Cash to 
Win Political Battles,'' Capital Research, October 2021, pp. 13-19, 
https://capitalresearch.org/publication/capital-research-october-2021/. 
The Podesta emails were, unfortunately, likely hacked by Russian 
intelligence agents, but the same is true of the hack of the Bradley 
Foundation, whose contents are used frequently by Senator Whitehouse 
and the Center for Media and Democracy.

    The plan was executed, with the help of numerous (c)(3)s and 
(c)(4)s, including the Civic Participation Action Fund, America Votes, 
States Voices, Center for Popular Democracy,\50\ and the Tides 
Foundation. Despite all the millions of dollars--and votes--and dozens 
of nonprofits involved, no mainstream media story on this project has 
ever appeared, nor as far as we know, any IRS investigation.
---------------------------------------------------------------------------
    \50\ CPD is best known for the time one of its leaders, protesting 
the Brett Kavanaugh nomination, blocked the elevator doors for Senator 
Jeff Flake. Elise Viebeck, ``Ana Maria Archila reflects on confronting 
Jeff Flake over Kavanaugh nomination,'' Washington Post, September 28, 
2018, https://www.washingtonpost.com/politics/i-was-demanding-a-
connection-ana-maria-archila-reflects-on-confronting-jeff-flake-over-
kavanaugh-nomination/2018/09/28/7593b4fe-(c)(3)81-11e8-97a5-
ab1e46bb3bc7_story.html.

    ``Zuck Bucks.'' This term is used to describe the roughly $400 
million that one billionaire family, Mark Zuckerberg and Priscilla 
Chan, used to ``help'' government election officials in nearly every 
State conduct the 2020 election. The funds originated from donor-
advised funds at the Silicon Valley Community Foundation and were sent 
to two (c)(3)s, the Center for Tech and Civic Life and the Center for 
Election Innovation and Research, which in turn sent them to 
Secretaries of State and local election offices. (Let me note an 
additional $25 million was contributed by an Arabella-managed (c)(3).) 
The two centers were founded and still run by persons with strong 
Democratic and left-wing ties. CEIR's founder/leader was hired as an 
election attorney at the Justice Department in the Clinton 
administration and left in 2005 under an ethics complaint cloud. He 
later worked at the Pew Charitable Trusts and the (c)(4) People for the 
American Way, which inaugurated our modern political battles for 
Supreme Court nominees with its famous, multimillion-dollar smear 
campaign of Robert Bork's nomination in 1987.\51\ CTCL's founders/
leaders came from a now-defunct (c)(4) so politically powerful that The 
Washington Post dubbed it, ``the Democratic Party's Hogwarts for 
digital wizardry.''\52\
---------------------------------------------------------------------------
    \51\ ``Center for Election Innovation and Research (CEIR)--
Influence Watch,'' Influence Watch, accessed April 29, 2022, https://
www.influencewatch.org/non-profit/center-for-election-innovation-
research/.
    \52\ Fung, Brian, ``Inside the Democratic Party's Hogwarts for 
Digital Wizardry,'' April 24, 2019, https://www.washingtonpost.com/
news/the-switch/wp/2014/07/08/inside-the-democratic-partys-hogwarts-
for-digital-wizardry/.

    These partisans, operating in (c)(3) garments in 2020, distributed 
in effect the largest political donation in American history. Their 
grants went to over 2,000 government offices in nearly all States. In 
many States, most of the offices receiving grants were in local 
jurisdictions won by the Republican presidential candidate. Yet with 
minimal analysis of the money flows, a clear pattern of Democratic 
partisanship appears. Capital Research Center has detailed State-level 
analysis for all of the battleground States, with all of our data 
publicly posted.\53\ Even a few data points reveal the partisanship:
---------------------------------------------------------------------------
    \53\ Hayden Ludwig and Parker Thayer, ``Shining a Light on Zuck 
Bucks in the 2020 Battleground States,'' Capital Research Center, 
January 18, 2022, https://capitalresearch.org/article/shining-a-light-
on-zuck-bucks-in-key-states/.

        In Pennsylvania, the highest per capita funding of a Biden 
county (Philadelphia) was $6.56, while the highest per capita funding 
---------------------------------------------------------------------------
of a Trump county (Berks) was $1.10.

        In Arizona, the unfunded parts of the State saw Republican 
presidential turnout increase even higher than Democratic presidential 
turnout (46 percent to 40 percent). But where Zuck Bucks flowed, that 
pattern completely reversed, with Democrats increasing turnout 81 
percent to Republicans' 66 percent.

        In my home State of Virginia, average per capita funding for 
Democratic counties was about double the funding for Republican 
counties, and 90 percent of funding went to Democratic counties.

    In short, the funding went disproportionately to the most vote-rich 
areas for Democrats, and the margins in the funded parts of the 
battleground States were always larger, often far larger, than the 
margin for the State as a whole. In Pennsylvania, Zuck Buck localities 
went for the Democratic presidential candidate by 692,000 votes, 
compared to the State's margin of 81,000; in Georgia, the difference 
was 604,000 to 12,000. Zuck Bucks, as one wit put it, were ``the real 
Kraken.''\54\
---------------------------------------------------------------------------
    \54\ J. Christian Adams, ``The Real Kraken: What Really Happened to 
Donald Trump in the 2020 Election,'' PJ Media, December 22, 2020, 
https://pjmedia.com/jchristianadams/2020/12/02/the-real-kraken-what-
really-happened-to-donald-trump-in-the-2020-election-n1185494. Other 
useful statistical analyses have been made by the Caesar Rodney at 
https://www.
rodneyinstitute.org/ and the Foundation for Government Accountability 
at https://thefga.org/election-integrity/.

    The simple way to understand Zuck Bucks is to imagine the reaction 
if the partisanship were reversed: picture the response to the news 
that Charles Koch had sent nearly a half-billion dollars to a (c)(3) 
staffed by alumni of a (c)(4) Karl Rove group like Crossroads GPS. The 
New York Times and CNN would report every unsavory detail with outrage, 
and Chairman Whitehouse would make an impassioned speech on the Senate 
floor to decry this abuse--and I would cheer him on. Because as I have 
testified to State legislatures, this kind of nonprofit abuse is a 
threat to both parties.\55\ And it opens the door to foreign election 
interference, because if Zuck Bucks are legitimate, then there's 
nothing to stop a Russian oligarch, or a Communist Chinese princeling, 
or an oil sheik from donating the same way, because (c)(3)s have no 
restrictions on foreign donations, nor any campaign finance limits.\56\ 
Surely all Americans can agree that letting billionaires privatize our 
elections using charitable organizations is wrong. No wonder 18 States 
have enacted restrictions on such funding. And if you doubt that 
funding's partisanship, consider that six gubernatorial vetoes have 
been issued on similar bills in other States, all by Democratic 
Governors.\57\
---------------------------------------------------------------------------
    \55\ For instance, my testimony before the Virginia Senate 
Committee on Privileges and Elections, January 25, 2022: https://
capitalresearch.org/app/uploads/Scott-Walter-Written-Testimony-to-VA-
Senate-Jan-25-2022.pdf.
    \56\ Parker Thayer, ``Zuckerberg's Election Meddling Could Be 
Emulated by Foreign Interests,'' Capital Research Center, November 23, 
2022, https://capitalresearch.org/article/zuckerbergs-election-
meddling-could-be-emulated-by-foreign-interests/.
    \57\ Sarah Lee and Hayden Ludwig, ``States Banning or Restricting 
`Zuck Bucks'--UPDATED 4/28/22,'' Capital Research Center, April 28, 
2022, https://capitalresearch.org/article/states-banning-zuck-bucks/.

    The growth of (c)(3) foundation grants to (c)(4) groups. While it 
is not in all cases illegal for a private foundation to give to a 
(c)(4) group, the high legal hurdles are serious enough that for many 
years, very little foundation money was risked in this way. This is 
certainly a more dubious type of grant than the more often discussed 
grants from foundations to donor-advised funds, and anyone who seeks 
less politicization of exempt organizations should resist this 
practice. The Atlantic Philanthropies, based in Bermuda, has spent 
itself out, but before the end it created politically active (c)(4)s 
like the Atlantic Advocacy Fund \58\ and the Civic Participation Action 
Fund,\59\ and it strongly encouraged other foundations to up their 
giving to (c)(4)s.
---------------------------------------------------------------------------
    \58\ See ``Atlantic Advocacy Fund--Influence Watch,'' Influence 
Watch, accessed April 29, 2022, https://www.influencewatch.org/non-
profit/atlantic-advocacy-fund/.
    \59\ See ``Civil Participation Action Fund--Influence Watch,'' 
Influence Watch, accessed April 29, 2022, https://
www.influencewatch.org/non-profit/civic-participation-action-fund/.

    Atlantic's own (c)(4) giving was utterly unrestrained, because its 
offshore base meant it never had to disclose its giving, nor was it 
bound by any U.S. restrictions on giving. And so it gave millions to 
Democratic-aligned PACs like Color of Change PAC and Immigrant Voters 
Win PAC, as well as super PACs like the League of Conservation Voters 
Victory Fund. Above all, Atlantic was the driving monetary force behind 
Health Care for America Now (HCAN), the (c)(4) umbrella group created 
to pass Obamacare. Atlantic supplied $27 million of HCAN's $60 million 
campaign, leading Atlantic's then-leader Gara LaMarche to brag that the 
bill's passage was ``the culmination of a campaign'' by Atlantic and 
its allies.\60\ Oddly, the usual opponents of ``dark money'' never seem 
to have complained about a ``dark money'' group funded largely by an 
offshore donor that did not have to file standard disclosures.
---------------------------------------------------------------------------
    \60\ Gara LaMarche, ``A Big Bet on Advocacy Helps to Make History 
on Health Care,'' The Atlantic Philanthropies, March 22, 2010, https://
www.atlanticphilanthropies.org/news/big-bet-advocacy-helps-make-
history-health-care.

    A related item: sometimes (c)(3) public charities make grants to 
(c)(4) ``dark money'' groups, which again is not simply illegal but 
should receive scrutiny. One fascinating recent example involves one of 
the chairman's favorite public charities, the Center for Media and 
Democracy (CMD) that supplies much of the material for his famous 
charts. In recent years, CMD was one of the largest donors to American 
Family Voices, a 501(c)(4) whose director, Lauren Windsor, helped the 
Lincoln Project fan the flames of racism and deceive voters in 
Virginia's 2021 gubernatorial contest, as I noted in The Wall Street 
Journal.\61\
---------------------------------------------------------------------------
    \61\ Scott Walter. ``Virginia's Dirty Trick, Dark Money and Senator 
Whitehouse: The senator should investigate his friends' dark financial 
ties to race-baiting election interference,'' Wall Street Journal, 
November 7, 2021, https://www.wsj.com/articles/virginia-dirty-trick-
lincoln-project-youngkin-tiki-torch-whitehouse-dark-money-
11636144990?page=1. See also https://www.
influencewatch.org/non-profit/american-family-voices/.

    Open Society funding in elections abroad. Leaked internal documents 
from the Open Society Foundations, headquartered in New York City, 
appear to show an intention from the top to deliberately alter election 
outcomes in other countries, particularly in the 2014 elections for the 
European Parliament and some national parliaments in Europe.\62\ In the 
early 2010s, OSF became increasingly worried that trends in Europe were 
creating a hostile environment for OSF. To counter and even reverse 
these trends, OSF adopted ``a two-level strategy to reduce the number 
of opponents of the open society who get elected.'' Open Society 
Initiative for Europe (OSIFE) distributed $5.7 million to organizations 
to ``to turn out the vote'' in sympathetic constituencies. Open Society 
European Policy Institute (OSEPI) was assigned to ``engage pan-European 
parties to influence their manifestos and campaigning tactics.''\63\ 
These efforts to achieve particular election outcomes appear hard to 
reconcile with U.S. tax law on nonprofits.
---------------------------------------------------------------------------
    \62\ Edited by Jon Rodeback, ``Mapping Soros's `Philanthropy' at 
Home and Abroad,'' Capital Research Center, November 2020, https://
capitalresearch.org/app/uploads/Mapping-Soros-Philanthropy.pdf.
    \63\ https://capitalresearch.org/app/uploads/OSEPI-strategy-2014-
2017-EU-advocacy.pdf.

    Possible Democracy Alliance ``coordination'' between types of 
groups not allowed to coordinate. The Committee on States is a partner 
organization to the Democracy Alliance, which is a collective of 
wealthy Democratic and left-wing individual and institutional donors. 
In a slide presentation at a 2014 Alliance meeting that The Free Beacon 
obtained, the committee staff ``noted that there is a `legal firewall' 
between, on the one side, nonpartisan 501(c)(3) groups and independent 
expenditure political groups, and, on the other, State political action 
committees, political parties, and campaign committees.'' But, The 
---------------------------------------------------------------------------
Beacon report continues,

        Subsequent slides explain how that firewall can be 
        circumvented, illustrated by arrows traversing the visual 
        ``firewall.'' Political ``investors'' can give to all 
        categories of groups, one slide notes. Another slide details 
        committee donors' roles as coordination, strategy, targeting, 
        and accountability. Political vendors operating as for-profit 
        corporations that focus on ``data, analytics, and research'' 
        can also work with all categories of groups, another slide 
        explains. A State Democratic Party cannot share information 
        with a super PAC operating there, for example, but a private 
        corporation that controls extensive voter data can work with 
        both. One such group, Catalist, is among the Democracy 
        Alliance's core network of supported groups. The company, a 
        limited liability corporation, is the data hub of the 
        Democratic Party, providing extensive voter information to 
        political groups, parties, and candidates, some of which are 
        legally prohibited from coordinating their efforts.\64\
---------------------------------------------------------------------------
    \64\ Lachlan Markay, ``Democracy Alliance State Spending Plans 
Revealed,'' Washington Free Beacon, November 12, 2014, https://
freebeacon.com/politics/democracy-alliance-state-spending-plans-
revealed/. Emphasis added.

    The slides indicating all these connections or ``coordination'' 
made by donor-
investors plus a Catalist-type LLC should generate considerable 
scrutiny. Surely a congressional committee interested in examining the 
political activities of tax-
---------------------------------------------------------------------------
exempt groups would want to learn more about these arrangements.

    Open Society coordination of voter registration/GOTV with other 
foundations. A January 2011 memo appeared in the DCLeaks archive that 
was addressed to George Soros; Sherilynn Ifill, the incoming head of 
his main (c)(3) foundation; and the rest of its board. The authors were 
Andy Stern, then-head of the politically powerful Service Employees 
International Union and the most frequent outside visitor to Barack 
Obama's West Wing, and Deepak Bhargava, head of the (c)(3) Center for 
Community Change.\65\ Entitled, ``New Thinking on 2012 Election and 
Beyond,'' and written at the very beginning of that election cycle, the 
memo stresses voter registration in ``OSF's priority constituencies,'' 
and ``focusing resources in cities and States where OSF issue 
priorities . . . will be on the ballot or featured prominently in 
public discourse.'' Another priority includes ``experimenting with more 
collaborative models for campaign communications.'' The memo urges $3.5 
million in funding to ``Win Pre-Determined Substantive Changes in Open 
Society Priorities that will be Resolved in 2012 City and State 
Elections,'' with a narrow focus on ``key places such as California, 
Maryland, Ohio, and Wisconsin.''
---------------------------------------------------------------------------
    \65\ For more on the Center, see ``Center for Community Change--
Influence Watch,'' Influence Watch, accessed April 29, 2022, https://
www.influencewatch.org/non-profit/center-for-community-change/.

    If anyone wonders whether Open Society and similar left-of-center 
funders collaborate on this kind of electoral work, the memo has a 
budget, ``Currently Projected Voter Engagement Funder Budgets for 
2012,'' which lists Ford at the most generous, with a hoped-for $20 
million; Open Society next at $16.3 million; Wellspring Advisors, $10 
million; Carnegie, $5.6 million; and nine more sources for a total 
desired budget of $84.4 million.\66\ Recall the Victory Lab observation 
in 2012 that Carnegie aimed at ``ginning up Democratic votes outside 
the campaign finance laws that applied to candidates, parties, and 
political action committees,''\67\ and consider whether this Open 
Society memo does not also deserve the interest of a committee 
concerned about political activities of exempt groups.
---------------------------------------------------------------------------
    \66\ For more on the memo, see Ken Braun, ``Big Left Foundations 
Fund Biased Barely-Legal Voter Programs,'' Capital Research Center, 
June 3, 2021, https://capitalresearch.org/article/big-left-foundations-
fund-biased-barely-legal-voter-programs/.
    \67\ Sasha Issenberg, The Victory Lab (New York: Crown Publishing, 
2013), 86. Emphasis added.
---------------------------------------------------------------------------
                               conclusion
    Political participation by Americans is a wonderful gift and to be 
encouraged, but it is best pursued in the traditional political avenues 
of campaigns, candidates, and parties, not the exempt sector, and 
especially not the charitable (c)(3) world. I urge you to protect 
America's civil society by protecting the charitable space under your 
oversight. Like Professor Philip Hackney, ``I believe deeply in the 
power of a fiercely independent and courageous civil society that 
empowers the voices of all in our communities.''\68\
---------------------------------------------------------------------------
    \68\ Philip Hackney, ``The 1969 Tax Reform Act and Charities: Fifty 
Years Later,'' Pittsburgh Tax Review, Volume 17 (2020): 245, https://
doi.org/10.5195/taxreview.2020.116.

    One way to do that is to refrain, on the political or FEC side of 
giving, from using campaign finance ``reform'' to throttle support for 
groups or interests. I heartily agree with Chairman Whitehouse in his 
2013 hearing when he praised a point made by Ranking Member Cruz and 
declared, ``I want the record of the hearing to reflect that I think we 
have agreement amongst everyone that it is never the government's 
position or proper role to determine based on the amount of influence 
that a political group or interest or individual has that they have too 
much. That is a role, I think, for the voters to determine.''\69\
---------------------------------------------------------------------------
    \69\ Transcript citation used above; p. 16.

                                 ______
                                 
           Questions Submitted for the Record to Scott Walter
                 Questions Submitted by Hon. John Thune
    Question. Can you explain your claim that 501(c)(4) organizations 
are not the most significant concern in regard to the political 
activity of tax-exempt organizations?

    Answer. Groups exempt under 501(c)(4) of the tax code, also known 
as ``social welfare'' organizations, receive attention from many 
politicians that is grossly disproportionate to their significance in 
American politics. These groups, many of which are well known to 
Americans, such as Planned Parenthood and the National Rifle 
Association, receive far less funding than is given either directly to 
political parties and campaigns--so-called ``hard'' dollar giving--or 
to 501(c)(3) groups that actively engage public policy. My colleagues 
at the Capital Research Center examined giving to all three of these 
``rivers'' of money influencing our politics in the 2018 election 
cycle. The 501(c)(4) river was more of a creek at roughly $123 million, 
compared to about $5 billion taken in by ``hard'' dollar political 
groups and about $20 billion raised by 501(c)(3) groups that engage 
political issues (think tanks, advocacy groups, and the like).\1\ This 
relative importance becomes even clearer when these numbers are 
represented graphically:
---------------------------------------------------------------------------
    \1\ Shane Devine and Michael Watson, ``Political and Policy-
Oriented Giving After Citizens United: An Update to CRC's 2017 
Analysis,'' December 17, 2020; https://capitalresearch.org/article/
political-and-policy-oriented-giving-after-citizens-united-an-update-
to-crcs-2017-analysis. Please note that our number for 501(c)(3) 
revenues covers only a fraction of the entire 501(c)(3) world, which 
also encompasses religious groups, the Salvation Army, Goodwill, etc.

[GRAPHIC] [TIFF OMITTED] T0422.003


    .epsIn addition to the very limited wealth of 501(c)(4) groups, 
there is also the fact that Americans have no trouble understanding 
many of those groups' political slant, whether it is support for 
abortion, or for Second Amendment rights, and so on. But few Americans 
have any idea of the extent of 501(c)(3) groups' subtle, often hidden 
work to influence who actually votes in elections. While some Senators 
known as ``dark money hawks'' complain that (c)(4) groups criticize 
them and their allies, the same politicians never mention how left-wing 
(c)(3) private foundations such as Ford and Open Society fund--and 
left-wing (c)(3) public charities such as the Voter Participation 
Center execute--voter registration and get-out-the-vote campaigns that 
actually drive election results, apparently flouting strict IRS rules 
that require (c)(3) groups never to intend, or even to ``have the 
effect'' of favoring a candidate or group of candidates.\2\
---------------------------------------------------------------------------
    \2\ https://www.irs.gov/charities-non-profits/charitable-
organizations/the-restriction-of-political-campaign-intervention-by-
section-501c3-tax-exempt-organizations.

    Compare the IRS's direct legal prohibition with this language, from 
a Democratic-aligned super PAC, which in 2020 wrote left-wing donors 
that in the 2020 election cycle, the ``single most effective tactic for 
ensuring Democratic victories--[is] 501(c)(3) voter registration 
focused on underrepresented groups in the electorate.'' The super PAC 
even explains the tax advantages: ``Well-designed'' (c)(3) voter 
registration is, on a pre-tax basis, ``2 to 5 times more cost-effective 
at netting additional Democratic votes than the tactics that campaigns 
will invest in. . . . Because 90 percent of the contributions we are 
recommending for voter registration and GOTV efforts will go to 
501(c)(3) organizations and hence are tax-deductible,'' after taxes, 
``such programs are closer to 4 to 10 times more cost-effective. . . . 
They are also eligible recipients of donations from donor-advised funds 
and private foundations.''\3\
---------------------------------------------------------------------------
    \3\ https://www.vox.com/recode/2020/1/7/21055340/mind-the-gap-
silicon-valley-donors-democrats-2020-plan-140-million.

    The 501(c)(3) group Voter Participation Center was one of this 
memo's three recommended recipients of dollars aimed at ``ensuring 
Democratic victories,'' which is no surprise, given that liberal 
reporter Sasha Issenberg in his well-received book The Victory Lab: The 
Secret Science of Winning Campaigns had already said the group (then 
operating under a different name) was a partisan operation despite 
legal prohibitions: ``Even though the group was officially nonpartisan, 
for tax purposes, there was no secret that the goal of all its efforts 
was to generate new votes for Democrats.''\4\
---------------------------------------------------------------------------
    \4\ Sasha Issenberg, The Victory Lab (New York: Crown Publishing, 
2013), 305.

    The same super PAC memo also urges mega-donors to direct cash to 
``Everybody Votes,'' which is an even larger 501(c)(3) operation that 
works to microtarget registration and get-out-the-vote aimed at 
``ensuring Democratic victories.'' Everybody Votes is a multiyear, 
$100+-million project, designed originally by Democratic party 
operatives and conducted via the almost-unknown 501(c)(3) Voter 
Registration Project. As the super PAC's secret memo explains to 
donors, ``Everybody Votes is a national organization that funds and 
trains a consortium of 50+ local community groups across the country 
that do the actual registration work,'' which means that dozens of 
other charities are involved in this scheme and deserve investigation 
for possible illegal partisanship.\5\
---------------------------------------------------------------------------
    \5\ For the details of Everybody Votes/Voter Registration Project, 
see https://www.influence
watch.org/non-profit/voter-registration-project/. 

    Of course, even these brazen efforts to use (c)(3) groups to 
influence elections pale in comparison to the so-called Zuck Bucks 
operation in 2020. That involved the family of Facebook/Meta 
billionaire Mark Zuckerberg, as well as the ``dark money'' empire 
connected to Arabella Advisors, passing hundreds of millions of dollars 
through two 501(c)(3) groups and into actual government election 
offices at the State and local levels. Capital Research Center has 
conducted extensive investigations into the way that this money had a 
disproportionately partisan effect in every battleground State. That 
partisan effect was to be expected, given that the leaders of those two 
(c)(3) groups have partisan backgrounds. One group's founder worked at 
People for the American Way, a 501(c)(4) notorious for creating the 
multimillion-dollar political battles over Supreme Court nominations in 
1987, when it spent millions on ads that smeared the Republican nominee 
Judge Robert Bork.\6\ The other group was founded by alumni from a 
501(c)(4) group described by The Washington Post as, ``The Democratic 
Party's Hogwarts for Digital Wizardry.''\7\
---------------------------------------------------------------------------
    \6\ See https://www.influencewatch.org/non-profit/center-for-
election-innovation-research/.
    \7\ https://www.washingtonpost.com/news/the-switch/wp/2014/07/08/
inside-the-democratic-partys-hogwarts-for-digital-wizardry/. For more 
information, see https://www.influencewatch.
org/non-profit/center-for-tech-and-civic-life/. 

    The abuses involved in Zuck Bucks have led 20 States, at this 
writing, to restrict such private funding of their election offices. 
Anyone who doubts the partisan nature of this problem can consider how 
another half-dozen States' legislatures have passed such restrictions, 
only to have them vetoed by governors--every one of whom is a member of 
one political party.\8\
---------------------------------------------------------------------------
    \8\ https://capitalresearch.org/article/states-banning-zuck-bucks/.

    In sum, the biggest offenses are committed by 501(c)(3) groups, not 
501(c)(4)s. I am honored to have appeared before this subcommittee, and 
I look forward to coming back whenever this much more critical concern 
---------------------------------------------------------------------------
is addressed.

    Question. You write in your prepared statement that Lois Lerner, a 
former IRS official that inappropriately targeted conservative Tea 
Party organizations for tax-exempt status, has received little 
accountability for her actions. She was held in contempt of Congress 
but never prosecuted by the Justice Department. There continues to be a 
deposition of Lerner in a lawsuit.

    Could you provide more detail about this lawsuit? What additional 
oversight and accountability should the U.S. Congress consider with 
respect to government employees that politically target taxpayers?

    Answer. The lawsuit I mentioned in my testimony involved multiple 
Tea Party groups suing IRS officials Lois Lerner and Holly Paz in the 
U.S. District Court for the Southern District of Ohio. As part of that 
lawsuit, Ms. Lerner was deposed by the groups' lawyer, Edward Greim, in 
2015. Lerner asked the court to keep her deposition sealed and secret. 
Greim and his clients have continued to ask that her deposition not be 
sealed, but for over 3 years the district court has refused even to 
rule on this request, so this April, Greim and his clients filed a 
petition for Writ of Mandamus with the Sixth Circuit Court of Appeals, 
in hopes of having their request ruled upon.\9\
---------------------------------------------------------------------------
    \9\ On Petition for Writ of Mandamus, Norcal Tea Party Patriots, et 
al. v. Lois Lerner, et al. (Case No. 22-3357, 6th Cir.), filed April 
19, 2022.

    The best answer to how to think about additional oversight and 
accountability Congress should consider with respect to government 
employees that politically target taxpayer comes in the testimony Mr. 
Greim gave to the Senate Judiciary Committee's Subcommittee on 
Oversight in 2015.\10\ A few highlights sketch the greatest dangers and 
promising avenues for improvement:
---------------------------------------------------------------------------
    \10\ https://www.judiciary.senate.gov/download/07-29-15-greim-
testimony.

        ``The IRS evidences a built-in distrust of conservative-
leaning organizations. Two key players, Lois Lerner and Stephen Seok, 
who was the third Tea Party Coordinator for the Cincinnati 
Determinations Unit, were explicit in their distrust of conservative 
groups.''
        ``The Service views itself as under attack, and a vicious 
cycle is developing in which the Service fails to cooperate in making 
key disclosures. When [the Treasury Department's Inspector General] 
began its audit, [IRS officials] Lois Lerner, Holly Paz, Judith 
Kindell, and others engaged in a concerted effort to shape the 
narrative and rewrite history.''
        ``We need to ensure that future targeting is discovered much 
earlier. Any centralization of tax exempt organization review, and any 
grouping of three or more cases for review or audit, should be reported 
to the targeted groups, the Commissioner, and to the House and Senate 
tax-writing committees. . . . The Service's report should include the 
criteria being used to group entities for review, the number of groups 
being targeted, and the reason for centralization.''
        ``Congress should make it crystal clear that Federal courts 
must be open to provide remedies to taxpayers who are harmed by any 
sort of viewpoint-based targeting. . . . If Congress is convinced that 
viewpoint-based targeting is wrong, it should define the wrongful 
conduct and provide a clear remedy, removing the task of policymaking 
from the judicial branch.''
        ``Section 6103 should explicitly allow for disclosure of 
return information in civil cases in ways that will allow for easier 
private enforcement of the statute. Where the return information, or 
any information about targeting, is directly relevant to an issue in 
the case, it should be disclosed.''

    Of course, as Mr. Greim concedes, his proposals are only the 
beginning of what is needed to address the IRS's conduct in the Tea 
Party case and several others--which would certainly include the more 
recent disclosure of private tax information to ProPublica.

    Question. According to an April 25, 2022 article in The Hill 
(``Watchdog group sues FEC over citizenship of liberal donor''), there 
is a pending lawsuit at the FEC regarding potential foreign 
interference in the tax-exempt sector.

    Could you provide more details about the lawsuit and the concerns 
raised?

    Answer. Our friends at Americans for Public Trust are the ones who 
filed the FEC lawsuit at issue. As they explain, in May 2021, the 
nonpartisan, nonprofit group Americans for Public Trust filed an FEC 
complaint alleging that Swiss-born foreign national billionaire Hansjg 
Wyss and the nonprofits he controls were directing money into U.S. 
elections via the Arabella Advisors network of nonprofits.

    More specifically, Mr. Wyss's contributions were being funneled by 
the Arabella network into a 501(c)(3) nonprofit that controlled a super 
PAC called Change Now, which funds political advertising against 
Republicans.\11\ Through his nonprofits--the Wyss Foundation, a 
501(c)(3), and the Berger Acton Fund, a 501(c)(4)--Mr. Wyss has 
contributed huge sums to the Arabella-managed nonprofits New Venture 
Fund and Sixteen Thirty Fund, which have then distributed these funds 
to left-wing political groups across the country. Simply stated, Mr. 
Wyss quite possibly has pumped hundreds of millions of dollars of 
foreign money into our elections via the Arabella network.
---------------------------------------------------------------------------
    \11\ https://www.influencewatch.org/political-party/change-now-
inc/.

    The Americans for Public Trust's complaint specifically requested 
an investigation by the FEC into violations of the prohibition against 
foreign nationals directly or indirectly making contributions or 
expenditures for the purpose of influencing Federal elections. 
Additionally, the complaint asked the FEC to investigate failures by 
the Wyss- and Arabella-connected nonprofits to register and file 
disclosures required for those making political expenditures in Federal 
---------------------------------------------------------------------------
elections.

    Additionally, since the time of the May 4th hearing, APT was able 
to attain information which further bolstered the FEC complaint; 
mainly, additional confirmation by Mr. Wyss's sister in a biography 
written about him that he is not in fact a U.S. citizen--something The 
New York Times and other media outlets have tried to have him confirm 
or deny, without success. As RealClearPolitics reported, ``. . . 
despite the hundreds of millions Wyss has spent bankrolling progressive 
advocacy groups and despite the undeniable heft Wyss throws around in 
the Democratic Party and its causes, one question has remained 
unanswered in the American press. Despite being a power player in U.S. 
politics for decades, it was unclear whether or not Wyss is a permanent 
resident in the United States or an American citizen . . . [a]ccording 
to a biography of Wyss, written by his sister Hedi Wyss, and reported 
first by RealClearPolitics, the answer is no.''\12\
---------------------------------------------------------------------------
    \12\ https://www.realclearpolitics.com/articles/2022/05/17/
swiss_billionaires_mega-influence_on_us_politics__147610.html.

    The sophisticated use of his nonprofits to circumvent U.S. laws 
prohibiting foreign nationals from directly or indirectly influencing 
our elections makes it all the more important for the FEC to initiate 
an investigation into Mr. Wyss's nonprofits, particularly in light of 
his sister's assertions that ``behind the scenes a Swiss plays an 
important part in American politics,'' and that ``[w]hat was important 
for him [Wyss] was to find out that he could exert influence through 
---------------------------------------------------------------------------
his foundations.''

    If the FEC fails to take substantive action on an administrative 
complaint within 120 days, the complainant may seek to compel the FEC 
to take action by filing a lawsuit in Federal court. The FEC's failure 
to take action on Americans for Public Trust's complaint within 120 
days explains why the organization has filed this lawsuit against the 
agency. If successful, the lawsuit would compel the FEC to conduct a 
full and thorough investigation into the extent that Mr. Wyss and the 
Arabella network of nonprofits have willfully engaged in the illegal 
foreign interference of U.S. elections via this liberal ``dark money'' 
machine.

                                 ______
                                 
              Questions Submitted by Hon. Elizabeth Warren
    Question. Your organization--the Capital Research Center (CRC)--has 
criticized the role of dark money on the left and opposed any and all 
IRS reporting requirements which would eliminate this problem.\13\ In 
your testimony before this subcommittee, you reiterated those 
views.\14\
---------------------------------------------------------------------------
    \13\ Capital Research Center, ``Senate to Consider Partisan Anti-
Speech Resolution,'' Michael Watson, December 12, 2018, https://
capitalresearch.org/article/senate-to-consider-partisan-anti-speech-
resolution/.
    \14\ Testimony of Scott Walter before the Senate Finance Committee, 
Subcommittee on Taxation and IRS Oversight, May 4, 2022, https://
www.finance.senate.gov/imo/media/doc/2022-05-
04_Smith%20Testimony_US%20Senate.pdf. 

    Is Capital Research Center a recipient of any dark money? If so, 
please provide information on the identity of your dark money donors, 
and the amount they have contributed in each of the last 5 calendar 
---------------------------------------------------------------------------
years.

    Answer. With all due respect, Senator Warren, your question is 
problematic for several reasons. You say my group ``has criticized the 
role of dark money on the left,'' but that criticism appears in neither 
of the two citations you give. The first citation is to an article of 
ours that opposes IRS reporting requirements for ``dark money'' groups, 
but the article does not criticize such giving by any part of the 
political spectrum. Your second citation is not to my own testimony but 
to Brad Smith's written testimony at this hearing, in which he does not 
criticize left-wing ``dark money.'' As for my testimony, written and 
oral, I defy you to quote a single instance of my criticizing ``the 
role of dark money on the left.'' Instead, I make several quite 
different points about ``dark money'':

    1.  I insist that 501(c)(4) groups--the nonprofit type most often 
called ``dark money''--are not very important or dangerous on either 
side (see also my response, above, to Senator Thune's first question in 
these questions for the record).
    2.  I note that numerous left-leaning outlets have criticized the 
role of ``dark money'' on the left, including OpenSecrets,\15\ The New 
York Times,\16\ Politico,\17\ The Washington Post,\18\ and The 
Atlantic,\19\ to name but a few. (I could have added the OpenSecrets 
report, ``Pro-Warren super PAC tops outside spenders--and Super Tuesday 
voters don't know its donors.''\20\)
---------------------------------------------------------------------------
    \15\ Anna Massoglia, `` `Dark money' networks high political 
agendas behind fake news sites,'' OpenSecrets, May 22, 2020, https://
www.opensecrets.org/news/2020/05/dark-money-networks-fake-news-sites/.
    \16\ https://www.nytimes.com/2021/04/13/business/media/wyss-
tribune-company-buyer.html and https://www.nytimes.com/2022/01/29/us/
politics/democrats-dark-money-donors.html.
    \17\ https://www.politico.com/news/2019/11/19/dark-money-democrats-
midterm071725.
    \18\ Editorial Board, ``Big campaign donors have exploited a 
loophole. Congress must change the law,'' Washington Post, November 21, 
2019, https://www.washingtonpost.com/opinions/big-campaign-donors-have-
exploited-a-loophole-congress-must-change-the-law/2019/11/21/ab31cf3a-
0bd6-11ea-bd9d-c628fd48b3a0_story.html.
    \19\ Emma Green, ``The Massive Progressive Dark-Money Group You've 
Never Heard Of,'' The Atlantic, November 2, 2021, https://
www.theatlantic.com/politics/archive/2021/11/arabella-advisors-money-
democrats/620553/.
    \20\ https://www.opensecrets.org/news/2020/03/warren-super-pac-st/.
---------------------------------------------------------------------------
    3.  While mocking the idea that 501(c)(4) funding is a serious 
problem, I observe that there is far more ``dark money'' on the left, a 
fact so obvious even The New York Times felt obliged to acknowledge it 
in a news report entitled, ``Democrats Decried Dark Money. Then They 
Won With It in 2020.''\21\ I defy you to cite any source that claims 
the left has had less ``dark money'' than the right in the 2018, 2020, 
and 2022 election cycles, and I ask why, if you truly believe this 
money harms America, you aren't demanding your party stop taking it at 
three-and-a-half times the rate of the other side?\22\
---------------------------------------------------------------------------
    \21\ Kenneth P. Vogel and Shane Goldmacher, ``Democrats Decried 
Dark Money. Then They Won With It in 2020,'' New York Times, January 
29, 2022, https://www.nytimes.com/2022/01/29/us/politics/democrats-
dark-money-donors.html.
    \22\ The multiple comes from OpenSecrets' calculation for the 2020 
election cycle. See https://www.opensecrets.org/outsidespending/
summ.php?cycle=2020&disp=O&type=U&chrt=P.
---------------------------------------------------------------------------
    4.  I defended Chairman Whitehouse by insisting that, although he, 
like yourself, is a recipient of considerable ``dark money'' funding, 
``I don't think'' a penny of it has ``captured'' him.\23\
---------------------------------------------------------------------------
    \23\ Oral testimony, available at https://capitalresearch.org/
article/scott-walter-testifies-to-a-senate-finance-subcommittee-on-the-
political-activities-of-tax-exempt-entities/.

    Your question also displays one of the largest challenges posed by 
the phrase ``dark money,'' namely, that there is no clear definition of 
it. Because of the way politicians like you and Chairman Whitehouse use 
the term, with no legal precision but only as an insult, I testified to 
Senator Whitehouse last year in the Judiciary Committee that perhaps 
the best definition is, ``support for speech the left wants to 
silence.''\24\
---------------------------------------------------------------------------
    \24\ https://www.judiciary.senate.gov/download/scott-walter-
testimony.

    In the same testimony, I noted that Chairman Whitehouse and some 
colleagues had just published a report, ``Captured Courts,'' that had 
no fewer than 18 uses of this term, yet never gave a legal definition 
of it. Is it money in 501(c)(3) nonprofits? in (c)(4) nonprofits? 
(c)(6)s? in donor-advised funds? All these and more meet the report's 
sole criterion of ``funding for organizations and political activities 
that cannot be traced to actual donors.''\25\
---------------------------------------------------------------------------
    \25\ Senators Stabenow, Schumer, and Whitehouse, ``Captured Courts: 
The GOP's Big Money Assault on the Constitution, Our Independent 
Judiciary, and the Rule of Law'' (Washington: Democratic Policy and 
Communications Committee, 2020).

    In this current hearing, held in the subcommittee responsible for 
oversight of the IRS, one would expect you and Chairman Whitehouse to 
give a clear definition of ``dark money'' with references to the 
relevant sections of the tax code--if, in fact, you were raising the 
issue in good faith, rather than invoking it as a vague insult that 
drives attention away from the substance of public policy debates like, 
---------------------------------------------------------------------------
say, the proper judicial philosophy for a judge.

    As for the question you raise on efforts to have government force 
the disclosure of nonprofit donors, you are correct that the Capital 
Research Center has criticized those efforts, and I would add that the 
U.S. Supreme Court has recently affirmed in Americans for Prosperity v. 
Bonta that California's donor disclosure requirement burdened donors' 
First Amendment rights without being narrowly tailored to an important 
government interest.\26\ As your fellow advocates for such disclosure 
have made clear,\27\ they believe donor disclosure will harm both the 
donors and the grantees forced to disclose--a fact that reveals the 
central disagreement over forced government disclosure: As a defender 
of citizens' privacy, I do not wish to harm donors and groups I 
disagree with, and I respectfully urge you and Chairman Whitehouse to 
end your campaign to harm donors and groups you disagree with.
---------------------------------------------------------------------------
    \26\ https://www.supremecourt.gov/opinions/20pdf/19-251_p86b.pdf.
    \27\ See Scott Walter, Testimony before the U.S. Senate Finance 
Committee Subcommittee on Taxation and IRS Oversight, Hearing on ``Laws 
and Enforcement Governing the Political Activities of Tax Exempt 
Entities,'' May 4, 2022,'' p. 11; available at https://
capitalresearch.org/app/uploads/2022-May-4-Testimony-Finance-Subcom-
IRS.pdf.

    This problem--your and others' desire to squelch speech and 
intimidate donors--brings us to your final questions: whether Capital 
Research Center has received any ``dark money'' and if so, from whom 
and in what amounts. In addition to the issue that you have failed to 
define your central term, there is also the fact that Capital Research 
Center will not violate our donors' privacy. This, too, was made clear 
in my written testimony to you and the committee: ``The practical 
reason for opposing disclosure arises from the very real threats, felt 
across the political spectrum, of mob harassment and worse. And, Mr. 
Chairman, just as your side has more groups, active for more years, and 
possessed of far more `dark money,' so does your side have more mobs.'' 
I prefer to ``stand with the NAACP of Bull Connor's Alabama, and with 
the NAACP of today, and with the ACLU and the Human Rights Campaign, in 
opposition to government schemes to force private citizens to disclose 
their donations.''\28\
---------------------------------------------------------------------------
    \28\ Ibid., pp. 11-12.

    But let me thank you, Senator Warren, for honoring me with two 
questions. I was disappointed that neither you, nor Chairman 
Whitehouse, nor any other member of your party asked me a single 
question at the hearing itself, where we could have had a respectful 
public dialogue. The failure to engage in such dialogue is but another 
reason to conclude that you invoke the bogeyman of ``dark money'' to 
prevent substantive exchanges in public. I note that the ranking 
---------------------------------------------------------------------------
member, by contrast, asked questions of both parties' witnesses.

    Question. CRC has denied the existence of climate change and 
praised the oil industry as one of ``American's most generous 
industries.''\29\
---------------------------------------------------------------------------
    \29\ Capital Research Center, ``Your own lyin' eyes,'' Steven J. 
Allen, December 8, 2014, https://web.archive.org/web/20150206074928/
http:/capitalresearch.org/2014/12/your-own-lyin-eyes/; Capital Research 
Service, ``No Philanthropy without Capitalism,'' Dan Popeo, December 
14, 2011.

    Has CRC received funding from any fossil fuel company in any of the 
last 5 years? If so, please provide the name of the company, the amount 
---------------------------------------------------------------------------
provided to CRC, and the terms and conditions of these contributions.

    Answer. Respectfully, the footnote you provided to assert your 
first claim is perplexing. The first of the two articles it cites is an 
article by Dr. Steven Allen involving deception in politics and policy 
that barely references climate issues, and the second, incomplete 
citation is to something called ``Capital Research Service'' by an 
author who died a decade ago.

    If you care to read an article by Dr. Allen that deals extensively 
with the science of climate issues, there are many better ones to 
choose from.\30\ We also have articles that document the connections 
between strains of environmentalism and eugenics, which were supported 
by philanthropies funded by Rockefellers, Carnegies, Kelloggs, and 
others.\31\ But while our researchers express their opinions on many 
matters, including climate science, Capital Research Center as an 
organization takes no position on climate change.
---------------------------------------------------------------------------
    \30\ For example, this one on the abuse of graphs (https://
capitalresearch.org/article/scales-over-our-eyes-using-graphs-to-
frighten-people-about-global-warming/) and another cataloguing the 
predictions in The New York Times, Harper's, and other outlets of 
climate apocalypses, both warming and cooling, in the 1890s, the 1930s, 
the 1950s, the 1970s, and more recently (https://capitalresearch.org/
article/in-1895-climate-alarmists-warned-about-global-freezing-they-
havent-stopped-scaring-people-since/).
    \31\ https://capitalresearch.org/article/a-darker-shade-of-green-
environmentalisms-origins-in-eugenics/.

    As for your question on whether ``fossil fuel'' companies have 
supported us in the last 5 years, we will not, of course, as explained 
in the previous question, violate our donors' privacy, guaranteed by 
NAACP v. Alabama. But knowing that you, Chairman Whitehouse, and others 
often use a group's donors to dismiss your responsibility to address 
the substance of your opponents' views, I had our development staff 
analyze our donations in recent years. They found donations from 
corporations made up only a few percent of our revenues, and the 
---------------------------------------------------------------------------
corporations represented were small to medium-sized.

    In addition, while we do not violate our donors' privacy, those 
donors have the right to choose to disclose their donations publicly. 
One major corporation, ExxonMobil, did so in 2008 at the behest of its 
CEO, Rex Tillerson, the future Secretary of Energy under President 
Donald Trump.\32\ At that point, a decade and a half ago, ExxonMobil 
announced it would no longer fund Capital Research Center. Please note 
that this funding change made no difference whatsoever in our research 
or views.

    \32\ https://www.csmonitor.com/Environment/Bright-Green/2008/0529/
exxonmobil-cuts-off-funding-to-some-climate-deniers.

Addditional links:
    https://docs.google.com/
viewer?url=https%3A%2F%2Fcapitalresearch.org%2Fapp
%2Fuploads%2FWalter-S-Testimony-for-IRS-Hearing-on-Schedule-B-
Disclosure.pdf.

    https://capitalresearch.org/article/the-lefts-secret-science-part-
1/.

                                 ______
                                 
            Prepared Statement of Hon. Sheldon Whitehouse, 
                    a U.S. Senator From Rhode Island
    Twelve years ago, the Supreme Court rested its decision in Citizens 
United on the false predicate that ``effective disclosure'' would let 
voters know who was speaking to them, and dispel corruption. Instead, a 
torrent of dark money--a ``tsunami of slime''--washed into our 
politics. Special interests began to rig our elections from behind a 
veil of organizations formed under section 501(c)(4) of the Internal 
Revenue Code. Unlike most groups spending money in elections, 501(c)(4) 
organizations aren't required to disclose their donors.

    The statute governing these organizations states they must be 
``operated exclusively for the promotion of social welfare.'' But the 
IRS muddied the waters with a regulation that allowed social welfare 
organizations to devote up to 49.9 percent of their spending to 
political activities and still qualify for 501(c)(4) status. 
Predictably, these organizations became conduits for secret political 
spending. In the decade preceding Citizens United, 501(c)(4) 
organizations spent $103 million on political expenditures; in the 
decade following it, they spent over $1 billion. It was a hell of a 
tsunami.

    The dark money flowing through 501(c)(4)s got darker over the 
years. As soon as the IRS sought to review the explosion of these 
political groups after Citizens United, dark-money interests whipped up 
a scandal claiming the IRS was unfairly targeting conservative groups 
for scrutiny. Let me set the record straight--this is false. An 
exhaustive 2017 report from the Treasury Inspector General for Tax 
Administration, or TIGTA, found no such unfair targeting of 
conservative groups, as did a bipartisan investigation from this very 
committee.

    Still, the damage was done. The fake scandal cowed the IRS, and an 
appropriations rider in place since 2015 has blocked the IRS from 
promulgating regulations to clarify political rules for 501(c)(4) 
organizations. This means groups flout limits on political activity 
with little risk to their tax-exempt, anonymized status.

    As early as 2012, a ProPublica investigation found that roughly 3 
in 10 of the 501(c)(4) organizations surveyed reported to the FEC that 
they had spent money on electioneering, but reported to the IRS they 
spent no money to influence elections either directly or indirectly. 
It's hard to see how both statements could be true.

    A report out last week from the Citizens for Responsibility and 
Ethics in Washington describes several recent examples of this problem. 
Take the NRA. Per CREW:

        Between 2008 and 2013, the NRA reported to the FEC that it 
        spent nearly $11 million in independent expenditures [from its 
        501(c)(4)]. In 2012, it reported making $7,448,385 in 
        independent expenditures, more than half of which were spent 
        opposing Barack Obama or supporting Mitt Romney in that year's 
        presidential race. . . .

        Remarkably, the NRA told the IRS under penalty of perjury that 
        it spent absolutely nothing on political campaign activities 
        between 2008 and 2013. Nor did it file a Schedule C disclosing 
        details of its political spending.

    Despite this open and notorious predication for investigation into 
whether there were false statements made, there's no sign that the IRS 
is doing much to enforce its existing rules. A 2018 TIGTA report 
estimated that over 1,000 cases of impermissible political activity by 
501(c)(4)s weren't even forwarded to the agency's committee tasked with 
recommending audits, despite meeting the IRS's own criteria. According 
to a 2020 GAO review, the IRS between 2010 and 2017 conducted only 226 
examinations involving impermissible political campaign intervention. 
Of those, only 6 percent--a total of 14 examinations--involved 
501(c)(4)s. That's fewer than two per year, in the middle of the dark-
money tsunami.

    We can't tolerate a system that lets 501(c)(4) groups operate 
without oversight--not when they spend tens, even hundreds, of millions 
of dollars per election cycle without disclosing their donors. Citizens 
are denied that most basic right to know what is going on around them 
in their democracy.

    First, we should free the IRS to promulgate clear rules for 
501(c)(4) organizations. Second, the IRS should use the tools and 
resources it already has to crack down on blatant abuse. Lax 
enforcement sends a message that the rules don't matter. Third, 
referrals need to be made of likely false statements, so that the right 
officials in law enforcement can investigate. We are aware of no 
referrals at all to DOJ, despite years of CREW, ProPublica, and press 
reporting.

    I hope my colleagues will join me in untying the IRS's hands and 
providing it the tools and resources to enforce its most basic rules. 
The premise of transparency in Citizens United has been violated for 
far too long.

                                 ______
                                 

                             Communications

                              ----------                              


                           Arabella Advisors
May 17, 2022

The Honorable Sheldon Whitehouse
Chair
U.S. Senate
Subcommittee on Taxation and IRS Oversight
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

The Honorable John Thune
Ranking Member
U.S. Senate
Subcommittee on Taxation and IRS Oversight
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Senators Whitehouse and Thune,

In recent months, a select group of partisans have sought to 
mischaracterize my firm's work in an attempt to score political points 
at our expense. This happened during the Senate Judiciary Committee's 
hearings to consider Justice Ketanji Brown Jackson's nomination to the 
Supreme Court of the United States, and it happened again last week 
when a witness in front of your Subcommittee frequently disparaged our 
firm in his opening remarks that were submitted for the record. I write 
today to once again clear up misconceptions about Arabella Advisors 
with the hopes that the subcommittee will enter this letter into the 
record to prevent false information from standing uncontested.

Arabella Advisors is a business dedicated to making philanthropic work 
more efficient, effective, and equitable. Along with our clients, we 
are working to build a better future--one with healthy air, water, and 
food for all, with strong democracies and engaged citizens, with 
flourishing communities, expanded opportunity and enhanced equity, and 
without racism. As we noted in our 2020 impact report, we help our 
clients by sharing our expertise and experience, which includes 
providing outsourced operational support to nonprofit organizations.

We are proud to be a certified B Corporation, a Great Place to Work, a 
member of the Inc. 5000, and a two-time winner of Entrepreneur 
Magazine's ``Best Entrepreneurial Companies'' award. We are not a 
political organization. We are, however, a company that aims to live 
our values, which include a commitment to strengthening our 
communities, working toward a more equitable future, protecting our 
planet, and more. We accept that, in the highly polarized world in 
which we currently live, others may see these values as inherently 
partisan. They are nevertheless our values, and we therefore put them 
first.

After more than 16 years, we have become experts in the nuts and bolts 
of philanthropic work. From providing operations, human resources, 
legal, and compliance advice to nonprofits to helping individuals, 
families, and companies understand their impact investing options, 
effective philanthropy is what we do.

We are proud to count a variety of nonprofit organizations that provide 
fiscal sponsorship among our clients. Crucially, Arabella works for 
these fiscal-sponsor clients, not the other way around. These nonprofit 
organizations are independent of us, have their own leadership, and 
make their own decisions on their strategies and programmatic work. We 
provide operational and administrative support and help ensure that 
philanthropic efforts comply with IRS regulations and that grant 
dollars are used appropriately and well in pursuit of impact goals.

Unfortunately, many people have been led to fundamentally misunderstand 
who we are and what we do. We are not a ``dark money'' organization, 
rather we are a company that works for a variety of clients including 
foundations and nonprofit organizations. The phrase ``dark money'' 
generally refers to a class of nonprofits that engage in certain types 
of programmatic activities and how these nonprofits are (and are not) 
required to disclose their donors. Arabella Advisors is not a 
nonprofit; to suggest that we are is inaccurate and demonstrates a lack 
of understanding of the work we do.

We do not work with Demand Justice, a nonprofit focused on federal 
courts. Arabella Advisors has never donated to any candidates for 
federal office; as a corporation, that would be illegal. We have also 
never lobbied Congress on legislation. And lastly, we do not control a 
network of organizations as one of your witnesses repeatedly suggested. 
As we have stated repeatedly, publicly, and previously in this letter, 
we work for our clients, not the other way around. We are a firm that 
acts as a service provider to clients. To suggest otherwise is simply 
false. These facts are indisputable, which is why one partisan group 
mischaracterizing our work was forced to change the content of one of 
their attacks. Our opponents understand this to be true as well. But 
despite that, select partisans continue to make false statements about 
our firm and our work.

We are immensely proud of the work we do to support our clients and, as 
a company, to live our values. But we also recognize that as a private 
company, we have a responsibility to protect our brand, our clients, 
and our employees from misleading attacks that stem from partisan 
motives. That means correcting the record with facts about our firm and 
our work, and we will continue to do so. We hope that this letter will 
help us achieve that goal.

Sincerely,

Rick Cruz
President

                                 ______
                                 
                         Campaign Legal Center

                      1101 14th St., NW, Suite 400

                          Washington, DC 20005

                           campaignlegal.org

Dear Chair Whitehouse, Ranking Member Thune, Chair Wyden, and Ranking 
Member Crapo:

Thank you for the opportunity to submit this statement to the Senate 
Finance Subcommittee on Taxation and IRS Oversight regarding the 
crucial importance of transparency about who is spending money to 
influence our elections. The Subcommittee's hearing on ``Laws and 
Enforcement Governing the Political Activities of Tax-Exempt Entities'' 
is crucial and timely.

Campaign Legal Center (``CLC'') is a nonpartisan, nonprofit 
organization dedicated to defending and strengthening American 
democracy through law. CLC's Federal Reform team works to uncover 
campaign finance violations, file complaints seeking administrative 
enforcement, and advocate for reforms to strengthen and ensure the 
consistent and robust enforcement of campaign finance laws.

Voters have a fundamental right to know who is spending money to 
influence our elections. Indeed, transparency about the true sources of 
election spending is essential to the right of self-government and 
necessary to hold officeholders accountable to the public, both of 
which are core First Amendment values. Untraced political spending 
undermines these values. Voters' right to meaningfully participate in 
the democratic process is impeded without information about who 
financially supports which candidates and positions. Disclosure of the 
true sources of election spending is also essential to securing 
elections against corruption and foreign interference.

For years, the Federal Election Commission (``FEC'')--the federal 
agency responsible for enforcing federal campaign finance laws and 
ensuring that voters are informed about the true sources of election 
spending--has been failing to protect voters' fundamental right to 
transparent campaigns. The Internal Revenue Service's (``IRS'') total 
failure to police the abuse of federal nonprofit rules is exacerbating 
the problem.

Specifically, these federal regulators routinely permit groups engaged 
in extraordinary levels of political campaign activity to operate as 
501(c)(4) ``social welfare'' nonprofits and withhold basic information 
about the donors financing their political campaign activity. Congress 
should enact legislative reforms to stop this unaccountable and 
untraceable political campaign spending.

Organizations that are exempt from taxation under Section 501(c)(4) of 
the federal tax code are not required to disclose their donors, even if 
they engage in campaign activity, including spending on communications 
that explicitly urge voters to support or oppose a specific candidate. 
These groups may also give millions of dollars to support the 
activities of independent-expenditure-only committees--commonly 
referred to as ``super PACs''--which can receive unlimited 
contributions, including funds from corporations and wealthy special 
interests, to buy communications expressly advocating for or against 
candidates, so long as their activities are not coordinated with any 
candidate or political party.

While super PACs--like all political committees--must identify their 
contributors in publicly available disclosure reports, 501(c)(4) groups 
do not have a similar legal obligation, making them an ideal conduit 
for political spending by corporations and wealthy special interests 
who seek to keep their identities concealed. As such, these nonprofit 
groups have become an increasingly common front for secret political 
spending, or what commentators often refer to as ``dark money.''

Guidance from the IRS indicates that political campaign activity cannot 
be a 501(c)(4) organization's ``primary activity,'' but the agency does 
not enforce that restriction. After careful review, we could find no 
example in recent memory of a 501(c)(4) organization losing its federal 
tax-exempt status based on its political campaign activity, despite 
ample evidence of such activity. Consequently, these groups are able to 
benefit from 501(c)(4) tax-exempt status while engaging in massive 
amounts of political campaign activity with impunity, secure in the 
knowledge that their tax-exempt status will not be challenged and their 
undisclosed donors will remain secret.

At the same time, the FEC, whose sole mission is interpreting and 
enforcing federal campaign finance laws, has consistently failed to 
enforce the rules requiring groups whose ``major purpose'' is 
nominating or electing federal candidates to register and report as 
political committees, or ``PACs.'' Under the Federal Election Campaign 
Act (``FECA'') and the U.S. Supreme Court's 1976 decision in Buckley v. 
Valeo, any group that raises or spends more than $1,000 on elections in 
a calendar year and has the ``major purpose'' of nominating or electing 
federal candidates must register with the FEC as a political committee, 
maintain records, and file periodic disclosure reports detailing their 
receipts and disbursements.

The FEC, however, has virtually ceased enforcing these legal 
requirements. As has been well documented, the FEC is deeply hampered 
by ideological division and the agency routinely deadlocks when faced 
with allegations that a 501(c)(4) group is breaking the law by failing 
to register and report as a political committee, regardless of how many 
millions of dollars that group may have spent to influence elections.

The upshot of these administrative failures is an extraordinary and 
unrelenting increase in secret spending on our elections. Because 
501(c)(4) organizations do not disclose their donors--a fact well known 
to wealthy special interests seeking to conceal their identities--the 
increase in 501(c)(4) political activity has routinely deprived voters 
of the essential information needed ``to make informed decisions and 
give proper weight to different speakers and messages,'' as Justice 
Kennedy wrote for the U.S. Supreme Court in Citizens United v. FEC. In 
fact, the Court's support for political disclosure has been strong 
across the ideological spectrum, and it has repeatedly rejected First 
Amendment challenges to laws requiring disclosure of the sources of 
election-related spending.

Yet the problem persists, and a few examples help illustrate the 
situation. The 501(c)(4) organization One Nation disclosed that in 2020 
alone, it had raised $172 million and spent $195 million. An enormous 
amount of its spending was on political campaign activity--e.g., it 
contributed more than $77 million to Senate Leadership Fund, a super 
PAC also run by One Nation's president. Likewise, Majority Forward is a 
501(c)(4) organization that has spent tens of millions of dollars in 
every recent election. It shares staff, including its president, with 
Senate Majority PAC, a super PAC to which Majority Forward contributed 
$14.6 million in 2021. These are not isolated examples. Numerous 
501(c)(4) groups have similarly directed vast amounts on election 
spending while evading oversight and accountability.

CLC has not stood idly by. We have filed numerous FEC complaints on 
this issue, and when the FEC fails to act, we have sought federal court 
orders requiring the FEC to enforce the law or authorizing us to 
directly pursue enforcement against the violators. Most recently, CLC 
filed suit against 45Committee, a 501(c)(4) organization that hid its 
donors while spending as much as $38 million in 2016 to help elect 
former President Donald Trump. CLC's suit alleges that 45Committee 
failed to register as a political committee as required by federal law, 
thereby avoiding disclosure of its donors and spending. By enforcing 
campaign finance law against this secret money group, CLC seeks to 
ensure that the public has the critical information it needs to 
evaluate who is influencing elections. However, voters should not need 
to rely on lawsuits from organizations like CLC to fill the void of 
inaction left by the FEC and IRS.

Congress can improve the dire current state of affairs by addressing 
loopholes that allow 501(c)(4) groups to spend millions on elections 
without disclosing the true sources of that money, and by removing the 
appropriations rider that curtails the IRS's ability to issue 
meaningful guidance on, and enforce, the rules governing nonprofit 
political campaign activity.

Dark money funneled into our elections through 501(c)(4) groups poses a 
serious and ongoing threat to the bedrock principle of electoral 
transparency. We urge Congress to respond accordingly by taking the 
necessary steps to end secret spending in our elections.

Respectfully submitted,

 --Adav Noti
Vice President and Legal Director

                                 ______
                                 
                              Common Cause

                  805 Fifteenth Street, NW, Suite 800

                          Washington, DC 20005

                              202-833-1200

                          www.commoncause.org

   Statement of Beth Rotman, Director of Money in Politics and Ethics

Chairman Whitehouse and distinguished members of the Committee, thank 
you for the opportunity to submit written testimony. Prior to joining 
Common Cause, I served the public in leadership roles at nonpartisan 
governmental oversight agencies--one at the state level and one at the 
municipal level. I was the Director of the Citizens' Election Program 
for the State Elections Enforcement Commission in Connecticut, and the 
Deputy General Counsel of the New York City Campaign Finance Board.

Common Cause is a nonpartisan, nonprofit citizen lobby that works to 
improve the way government operates for all of us. Common Cause has 
more than 1.5 million members around the country who are committed to 
open and accountable government that serves the public. Common Cause 
advocates at the federal, state and local level for meaningful 
disclosure and real transparency in our elections as key means to 
increased government accountability and reducing the undue influence of 
ultra-wealthy special interests in our politics.

Americans deserve to know who is trying to influence their voices and 
their votes. Disclosure allows voters to evaluate the strength, content 
and agenda of political messages, and is a crucial tool for holding 
people accountable to the voters. In Citizens United v. FEC, the 
Supreme Court reaffirmed the importance of disclosure of political 
spending, ruling 8-1 that transparency in political spending empowers 
the electorate with the tools needed to make informed decisions about 
speakers and messages.\1\
---------------------------------------------------------------------------
    \1\ 558 U.S. 310, 371 (2010).

Nonetheless, the system is not transparent due to outdated disclosure 
laws in the wake of Citizens United (and the Republican filibusters of 
the DISCLOSE Act), and the failure of both the Federal Election 
Commission and the Internal Revenue Service to enforce existing laws, 
however incomplete, against apparent bad actors. Secret money spending 
by outside groups since Citizens United has exceeded $1 billion dollars 
in federal elections and the spending race continues. Unfortunately for 
the American public, a lot has had to go wrong to make it possible for 
---------------------------------------------------------------------------
them to be so completely in the dark about so much political spending.

First, one of the basic statutory principles of campaign finance law 
found in the federal statute and mirrored in almost every state 
requires the formation of a ``political committee'' once any 
organization receives contributions or makes expenditures in excess of 
$1,000 in a year and whose major purpose is to influence the covered 
election. 52 U.S.C. Sec. 30101. The FEC has failed to enforce this 
basic tenet of campaign finance law due to deadlocked votes engineered 
by some of its commissioners' ideological opposition to the law, which 
has allowed these organizations to spend huge sums without registering 
and complying with this fundamental rule applicable to political 
actors.

This deadlock could be partially ameliorated by strict enforcement by 
the IRS fulfilling its own mandate and enforcing the laws governing 
nonprofit political spending. Congress never intended for social 
welfare organizations to exist as conduits for secret political 
spending. In exchange for a tax exemption, these nonprofits are 
required to engage exclusively for social welfare, which the IRS has 
said does not include political campaign intervention.\2\ The IRS 
regulations muddied the waters with a primary purpose analysis that is 
inconsistent with the exclusivity requirement of the Internal Revenue 
Code.\3\
---------------------------------------------------------------------------
    \2\ 26 U.S.C. Sec. 501 (c)(4); Treas. Reg. Sec. 1.501(c)(4)-
(1)(a)(2)(ii).
    \3\ Treas. Reg. Sec. 1.501(c)(4)-(1)(a)(2)(i).

The use of 501(c)(4) social welfare organization status by 
organizations spending unlimited money in secret should face aggressive 
enforcement by the IRS. This is not happening. Because it is well known 
that this is not and has not been happening, partisan political 
operatives on the right and the left have excelled at establishing 
phony social welfare organizations that collectively pump hundreds of 
millions of dollars from secret sources into our elections. Rather than 
carry out their election-related spending through tax-exempt 
organizations which requires donor disclosure pursuant to Section 527, 
major political groups continue to masquerade as social welfare 
nonprofits under Section 501(c)(4) because they want to keep their 
---------------------------------------------------------------------------
donors anonymous.

This long-running scandal is no secret and it is time for the IRS to 
rethink its priorities to stop the continued misuse of social welfare 
organizations. This includes updating its outdated regulations that 
were written long before the Supreme Court changed campaign finance 
jurisprudence in Citizens United and subsequent decisions. It is true 
that Congress, through appropriations riders in recent years, has 
prevented the Treasury Department and IRS from setting clearer 
definitions and updating its regulations.

But it still falls squarely within the IRS's authority to enforce the 
existing laws governing nonprofit political spending. Should the IRS 
continue to fail to enforce against these bad actors, they are enabling 
tax fraud by some of the biggest political spenders meanwhile allowing 
them to remain anonymous to the public as to their funding sources. The 
IRS must stop looking the other way and require the overtly political 
groups masquerading as social welfare nonprofits under Section 
501(c)(4) to carry out their election related spending through tax-
exempt organizations in accordance with Section 527.

Political operatives should not be able to circumvent the 
constitutionally sound bedrock policy of disclosure by circumventing 
inconsistent enforcement and vague regulations governing organizations 
that Congress never intended would engage in 
election-related spending. This ongoing scandal threatens the integrity 
of our elections and undermines confidence in our democracy.

                                 ______
                                 
                         Council on Foundations

                    1255 23rd Street, NW, Suite 200

                          Washington, DC 20037

                              202-991-2225

                            https://cof.org/

Chairman Whitehouse, Ranking Member Thune, and members of the 
Subcommittee, thank you for the opportunity to provide a statement for 
the record.

The Council on Foundations is a nonprofit leadership organization of 
more than 800 grantmaking foundations and corporations. We work to 
build trust in philanthropy, expand pathways to giving, engage broader 
perspectives, and help create solutions that will lead to a better 
future for all.

The philanthropic and nonprofit sectors are an essential component of 
American society: charitable giving reached a record $471 billion in 
2020,\1\ and the United States is consistently named \2\ the most 
charitable country in the world. Each year, philanthropy invests tens 
of billions of dollars in community organizations throughout the US and 
around the world to advance the greater good.
---------------------------------------------------------------------------
    \1\ https://philanthropynetwork.org/news/giving-usa-2021-year-
unprecedented-events-and-challenges-charitable-giving-reached-record-
47144.
    \2\ https://www.cafonline.org/docs/default-source/about-us-
publications/caf_wgi_10th_edition_
report_2712a_web_101019.pdf.

Foundation leaders from across the country have long supported efforts 
to expand civic engagement. This commitment to our democracy has 
ensured nonprofits working in communities, including marginalized or 
underrepresented communities, have the resources they need to improve 
voter education, promote voter engagement, and increase voter 
---------------------------------------------------------------------------
participation.

Federal law already prohibits 501(c)(3) organizations from engaging in 
any political campaign activity, including endorsing specific 
candidates or political parties. Known as the Johnson Amendment, this 
protection ensures that philanthropy can support the critical programs, 
services, infrastructure, and other investments communities need to 
ensure a healthy democracy without having any involvement with partisan 
electioneering. The Council strongly supports the Johnson Amendment and 
urges this Committee to maintain this critical protection for the 
charitable sector.

While many foundations and other nonprofits are leading nonpartisan 
voter engagement efforts in the communities they serve, fear and 
confusion within the sector have caused some organizations to refuse to 
take part in any civic engagement. This is unfortunate particularly 
because nonprofit voter engagement can increase voter participation, an 
essential activity at a time when there is relatively low voter turnout 
in the US compared to other developed countries. At the Council, we 
work to educate our members and the broader philanthropic sector 
regarding the activities foundations and nonprofits can legally 
support. We also welcome the opportunity to collaborate with the 
Committee and Administration officials to provide additional clarity to 
the sector on this critical topic.

In addition, the Council shares the concern expressed by some of the 
witnesses regarding insufficient Internal Revenue Service (IRS) 
staffing and resources. A healthy and trusted charitable sector depends 
on appropriate oversight by the relevant federal agencies. While the 
Council supports the increase in funding for the IRS as provided in the 
most recent appropriations measure, the agency still needs additional 
funding to ensure it has the capacity to identify bad actors and 
respond to questions from the sector in a timely manner.

Thank you again for this opportunity to submit comments for the record. 
We appreciate this committee's leadership and look forward to working 
with you to ensure the charitable sector can continue to meet the needs 
of our communities today and into the future.

Respectfully submitted,

David Kass
Vice President
Government Affairs and Legal Resources

                                 ______
                                 
            End Citizens United/Let America Vote Action Fund

                       100 M Street E, Suite 1050

                          Washington, DC 20003

                 Statement of Tiffany Muller, President

Since the Supreme Court's disastrous Citizens United v. FEC decision 
over 12 years ago, we've seen an explosion of political spending by 
``dark money'' groups that don't have to disclose their donors. In 
fact, there has been a more than ten-fold rise in undisclosed campaign 
spending since the decision, increasing from roughly $6 million in 
2006, to more than $1 billion in 2020.\1\
---------------------------------------------------------------------------
    \1\ Center for Responsive Politics, `` `Dark money' topped $1 
billion in 2020, largely boosting Democrats'' (March 17, 2021). 
Available online: https://www.opensecrets.org/news/2021/03/one-billion-
dark-money-2020-electioncycle/.

These groups, many organized as 501(c)4 tax-exempt social welfare 
organizations, have grown to rival party committees and candidate 
campaigns in their size and influence in our elections, but face no 
requirements to disclose who is behind them. Right now, the public 
knows the occupation of every donor who gives $200 to a campaign but 
almost nothing about wealthy individuals or corporations who give $2 
million to political advocacy organizations trying to elect their 
politicians or secure judicial confirmations in hopes of securing their 
---------------------------------------------------------------------------
preferred policy outcome.

Unfortunately, due to legislative maneuvering and disingenuous attacks 
on the Internal Revenue Service and its mission during this same time 
period, the regulations governing these groups have not been modernized 
to reflect the changing nature of how these organizations are used to 
influence our elections. This lack of clarity has led to confusion in 
the nonprofit sector, opened the door to corruption, and reduced the 
public's faith in our elections.

There are several commonsense policies that can be implemented to 
address these issues.

      The IRS should institute rulemaking to develop clear definitions 
for political activity by these organizations and create clear bright 
lines for what constitutes political campaign intervention.
      Congress must permanently remove ``riders'' from appropriations 
bills that prevent the IRS from finalizing, issuing, or implementing 
such rulemaking.
      The House and Senate must also take up and pass the DISCLOSE Act 
(S. 443, H.R. 1334), legislation that would require groups that spend 
money to influence elections and judicial nominations to disclose their 
largest donors. Specifically, the DISCLOSE Act would require an 
organization that spends $10,000 or more on campaign expenditures to 
file a disclosure report with the Federal Election Commission within 24 
hours of purchasing the expenditures. The DISCLOSE Act also addresses 
serious vulnerabilities in the system that currently allow foreign 
actors to meddle in our elections.

As the United States Supreme Court has found time and time again, 
transparency of political spending is a key bulwark to prevent 
corruption in government. Americans deserve to know who is trying to 
influence their vote and more transparency is critical to creating a 
democracy that is open and accountable to the people.

                                 ______
                                 
                           Independent Sector

                       1602 L St., NW, Suite 900

                          Washington, DC 20036

                              202-467-6100

                     https://independentsector.org/

          Statement of Daniel J. Cardinali, President and CEO

Chairman Whitehouse, Ranking Member Thune, and members of the 
Subcommittee, thank you for convening this hearing and for your focus 
on the nonprofit sector. Independent Sector is a national membership 
organization founded in 1980 made up of nonprofits, foundations, and 
corporate giving programs nationwide. Working together, our 
approximately 500 member organizations and their networks reach every 
state and district and touch the life of every American in one or many 
ways. They range from some of the largest charities in the world to 
all-volunteer organizations, and from major philanthropic institutions 
to small foundations, academic centers, community-based organizations, 
and more. Independent Sector's core aim is to support these 
organizations and all civil society, working toward a healthy and 
equitable nonprofit sector to ensure all people living in the United 
States thrive.

                Three Components of Effective Governance

Independent Sector has, from its beginnings, been committed to working 
with policymakers, sector leaders, and regulators to achieve a system 
of effective governance because we believe that is what is required to 
keep our sector healthy and delivering on its broad mission. As the 
title of today's hearing correctly notes, laws and enforcement are 
essential to proper oversight of the nonprofit sector. However, we hold 
strongly that a third component is equally essential for this system to 
function: committed self-regulation.

In 2004, Independent Sector worked in close partnership with Congress, 
and specifically the Senate Finance Committee's then-Chairman Grassley 
and then-Ranking Member Baucus, to convene the Panel on the Nonprofit 
Sector (the Panel). In 2005, the Panel delivered its recommendations to 
Congress, suggesting concrete actions that the Congress, the Internal 
Revenue Service, and sector organizations themselves should undertake 
to enhance sector oversight and governance. Many of those 
recommendations were enacted into law through the Pension Protection 
Act of 2006 and, in 2007, the Panel released Principles for Good 
Governance and Ethical Practice to help nonprofits self-regulate at 
even higher standards of public transparency and accountability than 
required by law.\1\ These principles were later updated in 2015 and 
remain deeply relevant today, as evidenced by their ranking as one of 
the most accessed resources on the Independent Sector website.
---------------------------------------------------------------------------
    \1\ Accessible at https://independentsector.org/programs/
principles-for-good-governance-and-ethical-practice/.
---------------------------------------------------------------------------

             Unclear Rules Provide the Worst of Both Worlds

According to the Internal Revenue Code, political activity is defined 
as directly or indirectly participating in, or intervening in, any 
political campaign on behalf of (or in opposition to) any candidate for 
elective public office. 501(c)(3) nonprofit organizations may perform 
limited lobbying, but are absolutely prohibited from participating in 
partisan political activity by the Johnson Amendment, a critical 
firewall that must be preserved for the integrity of both charities and 
our democratic system. 501(c)(4) nonprofit organizations are allowed to 
engage in unlimited lobbying and political activity within some 
parameters.

Unfortunately, there is widespread uncertainty in the nonprofit sector 
about what truly constitutes political activity. Nonprofit 
organizations need clearer, consistent definitions--like those proposed 
in the Bright Lines Project by a committee of nonpartisan nonprofit 
lawyers. Independent Sector is pleased to see some recognition of this 
problem, with bipartisan legislation recently introduced calling on the 
Government Accountability Office to consider opportunities to clarify 
what constitutes ``political campaign intervention.''\2\ Until then, 
unclear rules will provide the worst of both worlds: cautious good 
actors may remain on the sidelines, while bad actors operate in gray 
areas.
---------------------------------------------------------------------------
    \2\ H.R. 7587, Nonprofit Sector Strength and Partnership Act, 
section 10.

Most nonprofits, but particularly small community organizations, do not 
have dedicated policy staff with deep knowledge about nonpartisan 
advocacy rules during election years. When they are faced with 
uncertainty around whether an activity is allowed, they may not have 
the resources or connections to figure out the right path forward. 
Instead, they opt out of the policy process, silencing frontline 
experts often in charge of implementing critical services on behalf of 
government and the communities nonprofits represent. Amidst crises and 
uncertainty in 2020, Independent Sector heard from even large 
nonprofits with highly professional policy teams that were not speaking 
up about certain policy proposals that impacted their operations, 
---------------------------------------------------------------------------
because they did not want to enter a political activity gray area.

When nonprofits step aside from their appropriate role in nonpartisan 
civic engagement, they miss vital opportunities to advance their own 
missions, and American democracy suffers as well. According to a recent 
study, voters who were contacted by a nonprofit organization were 11% 
more likely to vote.\3\ This impact is even stronger for lower 
propensity voters.
---------------------------------------------------------------------------
    \3\ Engaging New Voters, Nonprofit Vote, 2021.

On the other hand, the legal gray areas around nonprofit political 
activity embolden bad actors to exploit the hard-earned trust of 
nonprofits for private or partisan benefit. More specifically, private 
interests use nonprofits designated with special benefits, like donor 
privacy, to deceive the public and avoid regulation. As a result, the 
public could come to see more nonprofits as extensions of private or 
partisan agendas.

                   Trust: A Critical Nonprofit Asset

Public perception of nonprofit trustworthiness is the currency that 
drives the nonprofit sector. According to research conducted by 
Independent Sector in partnership with Edelman Intelligence, nonprofits 
are among the most trusted organizations in their communities, but they 
are not rated as highly as they were in 2020, despite increased 
visibility for the work they are doing.\4\
---------------------------------------------------------------------------
    \4\ Trust in Civil Society, Independent Sector, July 2021. Also 
forthcoming research May 2022.

Trust plays a critical role in the extent individuals choose to donate, 
volunteer, or advocate with nonprofits. Individuals reporting low trust 
in nonprofits and philanthropy cite scandals, abuse, and perceived 
partisan motives as reasons for their skepticism. Conversely, 
individuals reporting high trust in the sector note their trust is 
built, in part, upon a faith that government regulations ensure 
nonprofits are serving their communities.

                    The IRS Has Inadequate Capacity

In addition to hurting the work of nonprofits, the lack of clarity in 
these rules also overburdens and compromises the IRS. The widespread 
use of private letter rulings by nonprofits in this area requires time-
consuming analysis and response from IRS staff. As such, clearer rules 
could free up additional staff capacity to be directed toward the 
Service's core mission.

The need for this additional capacity is clear. From 2000-2013, the 
number of 501(c)(3) charitable organizations increased by more than 28 
percent, while the number of full-time equivalent staff in the IRS 
Exempt Organizations Division (EO) increased by less than 6 percent. A 
2020 Congressional Budget Office report \5\ found IRS appropriations 
had fallen by 20% in inflation-adjusted dollars since 2010, resulting 
in the elimination of 22% of its staff. The amount of funding allocated 
to oversight had declined by about 30% since 2010. The agency is 
struggling to keep pace with an exponentially growing and rapidly 
changing nonprofit sector. Independent Sector has been disappointed by 
this long-term decline in IRS appropriations and applauds the recently 
enacted increase for Fiscal Year 2022.
---------------------------------------------------------------------------
    \5\ Trends in the Internal Revenue Service's Funding and 
Enforcement, CBO, July 2020.

In addition to its direct impact on nonprofit sector oversight, 
inadequate IRS capacity has incentivized other shortcuts with damaging 
consequences. When the IRS created a streamlined Form 1023-EZ, 
nonprofit leaders expressed concern that such a simplified application 
approval process may open the door to incorrect determinations or 
increased abuse. Unfortunately, the IRS' own Taxpayer Advocate has 
repeatedly concurred, finding that more than one-third of ineligible 
1023-EZ applicants were approved in recent years. Independent Sector 
believes that this error rate is simply unacceptable and we applaud 
recently introduced bipartisan legislation \6\ that would revoke form 
1023-EZ and replace it after consultation with the nonprofit sector and 
other experts.
---------------------------------------------------------------------------
    \6\ H.R. 7587, Nonprofit Sector Strength and Partnership Act, 
section 9.
---------------------------------------------------------------------------

                               Conclusion

Once again, thank you for convening this hearing and for focusing 
Congress' attention on the vital work of the nonprofit sector. Clear, 
objective rules for nonprofit political activity--balanced between 
laws, enforcement, and self-regulation--would allow more organizations 
to participate in their democracy and bolster public trust in the 
nonprofit sector. We appreciate your interest and look forward to 
working with you.

                                 ______
                                 
                  National Taxpayers Union Foundation

                      122 C Street, NW, Suite 650

                          Washington, DC 20001

                           P: (703) 683-5700

                           F: (703) 683-5722

                     https://www.ntu.org/foundation

                              May 4, 2022

U.S. Senate
Committee on Finance
Subcommittee on Taxation and IRS Oversight
219 Dirksen Senate Office Building
Washington, DC 20510

RE: Hearing on Laws and Enforcement Governing the Political Activities 
                    of Tax-Exempt Entities

Dear Chair Whitehouse, Ranking Member Thune, and Members of the 
Subcommittee:

    On behalf of National Taxpayers Union Foundation (``NTUF''), I 
submit these written comments to the Subcommittee on Taxation and IRS 
Oversight for your hearing titled ``Laws and Enforcement Governing the 
Political Activities of Tax-
Exempt Entities.''\1\ As a nonprofit organization that regularly works 
with, studies, and litigates in matters involving tax agencies, we can 
offer a perspective focused both on tax and First Amendment law for the 
Subcommittee's consideration. As you may know, NTUF has historically 
maintained an abiding interest not only in tax policy, but also tax 
administration--the mechanics of how the tax law and the agency charged 
with its implementation can function most efficiently and effectively 
for the taxpayers it serves. We have published issue briefs, policy 
papers, and friend of the court briefs on a variety of matters in this 
realm, ranging from telephone customer service challenges at the IRS to 
the practical considerations surrounding the recent introduction of the 
Form 1099-K.\2\
---------------------------------------------------------------------------
    \1\ Founded in 1973, the National Taxpayers Union Foundation (NTUF) 
is a non-partisan research and educational organization dedicated to 
showing Americans how taxes, government spending, and regulations 
affect everyday life. NTUF's Taxpayer Defense Center advocates for 
taxpayers in the courts--upholding taxpayers' rights, challenging 
administrative overreach by tax authorities, and guarding against 
unconstitutional burdens on interstate commerce. NTUF staff have 
testified and written extensively on the issues of this hearing before 
the Subcommittee.
    \2\ See, e.g., Andrew Wilford and Andrew Moylan, Congress Needs to 
Act to Provide Relief to Taxpayers (and the IRS) From Burdensome 1099-K 
Requirement, National Taxpayers Union Foundation (March 8, 2022) 
available at: https://www.ntu.org/library/doclib/2022/03/Congress-
Needs-to-Act-to-Provide-Relief-to-Taxpayers-and-the-IRS-From-
Burdensome-1099-K-Requirement-1-.pdf; Demian Brady, Increasing 
Complexity Brings Back Bigger Compliance Burdens, National Taxpayers 
Union Foundation (April 18, 2022) available at: https://www.ntu.org/
library/doclib/2022/04/2022-tax-complexity.pdf; Andrew Wilford, 
``Taxpayers Expecting a Big Refund Could Be in for a Nasty Surprise,'' 
Real Clear Markets (January 10, 2022) available at: https://
www.realclearmarkets.com/articles/2022/01/10/
taxpayers_expecting_a_big_refund_could_be_in
_for_a_nasty_surprise_811087.html; Brief of Amici Curiae, National 
Taxpayers Union Foundation and National Federation of Independent 
Business Small Business Legal Center in Support of Petitioner, 
Boechler, P.C. v. Comm'r of Internal Rev., U.S. No. 20-1472 (November 
22, 2021) available at: http://www.supremecourt.gov/DocketPDF/20/20-
1472/200934/202111221445293
16_20-1472%20National%20Taxpayers%20Union%20Foundation.pdf.

    The problem before the Subcommittee in today's hearing combines 
several of our concerns over tax administration. Chief among them is a 
combination of workload and expertise: the Internal Revenue Service 
(``IRS'' or ``Service'') finds itself overburdened in trying to police 
political activity. One standout solution is for the IRS to look to 
another expert agency, the Federal Election Commission (``FEC''), for 
guidance, since the FEC has the lived experience of litigating 
questions of regulation of speech and politics for decades. This 
recommendation notwithstanding, any modification of the laws must 
recognize the First Amendment's robust protections for privacy of 
association.

I. The Problem: Complex IRS Definitions of ``Political Activity'' Lead 
                    to Arbitrary and Subjective Enforcement

    For tax-exempt organizations, what constitutes ``political 
activity'' is vitally important. But the Internal Revenue Code 
(``IRC'') does not define the term. Worse, the Treasury Regulations 
employ an eleven-factor test to try to figure out what is and is not 
``political activity.'' This complex test chills core First Amendment 
activity by exempt organizations and is unworkable for the IRS to apply 
in practice.

    How to define ``political activity'' for nonprofit organizations is 
essential to applying the tax code but troublesome to do in the real 
world. The scope of a nonprofit's permissible ventures turns on the 
extent to which the IRS will consider them ``political activity.'' 
Section 501(c)(3) groups cannot support or oppose a candidate.\3\ By 
contrast, Sec. 501(c)(4) organizations are ``operated exclusively for 
the promotion of social welfare,''\4\ which the IRS has defined as 
being ``primarily engaged in promoting in some way the common good and 
general welfare of the people of the community.''\5\ Activity in 
support of or opposition to a candidate is not ``promotion of social 
welfare,'' but is permissible so long as it does not become the 
organization's primary purpose.\6\ Just as with Sec. 501(c)(4) status, 
the question of Sec. 527 status is one of primary activity.\7\ That is, 
a Sec. 527 organization need not engage solely in ``political 
activity,'' and may undertake other projects such as educational 
workshops or social activities,\8\ but its main function must be 
political advocacy if it is to maintain its tax status.
---------------------------------------------------------------------------
    \3\ 26 U.S.C. Sec. 501(c)(3) (banning ``participat[ion] in, or 
interven[tion] in (including the publishing or distributing of 
statements), any political campaign on behalf of (or in opposition to) 
any candidate for public office'').
    \4\ 26 U.S.C. Sec. 501(c)(4)(A).
    \5\ 26 CFR Sec. 1.501(c)(4)-1(a)(2)(i).
    \6\ 26 CFR Sec. 1.501(c)(4)-1(a)(2)(ii).
    \7\ 26 U.S.C. Sec. 527(e)(1); 26 CFR Sec. 1.527-2(a)(1) (both 
defining a political organization as one ``organized and operated 
primarily for the purpose of directly or indirectly accepting 
contributions or making expenditures'' for political activity).
    \8\ 26 CFR Sec. 1.527-2(a)(3).

    But while these statutory distinctions pose few implications for 
federal revenue, they turn on nonobvious terms like ``political 
activity'' and ``primary'' purposes, and these terms must be 
interpreted by the IRS. The Service has responded with a complex, 
eleven-factor approach known as the ``facts and circumstances'' 
test.\9\ The complexity of this test has a palpable impact on exempt 
organizations, particularly in light of the penalties assessed for 
violating the tax laws.
---------------------------------------------------------------------------
    \9\ IRS Rev. Rul. 2004-6, 2004-4 I.R.B. 328, 330 (January 26, 
2004); cf. IRS Rev. Rul. 2007-41, 2007-25 I.R.B. 1421 (June 18, 2007) 
(applying the ``facts and circumstances'' test to 21 situations).

    As just one example, if a group wants to host a public forum with 
several candidates for the same office without violating its tax 
status, the Service's 2007 facts and circumstances guidance provides 
five factors that must be taken into consideration. But the IRS 
declines to be bound by those five factors, and explicitly states that 
there may be more.\10\ Any potential sixth, seventh, or eighth factors 
or circumstances, however, are not made public.
---------------------------------------------------------------------------
    \10\ IRS Rev. Rul. 2007-41, 2007-25 I.R.B. at 1423 (``[F]actors in 
determining whether the forum results in political campaign 
intervention include the following . . .'') (emphasis added).

    The Service's test is complex, and its uncertainties will 
inevitably leave speakers wondering if their words will be interpreted 
by the IRS as ``political activity.'' Consequently, groups are likely 
``to steer far wide[] of the unlawful zone.''\11\ As the Supreme Court 
observed in Buckley v. Valeo, laws regulating speech must be drafted 
with precision, otherwise they force speakers to ``hedge and trim'' 
their preferred message.\12\ Additionally, ``[p]rolix laws chill speech 
for the same reason that vague laws chill speech: People of common 
intelligence must necessarily guess at the law's meaning and differ as 
to its application.''\13\
---------------------------------------------------------------------------
    \11\ Grayned v. City of Rockford, 408 U.S. 104, 109 (1972) 
(internal citations omitted).
    \12\ 424 U.S. 1, 43 (1976) (per curiam) (quoting Thomas v. Collins, 
323 U.S. 516, 535 (1945)); see also Reno v. Am. Civil Liberties U., 521 
U.S. 844, 871-72 (1997) (noting that ``[t]he vagueness of . . . a 
regulation raises special First Amendment concerns because of its 
obvious chilling effect on free speech.''); cf. Fed. Commc'ns Comm'n v. 
Fox TV Stations, Inc., 567 U.S. 239, 254-55 (2012) (quoting Reno).
    \13\ Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 324 
(2010) (quotation marks and citation omitted).

    The Supreme Court recognized the independent First Amendment harm 
imposed whenever a federal agency ``create[s] a regime that allows it 
to select what political speech is safe for public consumption by 
applying ambiguous tests.''\14\ The Service's eleven-factor ``facts and 
circumstances'' test, which embraces rather than ``eschew[s] `the open-
ended rough-and-tumble of factors,' '' is just such a regime.\15\ 
Indeed, twelve years ago the Supreme Court held that the FEC's similar 
eleven-factor test failed First Amendment review.\16\ And the 
anticipated chill is all the more likely given the severe tax penalties 
imposed for guessing wrong on whether the activity is permissible.\17\
---------------------------------------------------------------------------
    \14\ Id. at 336.
    \15\ Id. (quoting Fed. Election Comm'n v. Wis. Right to Life, Inc., 
551 U.S. 449, 469 (2007) (Roberts, C.J., controlling op.).
    \16\ Id. (noting that Federal Election Commission's ``11-factor 
test'' to determine whether a nonprofit corporation could engage in 
political speech failed ``First Amendment standards'').
    \17\ See, e.g., 26 U.S.C. Sec. Sec. 4955(a)(1) and (b)(1) 
(penalties for 501(c)(3)s that engage in political activity); id. at 
(a)(2) and (b)(2) (personal liability for the managers of a nonprofit 
engaging in political activity).

    And the IRS staff itself cannot even apply the regulations 
correctly or consistently, instead defaulting to key word searches and 
other problematic short cuts. A National Taxpayer Advocate's Special 
Report confirmed that there are enormous problems with the current 
facts and circumstances test, stating that ``[t]here is very little 
guidance to help the IRS determine whether an organization is 
operating'' within the parameters of the Internal Revenue Code.\18\ 
This leads to errors and scandal. The Treasury Inspector General for 
Tax Administration (TIGTA) reported that the IRS targeted ``Tea Party 
and other organizations applying for tax-exempt status based upon their 
names or policy positions.''\19\ And it turned out the program had 
errors affecting organizations across the ideological spectrum.\20\
---------------------------------------------------------------------------
    \18\ National Taxpayer Advocate, Special Report to Congress: 
Political Activity and the Rights of Applicants for Tax-Exempt Status, 
at 14 (June 30, 2013) available at: https://www.
taxpayeradvocate.irs.gov/wp-content/uploads/2020/09/Special-Report.pdf 
(``Special Report'').
    \19\ Treasury Inspector General for Tax Administration, No. 2013-
10-053, Inappropriate Criteria Were Used to Identify Tax-Exempt 
Applications for Review, at i (May 14, 2013) available at: http://
www.treasury.gov/tigta/auditreports/2013reports/201310053fr.pdf; see 
also id. at 5-10 (describing the program).
    \20\ See, e.g., Peter Overby, ``As IRS Targeted Tea Party Groups, 
It Went After Progressives Too,'' National Public Radio (October 5, 
2017) available at: https://www.npr.org/2017/10/05/555975207/as-irs-
targeted-tea-party-groups-it-went-after-progressives-too.

    As the National Taxpayer Advocate noted: ``What is clear from the 
TIGTA report is that IRS [Exempt Organization] staff did not believe 
they had sufficient criteria to make fair and consistent 
decisions.''\21\ Writing better law, though, is still difficult if not 
done properly. Robert Bauer, the former White House Counsel to 
President Obama, noted in an analysis of one proposal suggesting a new 
rule for the IRS to apply that ``[c]omplexity means hard judgments; the 
judgments are about sensitive political matters; and the recent 
controversy demonstrates, if anything, that the IRS is at risk when 
making judgments of this nature.''\22\ Simplicity is therefore the 
answer.
---------------------------------------------------------------------------
    \21\ Special Report at 14.
    \22\ Robert Bauer, The IRS and ``Bright Lines,'' More Soft Money 
Hard Law Blog, May 28, 2013, http://www.moresoftmoneyhardlaw.com/2013/
05/irs-bright-lines/.

    The IRS is ill equipped to make judgment calls on what qualifies as 
``political activity.'' The existing regulatory framework--an eleven-
factor test--is so difficult to apply that even Service employees 
cannot do so consistently. The Service's expertise lies in tax rates 
and calculation, not in campaign finance or the regulation of protected 
First Amendment activity. The IRS needs help, and fortunately the 
Congress has already directed who to call.

II. The Solution: Get Help from the Federal Election Commission

    In the context of regulating politically-active organizations, 
Congress has provided a clear mandate that the IRS and FEC work 
together to harmonize their regulations of organizations discussing 
politics and public policy.\23\ Therefore, with these guidelines in 
place, the role of the Service is clear: collect revenue and, where 
possible, streamline regulation with the FEC when dealing with 
political activity. Getting tangled in the administrative underbrush of 
independently defining and regulating ``political activity'' will only 
serve to slow and frustrate the Service's mandates.
---------------------------------------------------------------------------
    \23\ 52 U.S.C. Sec. 30111(f); see also 107 Pub. L. 276 Sec. 4; 116 
Stat. 1929, 1932 (2006) (codified at 26 U.S.C. Sec. 527 note).

    The IRS is tasked with a difficult job: enforce the tax code and 
guide taxpayers into properly complying with the law.\24\ This role 
requires a multitude of specialized personnel with distinctive training 
in the ever-changing tax code. Every day, the Service fields calls from 
the public seeking help in complying with the law and regulations. The 
IRS forms, schedules, handouts, and web page are all designed to guide 
taxpayers. The Service is the agency with expertise in all things tax, 
but it often asks for outside help. For example, the IRS has a special 
Art Advisory Panel to help the Service evaluate works of art for 
charitable deduction purposes--a skill set far outside most Treasury 
employees' normal expertise.\25\
---------------------------------------------------------------------------
    \24\ See, e.g., 26 U.S.C. Sec. 7803(a)(2).
    \25\ IRS, ``Art Appraisal Services'' available at: https://
www.irs.gov/appeals/art-appraisal-services.

    The FEC has a clear mandate to enforce the campaign finance laws, 
regulate political actors, and advise participants on the applications 
of the complex campaign finance law.\26\ The FEC has spent nearly fifty 
years in rulemaking, drafting advisory opinions, and litigating the 
constitutional contours of campaign finance law. Every day, their staff 
answer questions about filing disclosure reports and registering as a 
political committee. The FEC is the expert agency for regulating 
political activity.
---------------------------------------------------------------------------
    \26\ 52 U.S.C. Sec. 30106.

    This idea of IRS deference to the FEC has the approval of the 
former National Taxpayer Advocate. Almost nine years ago Nina Olson, 
when she was still in office as Taxpayer Advocate, suggested Congress 
instruct the IRS to defer to the FEC on these matters: ``Specifically, 
the FEC would have to determine that proposed activity would not or 
does not constitute excessive political campaign activity.''\27\ 
Therefore, in crafting any regulation of political entities, the IRS 
should defer to the expertise of the FEC on matters of substantive 
regulation of political activity and disclosure.
---------------------------------------------------------------------------
    \27\ Special Report, at 16.

    The IRS just endured one of its toughest filing seasons yet.\28\ 
The Service has more than enough work to do in many specialized areas 
of law, ranging from 199A implementation from the Coronavirus Aid, 
Relief, and Economic Security Act to the Enhanced Child Tax Credit.\29\ 
And the IRS has proposed an ambitious plan for restructuring under the 
Taxpayer First Act.\30\ Plus the Service is woefully behind in 
processing returns during the pandemic.\31\ The IRS has enough on its 
plate applying the tax laws.
---------------------------------------------------------------------------
    \28\ See, e.g., Andrew Wilford, Pete Sepp, and Joe Bishop-Henchman, 
Taxpayers Desperately Need Help with Disastrous Filing Season, National 
Taxpayers Union Foundation (February 17, 2022) available at: https://
www.ntu.org/library/doclib/2022/02/Taxpayers-Desperately-Need-Help-
with-Disastrous-Filing-Season-2-.pdf.
    \29\ Lynn Mucenski Keck, ``Pass-Through Entities Claiming the 
Employee Retention Credit May Have a Limited 199A Deduction,'' Forbes 
(March 14, 2022) available at: https://www.
forbes.com/sites/lynnmucenskikeck/2022/03/14/pass-through-entities-
claiming-the-employee-retention-credit-may-have-a-limited-199a-
deduction/?sh=197ca98f7983; Wilford, ``Taxpayers Expecting a Big Refund 
Could Be In For a Nasty Surprise,'' supra note 2.
    \30\ IRS, Taxpayer First Act Report to Congress (January 2021) 
available at: https://www.irs.gov/pub/irs-pdf/p5426.pdf.
    \31\ See, e.g., National Taxpayer Advocate, ``IRS Delays in 
Processing Amended Tax Returns Are Impacting TAS's Ability to Assist 
Taxpayers,'' NTA Blog (November 10, 2021) available at: https://
www.taxpayeradvocate.irs.gov/news/nta-blog-irs-delays-in-processing-
amended-tax-returns-are-impacting-tass-ability-to-assist-taxpayers/.

    The core roles of the Service remain as they always were: to 
collect revenue and serve taxpayers. The IRS should not add to itself 
an attempt at wading into the prolix campaign finance laws. Thus, the 
Service's rules on exempt organizations' political activity should be 
aimed at steering clear of substantive regulation of the content of the 
speech.

III. Any New Statute or Treasury Regulation Must Protect Donor Privacy

    The Supreme Court ardently protects our First Amendment rights, 
especially in public policy discussion. In Buckley, the Court noted 
that ``a major purpose of that Amendment was to protect the free 
discussion of governmental affairs, . . . of course includ[ing] 
discussions of candidates.''\32\ The Supreme Court has also recognized 
the need to protect the freedom of association from undue disclosure to 
the government.\33\ For decades, the Supreme Court has consistently 
shielded organizational donors and supporters from the generalized 
donor disclosure found in campaign finance law.
---------------------------------------------------------------------------
    \32\ Buckley, 424 U.S. at 14 (1976) (quoting Mills v. Alabama, 384 
U.S. 214, 218 (1966)).
    \33\ See, e.g., Americans for Prosperity Found. v. Bonta, 594 U.S. 
___, 141 S.Ct. 2373 (2021) (``AFPF''); Gibson v. Florida Legislative 
Comm., 372 U.S. 539 (1963); Talley v. California, 362 U.S. 60, 65 
(1960); Shelton v. Tucker, 364 U.S. 479 (1960); Bates v. Little Rock, 
361 U.S. 516 (1960); NAACP v. Ala. ex rel. Patterson, 357 U.S. 449 
(1958).

    The Supreme Court's tailoring analysis in Buckley was 
straightforward: organizations with the ``major purpose'' of supporting 
or opposing candidates are also subject to campaign finance disclosure 
at the FEC.\34\ Thus candidate committees, political committees, and 
issue committees are all focused on engaging in electoral politics. 
Generalized donor disclosure makes sense in the context of such 
organizations with ``the major purpose'' of politics because donors 
intend their funds to be used for political purposes. The IRS would put 
such organizations in the Sec. 527 category.
---------------------------------------------------------------------------
    \34\ Buckley, 424 U.S. at 79.

    But if an organization is neither controlled by a candidate nor has 
as its ``major purpose'' speech targeting electoral outcomes, then 
disclosure is appropriate only for activity that is ``unambiguously 
campaign related.''\35\ That is, when (1) the organization makes 
``contributions earmarked for political purposes . . . and (2) when [an 
organization] make[s] expenditures for communications that expressly 
advocate the election or defeat of a clearly identified 
candidate.''\36\ Such limited disclosure is appropriate because it 
involves ``spending that is unambiguously related'' to electoral 
outcomes.\37\ Thus, Buckley held that comprehensive disclosure can be 
required of groups only insofar as those groups exist to engage in 
unambiguously campaign related speech.\38\
---------------------------------------------------------------------------
    \35\ Id. at 81.
    \36\ Id. at 80 (emphasis added). Of course, the Buckley Court 
narrowly defined ``expressly advocate'' to encompass only ``express 
words of advocacy of election or defeat, such as `vote for,' `elect,' 
`support,' `cast your ballot for,' `Smith for Congress,' `vote 
against,' `defeat,' [and] `reject.' '' Id. at 80 n.108 (incorporating 
by reference id. at 44 n.52).
    \37\ Id. at 80.
    \38\ Id. at 81.

    While the Supreme Court upheld certain disclosure outside the major 
purpose framework in Citizens United, it addressed only a narrow form 
of disclosure. The Court merely upheld the disclosure of a federal 
electioneering communication report, which disclosed the entity making 
the expenditure and the purpose of the expenditure.\39\ Such a report 
only disclosed contributors giving over $1,000 for the purpose of 
furthering the electioneering communication.\40\ The Citizens United 
Court specifically held that the limited disclosure of an 
electioneering communications report is a ``less restrictive 
alternative to more comprehensive regulations of speech,'' such as the 
regular reporting and generalized donor disclosure required of 
political committees.\41\ What is ``less restrictive'' in Citizens 
United is that the disclosure was focused on the entity making the 
message and the donors who gave for that specific activity, not the 
organization's general donor list.
---------------------------------------------------------------------------
    \39\ 52 U.S.C. Sec. Sec. 30104(f)(2)(A) through (D).
    \40\ 52 U.S.C. Sec. Sec. 30104(f)(2)(E) and (F); Citizens United, 
558 U.S. at 366.
    \41\ Citizens United, 558 U.S. at 369.

    Just last year the Supreme Court in a 6-3 decision continued to 
protect nonprofits from generalized donor disclosure to government 
officials. The Court recognized the long line of precedent that 
``compelled disclosure of affiliation with groups engaged in advocacy 
may constitute as effective a restraint on freedom of association as 
[other] forms of governmental action.''\42\ That is because 
``[e]ffective advocacy of both public and private points of view, 
particularly controversial ones, is undeniably enhanced by group 
association,'' and there is a ``vital relationship between freedom to 
associate and privacy in one's associations.''\43\ Therefore 
generalized donor disclosure will fail unless the government can prove 
it survives ``exacting scrutiny,'' which ``requires that there be a 
substantial relation between the disclosure requirement and a 
sufficiently important governmental interest'' and ``the disclosure 
requirement be narrowly tailored to the interest it promotes.''\44\ Any 
expansion of the existing disclosure framework would need to meet this 
high standard of judicial scrutiny. This will be even more strenuous 
for any proposal for public disclosure of nonprofit supporters.
---------------------------------------------------------------------------
    \42\ AFPF, 141 S.Ct. at 2382 (citation omitted, brackets in AFPF).
    \43\ Id. (citations omitted, brackets in AFPF).
    \44\ Id. at 2385.

    Indeed, as we detailed to the Supreme Court last year, Form 990's 
Schedule B was never intended to uncover wrongdoing and its collection 
of donor data is ripe for abuse.\45\ Instead, Congress added the list 
of major contributors as a method of protecting donor information 
against IRS disclosure under other statutes, especially the Freedom of 
Information Act.\46\ Unfortunately, Schedule B became a treasure trove 
for opposition researchers if and when it does get leaked. Warehousing 
the information is risky, and for little benefit. As it stands, the IRS 
itself found that Schedule B's general questions were useless compared 
to the detailed information contained in other areas of Form 990.\47\ 
And the IRS has for decades exercised discretion to relieve a broad 
swath of organizations from the donor disclosure of Schedule B.\48\ As 
a result, the IRS no longer uses Schedule B for most exempt 
organizations, and 47 states do not require the information either.\49\
---------------------------------------------------------------------------
    \45\ Brief of National Taxpayers Union Foundation and the Public 
Policy Legal Institute as Amici Curiae in Support of Petitioners, 
Americans for Prosperity Found. v. Bonta, U.S. Nos. 19-251 and 19-255 
at 15 (February 26, 2021) available at: http://www.supremecourt.gov/
Docket
PDF/19/19-251/170004/20210226150717748_NTUF-
PPLI%20Amicus%20AFPF%20TMLC%20v
%20Becerra.pdf.
    \46\ See, e.g., Landmark Legal Found. v. Internal Rev. Serv., 267 
F.3d 1132, 1135 (D.C. Cir. 2001).
    \47\ IRS, Tax-Exempt and Government Entities Div. ``Disclosure Risk 
on Form 990, Schedule B and Re. Proc. 2018-38'' Slide 7 (August 2018) 
as reprinted in Gurbir S. Grewal, Attorney General of New Jersey, et 
al., Letter to Secretary Steven T. Mnuchin, Appendix C (December 9, 
2019) available at: https://downloads.regulations.gov/IRS-2019-0039-
8296/attachment_1.pdf.
    \48\ IRS ``Guidance Under Section 6033 Regarding the Reporting 
Requirements of Exempt Organizations,'' 85 Fed. Reg. 31959, 31960 (May 
28, 2020) (collecting examples).
    \49\ Id. See also Brief of Arizona, et al., Americans for 
Prosperity Found. v. Bonta, U.S. Nos. 19-251 and 19-255, at 4 (March 1, 
2021) available at: http://www.supremecourt.gov/Docket
PDF/19/19-251/170569/20210301165759643_19-251%20-
255%20tsac%20Arizona.pdf.

    In reality, the rest of Form 990 is far better suited for detecting 
problems. For example, Part IV of Form 990 alone contains 38 questions 
triggering a requirement to file more information, each designed to 
spot particular situations which the IRS has determined may pose 
issues. These include questions about grants of money to officers, 
directors, and other key employees, as well as to substantial 
contributors ``or to a 35% controlled entity or family member of any of 
these persons.''\50\ The same information is required for loans, but 
details are not provided via Schedule B's general list.\51\ Business 
relationships with substantial contributors too must be disclosed, but 
that information is also not on Schedule B, but on the publicly-
available sections of Form 990.\52\ And once a problem is detected, it 
becomes an enforcement matter with investigation of one organization, 
not the warehousing of thousands of organizations' thousands of donors. 
A general donor list is not nearly as useful as the rest of Form 990 in 
enforcing the tax laws.
---------------------------------------------------------------------------
    \50\ IRS, ``Form 990, Return of Organization Exempt form Income 
Tax,'' Part IV, Line 27 at 4 available at: https://www.irs.gov/pub/irs-
pdf/f990.pdf.
    \51\ Id. at Part IV, Line 26 and Schedule L, Part II.
    \52\ Id. at Part IV, Line 28 and Schedule L, Part IV.

    Preventing wrongdoing by charities is an important interest, but 
greater generalized donor disclosure is not the answer. Already the IRS 
struggles to keep taxpayer information secure.\53\ This is a repeated 
problem recognized by the Government Accountability Office.\54\ And the 
leaks are already used to make political hay against ideological 
foes.\55\ Multiple Senators on the Finance Committee have already 
called for reforms to better protect taxpayer data.\56\ The government 
should be wary of collecting and storing more sensitive donor 
information than is necessary.
---------------------------------------------------------------------------
    \53\ See, e.g., Andrew Wilford and Andrew Moylan, ``What's the 
Fallout From the ProPublica Leak?'', National Taxpayers Union 
Foundation (July 27, 2021) available at: https://www.ntu.org/
foundation/detail/whats-the-fallout-from-the-propublica-leak; see also 
Michael Tasselmyer, ``IRS Security Breach Impacts 100,000 Taxpayers,'' 
National Taxpayers Union Foundation (May 28, 2015) available at: 
https://www.ntu.org/foundation/detail/irs-security-breach-impacts-
100000-taxpayers-05-28-2015.
    \54\ See, e.g., GAO, ``Information Technology: IRS Needs to Address 
Operational Challenges and Opportunities to Improve Management,'' GAO-
21-178T, at 6 (October 7, 2020) available at: https://www.gao.gov/
assets/gao-21-178t.pdf.
    \55\ See, e.g., Jesse Eisinger, et al., ``The Secret IRS Files: 
Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid 
Income Tax,'' ProPublica (June 8, 2021) available at: https://
www.propublica.org/article/the-secret-irs-files-trove-of-never-before-
seen-records-reveal-how-the-wealthiest-avoid-income-tax.
    \56\ Senator Mike Crapo, et al., Letter to Commissioner Rettig 
(December 1, 2021) available at: https://www.finance.senate.gov/imo/
media/doc/finance_r_letter_to_rettig.pdf.

    Thank you for considering our comments. We look forward to 
answering any questions and working with you and your staff to develop 
the necessary reforms to assure regulation of tax-exempt organizations 
comports with the needs of proper IRS oversight, as well as the First 
---------------------------------------------------------------------------
Amendment.

            Respectfully submitted,

            Tyler Martinez
            Senior Attorney

                                 ______
                                 
                              OpenSecrets

            Statement of Sheila Krumholz, Executive Director

Chairman Whitehouse, Ranking Member Thune, and members of the 
Subcommittee:

On behalf of OpenSecrets, thank you for the opportunity to submit 
written testimony at this hearing on ``Laws and enforcement governing 
the political activities of tax-exempt entities.''

OpenSecrets is a nonpartisan, nonprofit research organization tracking 
and reporting on money in U.S. politics and its effect on elections and 
public policy. Our vision is for Americans across the ideological 
spectrum to be empowered by access to clear, unbiased information about 
money's role in politics and policy so they can use that knowledge to 
strengthen our democracy. Our mission is to produce and disseminate 
peerless data and analysis on money in politics to inform and engage 
Americans, champion transparency, and expose disproportionate or undue 
influence.

Millions of dollars from anonymous financiers from across ideological 
and partisan spectrums is flowing into U.S. political systems, and the 
methods through which it is funneled continue to increase in complexity 
and opacity.

The role of groups spending to influence elections using funds from 
anonymous donors has increased in recent years, but the vast majority 
of spending by those groups is not disclosed to the Federal Election 
Commission.

The Flood of Dark Money From 501(c) Groups After Citizens United

The 2022 election cycle's ad spending and political contributions by 
nonprofits that do not disclose their donors follows a decade of rising 
spending by politically-active nonprofits. Nonprofit organizations 
operating under 501(c) of the federal tax code--especially 501(c)(4) 
organizations--are a key vehicle used by anonymous donors to quietly 
influence U.S. politics.

Federal elections have attracted more than $2 billion in spending and 
contributions from nonprofits operating under section 501(c) of the tax 
code since 2010, the majority of that coming from dark money groups 
that do not disclose their donors.\1\ Political activity by 
organizations exempt under IRC 501(c) is not a new phenomenon but it 
has increased markedly in recent years.
---------------------------------------------------------------------------
    \1\ https://www.opensecrets.org/news/2020/01/dark-money-10years-
citizens-united/.

The number of 501(c)(4) organizations registered with the IRS increased 
precipitously after 2010, the year Citizens United was decided, as did 
the number of 501(c)(4) organizations reporting political activity in 
---------------------------------------------------------------------------
Form 990 tax records.

Just 82 organizations operating under 501(c)(4) of the tax code 
reported political activity to the IRS in a Form 990 for the 2008 
fiscal year and 56 reported political activity during the 2009 
political year. In the 2010 fiscal year, and every year OpenSecrets has 
tracked since, the number of organizations operating under 501(c)(4) of 
the tax code reporting political activity in a Form 990 has exceeded 
100.

Treasury Department regulations require organizations operating under 
section 501(c)(4) of the tax code to have the promotion of social 
welfare as their primary purpose in order to maintain their tax-exempt 
status but those organizations do not necessarily only engage in 
activities that directly support their stated exempt-purpose.

The IRS has ruled that primarily benefiting partisan interests could 
also jeopardize an organization's 501(c)(4) status.

But the IRS has been criticized for failing to issue enough guidance in 
this area.

Dark money groups paying for ostensible political advertising under the 
guise of issue advocacy or educational purposes and he lack of bright 
line rules established by the IRS make it difficult to determine 
exactly how much political activity an individual 501(c)(4) nonprofit 
could engage in for social welfare to still be considered a group's 
primary purpose.

While it is a generally accepted rule of thumb that 501(c)(4) 
organizations are not allowed to devote more than half of their 
activities to non-exempt activities such as political purposes, 
organizations may dilute the percentage of money that goes to politics 
with spending on politically charged ads run under the guise of 
``issue'' advocacy. They do this by giving money to other groups that 
can then spend on elections or by spending on other more legitimate 
``social welfare'' activities within the organization's tax-exempt 
purpose.

According to a Government Accountability Office report, IRS officials 
say the ``absence of bright line rules regarding what constitutes 
political campaign intervention'' poses an ``overarching challenge'' to 
oversight of politically-active 501(c) organizations, especially 
regarding the lack of ``clear and concise guidance'' on the extent to 
which 501(c)(4) nonprofits can engage in political campaign 
activities.\2\
---------------------------------------------------------------------------
    \2\ https://www.gao.gov/products/gao-20-66r.

In 2013, the IRS released proposed regulations to clarify the limits on 
political campaign intervention by 501(c)(4) social welfare 
organizations. But in every annual appropriations bill since 2016, 
Congress has prohibited the IRS from implementing rules to clarify 
---------------------------------------------------------------------------
501(c) politicking.

Even without that additional clarity, it still falls squarely within 
the IRS's authority to enforce the existing laws governing 501(c) 
political spending.

There is no shortage of examples of 501(c) groups that have spent the 
bulk of their funds on ads boosting or attacking candidates, though 
that spending is not always reported as political activity.

More than $320 million in ad spending and contributions during the 2020 
cycle can be traced back to nondisclosing 501(c) groups aligned with 
Democratic or Republican party leadership, accounting for about $3 in 
every $10 of dark money in 2020 elections. These 501(c) groups share 
office space and resources with party leaderships' super PACs but, 
unlike the super PACs, the 501(c) groups can raise and spend unlimited 
funds without disclosing their donors.

Spending fueled by undisclosed donors leaves the American public in the 
dark about which wealthy donors may have gained influence with party 
leaders.

Senate Republican leadership-aligned 501(c)(4) nonprofit One Nation was 
the top dark money spender of the 2020 election cycle with around $125 
million between political contributions and ads.

Dark Money Is Getting Darker

Some critics of increasing transparency around politically active 
501(c) groups point to the comparably small portion of overall spending 
reported to the FEC that is made up by 501(c) groups.

While 501(c) spending reported to the FEC makes up only a portion of 
the multibillion dollar spending documented in recent election cycles, 
501(c) groups funded by secret donors have poured significantly more 
money into influencing elections through ad spending that is not 
required to be disclosed to the FEC. Nonprofit groups funded by 
anonymous donors have also increased contributions to political 
committees such as super PACs and Carey committees.

During the 2010 election cycle, 501(c) organizations gave under $7 
million in political contributions to federal groups. In the 2020 
election cycle, political contributions from 501(c) groups topped $723 
million.

The 2020 election cycle also saw record gray money spending, which is 
spending on elections by groups funded in part by shell companies and 
501(c) groups that do not disclose their donors. The vast majority of 
2020 dark money was channeled through donations from 501(c) nonprofits 
to outside groups like super PACs that are legally required to disclose 
their donors. But despite being required to disclose their donors, 
super PACs can just disclose a 501(c) or shell company as their 
contributor, hiding the ultimate source of funding.

Overall, 501(c) groups poured more than $820 million into influencing 
2020 federal elections. Most of that came from groups that do not 
disclose their donors.

Including contributions from shell corporations formed as limited-
liability companies as well as 501(c) groups, the 2020 election alone 
attracted more than $1 billion in total dark money, though only a small 
portion of that was reported as spending to the FEC.\3\
---------------------------------------------------------------------------
    \3\ https://www.opensecrets.org/news/2021/03/one-billion-dark-
money-2020-electioncycle/.

Only about $79 million in spending during the 2020 cycle was reported 
by 501(c) groups that don't have to disclose their donors. Super PACs 
funded entirely or almost entirely by dark money groups reported over 
---------------------------------------------------------------------------
38 million more in spending, according to an OpenSecrets analysis.

The 2022 election cycle has already attracted more than $115 million in 
contributions from 501(c) groups and spending reported to the FEC, 
OpenSecrets' new analysis found.

Many of the top spenders on so-called ``issue'' ads mentioning 
candidates are also politically-active nonprofits that do not disclose 
their donors. Issue ads aired on TV or radio are only required to be 
disclosed in the weeks leading up to an election, and online ads that 
avoid expressly advocating for an election outcome are not required to 
be disclosed at all.

Nonprofits that do not disclose their donors have reported just $2.8 
million to the FEC during the 2022 election cycle.

Most of the spending on these issue ads has not been disclosed to the 
FEC because they do not explicitly advocate for the election or defeat 
of a candidate within the weeks leading up to an election.

One top dark money spender that has yet to disclose any spending to the 
FEC is American Action Network, a 501(c) nonprofit aligned with House 
Republican leadership.\4\ According to analyses by OpenSecrets and the 
Wesleyan Media Project, the group has spent more than $9.5 million on 
TV ads mentioning House candidates and about $800,000 on Facebook ads 
during the 2022 cycle--none of which have been disclosed to the FEC.
---------------------------------------------------------------------------
    \4\ https://www.opensecrets.org/donor-lookup/
results?name=American+Action+Networkℴ=
desc&sort=D.

In addition to its own spending this cycle, American Action Network has 
given more than $11.5 million to Congressional Leadership Fund, a super 
PAC aligned with House Republicans that shares staff and resources with 
the dark money group.\5\
---------------------------------------------------------------------------
    \5\ https://www.opensecrets.org/news/2021/08/secret-donors-are-
already-pouring-dark-money-into-2022/.

Senate Republican leadership's dark money group, One Nation, has also 
poured millions of dollars into 2022 elections but has yet to disclose 
any spending to the FEC. The dark money group has spent over $2.8 
million on TV ads and hundreds of thousands of dollars on digital ads 
---------------------------------------------------------------------------
tracked by OpenSecrets.

One Nation has avoided disclosing their spending to the FEC by framing 
the advertising as issue advocacy since the ads attack Democratic 
incumbents without explicitly advocating for their election or defeat. 
One Nation has also given $14.4 million to Senate Leadership Fund, a 
super PAC tied to Senate Minority Leader Mitch McConnell (R-KY) that 
shares staff and resources with the dark money group.\6\ The dark money 
group makes up the majority of the super PAC's funding, leaving the 
ultimate donors fueling the group undisclosed.
---------------------------------------------------------------------------
    \6\ https://www.opensecrets.org/outsidespending/
contrib.php?cycle=2022&cmte=C00571703.

During the 2020 election cycle, One Nation did not disclose any 
spending to the FEC but poured about $125 million into political 
contributions and ads--more untraceable money than any other dark money 
group.\7\
---------------------------------------------------------------------------
    \7\ https://www.opensecrets.org/news/2020/10/senate-gop-dark-
money/.

Dark money groups aligned with Democratic party leadership have also 
---------------------------------------------------------------------------
poured millions of dollars into influencing 2022 elections.

Congressional Democrats' dark money group, House Majority Forward, has 
spent more than $2.3 million on TV ads, according to figures from the 
Wesleyan Media Project, and $453,000 on Facebook ads.

House Majority Forward gave another $2.5 million in contributions to 
House Majority PAC, a super PAC aligned with House Democratic 
leadership that shares resources with House Majority Forward.\8\
---------------------------------------------------------------------------
    \8\ https://www.opensecrets.org/outsidespending/
contrib.php?cmte=C00495028&cycle=2022.

Democrats' Senate Majority PAC received $14.3 million from Majority 
Forward, a dark money group that shares the super PAC's staff and 
resources.\9\ Majority Forward has spent more than $2.1 million on TV 
ads and about $250,000 on Facebook ads during the 2022 cycle.
---------------------------------------------------------------------------
    \9\ https://www.opensecrets.org/outsidespending/
contrib.php?cmte=C00484642&cycle=2022.

While some of the Facebook ads are through Majority Forward's own 
Facebook page, the group also pays for ads on regional-themed pages. 
Most recently, Majority Forward became the sole funder of about $74,000 
in digital advertising for Nevada Unido, a Facebook page created in 
March that has mostly boosted Sen. Catherine Cortez Masto (D-NV) with 
messages about how the senator is ``standing up for victims of human 
trafficking'' and ``working to protect our communities and fighting for 
a strong Nevada economy.''\10\
---------------------------------------------------------------------------
    \10\ https://www.facebook.com/ads/library/
?active_status=all&ad_type=political_and_issue_ads
&country=US&view_all_page_id=107498775216001&sort_data=desc&sort_data=re
levancy_month
ly_grouped&search_type=page&media_type=all.

Several groups across the country received the bulk of their funds from 
501(c) groups aligned with national party leadership. A recent example 
is Coalition for a Safe and Secure America, which spent mailers aimed 
at depressing Republican voter turnout during the 2022 election and 
---------------------------------------------------------------------------
received the bulk of its funds from Senate Democrats' Majority Forward.

``Pop up'' dark money groups can form shortly before an election and 
spend millions of dollars without even trying to give the appearance of 
engaging in activities other than politicking since there are generally 
few consequences when the group does not plan to remain active after 
the election.

A recent example of a pop-up dark money groups is Better Tomorrow for 
Tennessee, a 501(c)(4) organization with little footprint other than 
giving money to a super PAC named Tennesseans for a Better Tomorrow 
that spent more than $1 million dollars on a toss-up Senate race in the 
2018 midterm elections then closed up shop less than a month after 
election day.\11\
---------------------------------------------------------------------------
    \11\ https://www.opensecrets.org/news/2019/01/dark-money-fueled-
super-pac/.

Another 501(c) called Broken Promises spent more than 99% of its funds 
on political activity backing a spoiler candidate in a Florida's 2018 
state Senate race but told the IRS it didn't spend anything on 
---------------------------------------------------------------------------
politics.

An older example of this is a group called Carolina Rising, which was 
formed shortly before 2014 elections then spent 97% of its funds on ads 
in North Carolina's Senate race then shut down. Carolina Rising did not 
voluntarily disclose its donors, but an OpenSecrets' investigation 
later found that the group was entirely funded by Crossroads GPS.\12\
---------------------------------------------------------------------------
    \12\ https://www.opensecrets.org/news/2015/10/political-nonprofit-
spent-nearly-100-percent-of-funds-to-elect-tillis-in-14/.
---------------------------------------------------------------------------

 Secretly-funded 501(c) Groups Increase the Risk of Foreign 
                    Interference in U.S. Elections

Due to the lack of disclosure requirements, 501(c) dark money groups 
provide a vehicle for foreign interests to quietly influence U.S. 
elections.

While the lack of transparency around these groups makes it nearly 
impossible to get a comprehensive total of how much dark money comes 
from foreign sources, OpenSecrets has tracked several 501(c) 
organizations that have reported foreign activities and foreign 
fundraising in their tax returns during the same year they reported 
political activity--raising the stakes even further.

Foreign nationals are prohibited from giving money to influence U.S. 
elections but are able to spend unlimited sums to politically active 
nonprofits and even fund issue advocacy ads that may mention a 
candidate so long as the ads do not call for a candidate's election or 
defeat.

Nonprofits reporting foreign activities include dark money groups that 
spent tens of millions of dollars to influence U.S. elections in recent 
years.

The National Rifle Association started reporting foreign fundraising in 
2018 and continued to disclose foreign program activities through its 
most tax return filed last year.\13\, \14\ The NRA has given 
over $141 million in contributions to candidates during the 2022 
elections cycle.
---------------------------------------------------------------------------
    \13\ https://www.opensecrets.org/news/2019/12/nra-discloses-
spending-on-foreign-fundrais
ing/.
    \14\ https://www.opensecrets.org/news/2019/12/nra-discloses-
spending-on-foreign-fundrais
ing/.

The U.S. Chamber of Commerce has received revenue from foreign 
corporations that are dues-paying members. In some of the most recent 
years it reported foreign revenue and program services, the Chamber 
spent over $9.5 million on 2018 elections and $29.3 million on 2020 
elections.\15\
---------------------------------------------------------------------------
    \15\ https://www.opensecrets.org/political-action-committees-pacs//
C00053553/summary/2020 See eg. https://theintercept.com/2020/02/15/
dark-money-irs-reporting-501c/.

Despite the risk, a 2020 report from the Government Accountability 
Office revealed that the IRS doesn't check nonprofit tax records for 
signs of illegal foreign money in U.S. elections.\16\ The finding was 
used to justify policy change under the former President Donald Trump's 
administration that now enables 501(c) nonprofits--including 
politically active dark money groups--to no longer report donor names 
or addresses to the tax agency unless they are requested under court 
order or as part of an examination.\17\
---------------------------------------------------------------------------
    \16\ https://www.opensecrets.org/news/2020/08/parties-dark-money-
to-2020-elections/.
    \17\ https://www.opensecrets.org/news/2020/02/dark-money-steers-
millions-to-super-pacs-2020/. 
---------------------------------------------------------------------------

The Need for Modernization

Ensuring the IRS has the resources to fulfill public records requests 
in a timely way is crucial for ensuring transparency.

More standardized electronic reporting of financial information, 
especially information about 501(c) spending mentioning candidates for 
elected office, would also help the IRS get a more complete accounting 
of political campaign activities that may be couched as educational or 
issue advocacy.

Until recently, tax-exempt groups were only required to file returns 
electronically if they have total assets of $10 million or more at the 
end of the tax year and the organization files at least 250 returns of 
any type during the calendar year ending with or within the 
organization's tax year and file at least 250 returns of any type 
during the calendar year ending within the organization's tax year.

Many 501(c) groups that pop-up and spend significant sums of money on 
an election before disappearing do not leave over $10 million in assets 
at the end of the tax year in order to trigger that requirement so only 
a portion of groups actually show up in the e-file data. More 
widespread e-filing requirements streamline disclosure processes and 
allow for more timely access to crucial data contained in Form 990 
returns.

Fiscal sponsorship of politically active groups poses new challenges to 
donor disclosure since there is no standardized way to report fiscal 
sponsorship arrangements in a Form 990. The form includes space for a 
``DBA'' but several politically-active 501(c) groups have multiple 
fictitious names or trade names registered with state agencies that may 
not be listed on their Form 990 at all.

Donors who steer money to projects operating under the umbrella of a 
fiscal sponsor report donations to the fiscally sponsoring organization 
rather than the project, adding an extra layer of secrecy that further 
obscures the source of funds. Those sponsored projects are not required 
to file separate annual 990 tax returns with the IRS, and the fiscal 
sponsor is not necessarily required to report grants to the project in 
its annual 990 tax filings because the fiscally sponsored initiatives 
are not technically independent entities for tax purposes.

Although multiple federal agencies are tasked with oversight of 501(c) 
groups spending to influence U.S. elections, this more often results in 
agencies pointing fingers at each other than duplicative enforcement.

A 2020 Inspector General report on nonprofit political activity found 
that the IRS did not ``adequately document research related to the 
allegation, tax-exempt laws evaluated, or the rationale'' and failed to 
forward over a thousand cases of impermissible activity to the 
appropriate committee. A 2021 Treasury inspector general report found 
that the IRS examined just 0.13% of 501(c) tax-exempt nonprofit's Form 
990 tax returns for the fiscal year of 2018 and about 20% of Form 990 
returns selected for examinations were not examined.\18\
---------------------------------------------------------------------------
    \18\ https://www.treasury.gov/tigta/auditreports/2021reports/
202110013fr.pdf.

Thank you for your attention to our concerns on this critical issue. We 
would be honored to work with members further to address concerns 
related to politically-
---------------------------------------------------------------------------
active 501(c) groups.

                                 ______
                                 
                       People United for Privacy

                       5955 W. Peoria Ave., #6282

                            Glendale AZ 85302

                             (202) 743-2118

                              May 4, 2022

The Honorable Sheldon Whitehouse    The Honorable John Thune
United States Senate                United States Senate
Washington, DC 20510                Washington, DC 20510

Re: Support for Citizen Privacy and Opposition to Harmful Anti-Privacy 
Legislative and Regulatory Proposals

Dear Chairman Whitehouse, Ranking Member Thune, and Members of the 
Senate Finance Committee's Subcommittee on Taxation and IRS Oversight:

On behalf of People United for Privacy (PUFP),\1\ I submit the 
following comments for the May 4, 2022 hearing in the United States 
Senate Committee on Finance's Subcommittee on Taxation and IRS 
Oversight to examine ``Laws and Enforcement Governing the Political 
Activities of Tax Exempt Entities.'' Associational privacy is an 
enduring First Amendment right that has been repeatedly affirmed by the 
United States Supreme Court and shares widespread support among 
Americans regardless of their political leanings. PUFP exists to 
safeguard the freedom of speech and association rights of nonprofit 
supporters in America--regardless of their beliefs or the level of an 
individual's financial support for the causes of their choice.
---------------------------------------------------------------------------
    \1\ People United for Privacy (PUFP) defends the rights of all 
Americans--regardless of their beliefs--to come together in support of 
their shared values. Nonprofit organizations perform important work in 
communities across the United States, and we protect the ability of 
nonprofit donors to support causes and exercise their First Amendment 
rights through private giving.

In last year's ruling in Americans for Prosperity Foundation (AFPF) v. 
Bonta, the Supreme Court reaffirmed that all Americans have the right 
to exercise their First Amendment freedoms privately. PUFP agrees 
strongly with the Court's decision. We believe it is essential for 
individuals to be free to express their views through the causes they 
support without being personally exposed to a political firestorm or 
governmental retaliation, especially in today's hyperpolarized and 
---------------------------------------------------------------------------
caustic political climate.

On multiple occasions, the Supreme Court has recognized that forcing an 
organization to release its member and donor lists to the government 
not only divulges the First Amendment activities of individual members 
and donors but may also deter such activities in the first place. 
Individuals may legitimately fear any number of damaging consequences 
from disclosure, including harassment, adverse governmental action, and 
reprisals by an employer, neighbor, or community member. Or they may 
simply prefer not to have their affiliations disclosed publicly or 
subjected to the possibility of disclosure for a variety of reasons 
rooted in religious practice, modesty, or a desire to avoid unwanted 
solicitations. For nonprofits, privacy is especially important for 
organizations that challenge the practices and policies of the very 
governments that seek the identities of the group's members and 
supporters.

Over 280 groups signed 43 amicus briefs in support of the petitioners 
in AFPF v. Bonta.\2\ These signers represent a wide range of causes and 
political preferences, including progressive advocacy groups, 
conservative think tanks, religious organizations, trade associations, 
animal and human welfare advocates, educational institutions, community 
services, and arts and culture-focused organizations. As Chief Justice 
Roberts wrote in the Court's majority opinion, ``[t]he gravity of the 
privacy concerns in [the disclosure] context is further underscored by 
the filings of hundreds of organizations as amici curiae in support of 
the petitioners. Far from representing uniquely sensitive causes, these 
organizations span the ideological spectrum, and indeed the full range 
of human endeavors: from the American Civil Liberties Union to the 
Proposition 8 Legal Defense Fund; from the Council on American-Islamic 
Relations to the Zionist Organization of America; from Feeding 
America--Eastern Wisconsin to PBS Reno. The deterrent effect [of 
disclosure] feared by these organizations is real and pervasive. . . 
.'' One thing the nonprofit community can agree on is the importance of 
defending our right to engage in free speech and to debate issues that 
we may disagree on, as well as the need to protect citizen privacy and 
the rights of individuals to exercise their First Amendment rights 
privately.
---------------------------------------------------------------------------
    \2\ See ``Free speech case attracts support from nearly 300 diverse 
groups,'' Americans for Prosperity. Available at: https://
americansforprosperity.org/wp-content/uploads/2021/04/AFPF-v-Becerra-
Amici.pdf (April 2021).

Beyond widespread support for this First Amendment right in the 
nonprofit community, polling confirms strong support for citizen 
privacy--and fear of disclosure--among Americans as well. A Harvard 
CAPS-Harris poll released in March 2021 found that 64% of respondents 
believe a ``growing cancel culture'' threatens their freedom while 36% 
of those surveyed agreed that cancel culture is a ``big problem.''\3\ 
Only 13% percent of participants replied that ``cancel culture'' is 
``not a problem.'' Additionally, the poll found that 54% of respondents 
were ``concerned'' that voicing their opinions online could result in 
lost employment or the shuttering of their social media accounts. These 
worrying findings reinforce the conclusions of a summer 2020 poll from 
the Cato Institute, which verified that 62% of Americans across the 
political spectrum and various identity groups have political views 
that they are afraid to share in our current political climate.\4\ 
Further, 32% of respondents in that poll were worried about being 
passed by for job opportunities solely because of their political 
views. If Americans were forced to publicize the nonprofit causes they 
support, it is clear many would refrain from giving at all.
---------------------------------------------------------------------------
    \3\ Brittany Bernstein, ``Poll: Majority of Americans See Cancel 
Culture as Threat to Freedom,'' AOL. Available at: https://www.aol.com/
news/poll-majority-americans-see-cancel-213920486.html (March 29, 
2021).
    \4\ Emily Ekins, ``Poll: 62% of Americans Say They Have Political 
Views They're Afraid to Share,'' Cato Institute. Available at: https://
www.cato.org/survey-reports/poll-62-americans-say-they-have-political-
views-theyre-afraid-share (July 22, 2020).

In recent weeks, I have heard dangerous comments from both Republican 
and Democratic Members of Congress critical of groups that advocate for 
the beliefs of American citizens. Such rhetoric typically invokes the 
hollow term ``dark money,'' which has no legal definition and is used 
inconsistently and pejoratively to describe a wide range of groups and 
activities that the person speaking dislikes. Many groups criticized 
for their advocacy on behalf of their supporters are, in fact, 
longstanding nonprofits supported by large and diverse memberships 
throughout the country--the kind of groups that set aside other policy 
disagreements last year to join together in AFPF v. Bonta to defend the 
privacy of their supporters. Some of those groups have existed for over 
a century and perform important work to offer valuable perspectives on 
government and public policy. Whether criticism of these groups comes 
from the left or the right, ``dark money'' is often just a cheap smear 
against nonprofit organizations that value their members' privacy and 
that are working to ensure those in power hear the voices of American 
---------------------------------------------------------------------------
citizens.

Nonprofit organizations are forces for good and have long played a role 
in educating Americans and policymakers about complex issues. 
Nonprofits also serve as a shield for people who are uncomfortable 
speaking publicly about an issue on their own, a vital societal 
function. While some donors may like having their name listed publicly 
as a supporter of a cause, many donors dislike or fear such attention 
because they value their privacy. If anything, today's highly charged 
political climate gives Americans even more reason to keep their 
beliefs and giving private. Nonprofit organizations play a crucial role 
in protecting the voices of many citizens who would otherwise remain 
silent.

Unfortunately, there are numerous examples of Americans who have been 
targeted because their private support for a cause was exposed. Earlier 
this year, tens of thousands of Americans donated to the Freedom Convoy 
of truckers protesting COVID-19 vaccine mandates. That donor database 
was hacked, exposing the personal information of donors to the cause. 
The Washington Post and other media outlets wasted no time launching a 
harassment campaign, demanding those donors explain their support--
regardless of the amount of their donation. Both $50 and $90,000 donors 
were identified in an article published by The Post. Reporting on the 
illegal database hack led to outrage on social media from both sides of 
the aisle, with Senator Ted Cruz (R-TX) and Congresswoman Ilhan Omar 
(D-MN) finding common ground by pointing out that the only reason to 
expose small donors is to encourage people to harass them for their 
beliefs.\5\
---------------------------------------------------------------------------
    \5\ See Timothy H.J. Nerozzi, ``Ted Cruz asks if civil liberties 
groups will support Canadian freedom truckers as they clash with 
police,'' Fox News. Available at: https://www.foxnews.com/politics/ted-
cruz-civil-liberties-groups-canadian-truckers-clash-police (February 
19, 2022) and Darragh Roche, ``Ilhan Omar Defends `Freedom Convoy' 
Donors After GiveSendGo Leak,'' Newsweek. Available at: https://
www.newsweek.com/ilhan-omar-defends-freedom-convoy-donors-givesendgo-
leak-1680116 (February 17, 2022).

In another illustrative story, a homeless shelter in Atlanta, Georgia 
that houses an average of 500-700 men, women, and children each night 
was targeted by city officials who sought to claim the land it sits on 
for other development projects. When the shelter fell behind on its 
water bill, threatening to give those politicians the land they sought, 
several anonymous donors contributed enough to enable the shelter to 
pay its bill. When local media inquired about the donors' identities, 
the shelter's director explained their desire to remain anonymous: 
``Anytime a donor appears and is public with us, that donor gets 
attacked.''\6\
---------------------------------------------------------------------------
    \6\ ``Anonymous donors help pay water bill for homeless shelter,'' 
WSBTV. Available at: https://www.wsbtv.com/news/local/anonymous-donors-
help-pay-water-bill-homeless-shel/138014681/ (September 26, 2014).

It is not difficult to imagine a nonstop wave of targeting and 
harassment campaigns across the country if donor information is 
routinely published in a searchable government database. The First 
Amendment would effectively be a dead letter as Americans would 
sacrifice their free speech rights to preserve their privacy and save 
themselves from lost employment, physical harm, and other forms of 
harassment and intimidation. Frequently, this silencing of debate 
appears to be exactly what nonprofit donor disclosure proponents hope 
---------------------------------------------------------------------------
to accomplish.

    To the extent some members of this Subcommittee wish to propose 
legislative or regulatory prescriptions that would impose onerous 
disclosure mandates on nonprofits, we encourage Members to do the 
following:

    (1)  Oppose ``For the People Act'' and ``Freedom to Vote Act''-
Style Donor Disclosure Policies. Buried among a litany of unrelated 
provisions,\7\ the misleading and Orwellian sounding ``For the People 
Act'' (S. 1) and ``Freedom to Vote Act'' (S. 2747) contain multiple 
policies that would force public exposure of the names and home 
addresses of Americans that give to nonprofit groups. This outcome 
would chill the speech of issue advocacy groups and nonprofits across 
the political spectrum.
---------------------------------------------------------------------------
    \7\ PUFP takes no position on the other provisions in this 
expansive package that have no impact on citizen privacy protections 
and nonprofit advocacy.

         In particular, standalone legislation contained in S. 1, like 
the so-called ``DISCLOSE Act,'' ``Stand By Every Ad Act,'' and ``Secret 
Money Transparency Act,'' would, in different ways, expose sensitive 
information about Americans' support for nonprofit causes for no reason 
other than an organization's decision to voice an opinion in 
legislative and policy debates. As Senator Chuck Schumer (D-NY) boasted 
when first introducing the ``DISCLOSE Act'' in 2010, ``[t]he deterrent 
effect'' of the bill's nonprofit donor disclosure provisions ``should 
not be underestimated.''\8\ Rather than a disturbing symptom, the 
chilling impact of the ``DISCLOSE Act's'' (S. 443, S. 2671) exposure 
mandate is the intent. This draconian measure would force organizations 
to report many of their donors to the Federal Election Commission for 
engaging in common types of nonprofit communications, including on the 
Internet, and, in some cases, when one nonprofit gives a grant to 
another nonprofit. The aggressive mandates in this bill would violate 
Americans' privacy, facilitate harassment, and decrease civic 
engagement.
---------------------------------------------------------------------------
    \8\ T.W. Farnam, ``The Influence Industry: DISCLOSE Act could deter 
involvement in elections,'' The Washington Post. Available at: https://
www.washingtonpost.com/wp-dyn/content/article/2010/05/12/
AR2010051205094.html (May 13, 2010).

         The ``Stand By Every Ad Act'' (H.R. 1171), which has been 
included in some versions of the ``DISCLOSE Act,'' would go a step 
further by requiring nonprofits to list the names of their top donors 
in lengthy disclaimers on communications about public policy. This 
senseless invasion of privacy will make it more burdensome for groups 
to fulfill their mission and dangerously expose citizens to uninvited 
public scrutiny. In many cases, the named donor may not be aware of or 
even support the message that bears their name. In effect, the 
disclaimer will shift the public's focus onto a nonprofit's supporters 
rather than the substance of a group's message, accelerating the 
---------------------------------------------------------------------------
erosion of quality public discourse about the issues of the day.

         The ``Secret Money Transparency Act'' in S. 1 and its 
nefarious cousin, the ``Spotlight Act'' (S. 215), would eliminate 
safeguards placed on the Internal Revenue Service that prevent the 
agency from abusing its power. After the IRS was caught systematically 
harassing right-of-center nonprofits, restrictions were placed on the 
agency to prevent it from regulating nonprofit organizations' speech 
and Americans' privacy.

         The ``Secret Money Transparency Act'' repeals policies 
repeatedly passed by Congress that prohibit the agency from using 
funding to issue a rulemaking that would crack down on issue advocacy 
by nonprofits and jeopardize the privacy of nonprofit supporters. The 
``Spotlight Act'' goes a step further by reversing recent reforms that 
eliminated the requirement for certain nonprofits to report their 
supporters' confidential information to the agency and requiring 
disclosure to the IRS of the names and addresses of all Americans that 
give more than $5,000 annually to many types of nonprofits. This would 
render nonprofit supporters vulnerable to doxxing and harassment by 
government officials for information the IRS has said it does not need 
to enforce the tax code.\9\
---------------------------------------------------------------------------
    \9\ See Allen Dickerson, ``Comments on REG-102508-16: Guidance 
Under Section 6033 Regarding the Reporting Requirements of Exempt 
Organizations,'' Institute for Free Speech. Available at: https://
www.ifs.org/wp-content/uploads/2019/11/2019-11-04_IFS-Comments_IRS_REG-
102508-16_Exempt-Org-Reporting-Requirements.pdf (November 4, 2019).

         Each of these measures, and those like them, should be 
rejected for the devastating impact they would have on the privacy 
---------------------------------------------------------------------------
rights of Americans of all stripes and the diverse causes they support.

    (2)  Resist Congressional Pressure for Rulemaking Efforts at the 
IRS that Would Trample Nonprofit Advocacy and Citizen Privacy. During 
the Obama administration, the Internal Revenue Service admitted that it 
targeted conservative nonprofits for more than two years leading up to 
the 2012 presidential election.\10\ After being forced to acknowledge 
this reprehensible practice, the IRS proposed a rulemaking that would 
have codified many of these improper targeting practices and severely 
chilled issue speech by nonprofits. As a result of the proposal's 
harmful impact on nonprofit advocacy, it received widespread bipartisan 
opposition from groups typically on opposite sides of policy issues, 
such as the AFL-CIO and National Right to Work Committee and the 
American Civil Liberties Union and American Conservative Union.\11\ 
Thanks to such overwhelming disapproval, the rulemaking stalled until 
Congress stepped in and halted the effort.
---------------------------------------------------------------------------
    \10\ Abby D. Phillip, ``IRS admits targeting conservative groups,'' 
ABC News. Available at: https://abcnews.go.com/Politics/irs-admits-
targeting-conservative-groups/story?id=19151646 (May 10, 2013).
    \11\ ``Analysis: 97% of Comments from 955 Organizations, Experts, 
and Public Officials Oppose IRS's Proposed 501(c)(4) Rulemaking in its 
Current Form,'' Institute for Free Speech. Available at: https://
www.ifs.org/wp-content/uploads/2014/07/2014-07-08_IFS-One-
Pager_Drapkin_IRS-Rulemaking-Organizational-Expert-And-Public-Official-
Comment-Analysis.pdf (July 8, 2014).

         In response, Congress adopted a budget rider that restricts 
the agency's ability to adopt regulations that police and chill speech 
and violate citizen privacy. This policy enjoys bipartisan support and 
has been included in successive federal spending agreements since 2013, 
including in the most recent budget bill that was signed by President 
Biden in mid-March. The IRS is a tax collection agency, not the speech 
police, and it has no business surveilling the activity of nonprofit 
organizations or their supporters. This budget rider prevents the IRS 
from writing new regulations to limit political speech by nonprofit 
groups. Any pressure by Members of Congress to undertake a similar 
rulemaking is prohibited by law for the next fiscal year, would receive 
widespread bipartisan opposition from the nonprofit community, and 
---------------------------------------------------------------------------
should be summarily rejected.

    (3)  Support the Privacy of Nonprofit Donor Lists by Passing the 
``Don't Weaponize the IRS Act'' (S. 1777) and the ``Simplify, Don't 
Amplify the IRS Act'' (S. 4046). Taken together, these measures ensure 
that the IRS does not collect and store nonprofit donors' private 
information--material the IRS does not need to enforce the tax code--
and will protect groups regardless of their political ideology or 
beliefs. PUFP is proud to endorse both bills. Rather than regulate 
further in this sensitive area, Congress should be proactive in 
preventing the IRS from demanding nonprofit donor information that the 
agency does not want or need.

Privately supporting causes--and the organizations advancing those 
causes--is a fundamental freedom that is robustly protected by the 
First Amendment. As Members of Congress, you have taken an oath to 
support and defend the Constitution of the United States. On behalf of 
the millions of American citizens represented by organizations that 
speak on their behalf, we strongly urge you to protect nonprofit donor 
privacy and reject harmful donor disclosure mandates.

Sincerely,

Heather Lauer
Executive Director

                                 ______
                                 
                             Public Citizen
                          Bright Lines Project

                      215 Pennsylvania Avenue, SE

                          Washington, DC 20003

                             (202) 546-4996

        https://www.citizen.org/article/bright-lines-project-4/

Thank you for holding this important hearing. Given their prominence in 
the national consciousness, nonprofits have in important role to play 
in shaping civic discourse. They can and should do political activity 
(within the legal limits) to further their missions.

Decades of decisions from the Internal Revenue Service (IRS), the 
Treasury Department (Treasury), Congress, and the Supreme Court have 
distorted the rules governing nonprofit political activity, separating 
nonprofits from what Congress intended when writing section 501(c). 
Social welfare organizations in particular have become conduits for 
secret election spending rather than working to boost the country's 
social welfare as they were designed to do. These organizations have 
become attractive to powerful donors wanting to influence elections 
while concealing their identity. The 2010 Citizens United decision, in 
combination with revisions of the gift tax rules, spurred the creation 
of partisan (c)(4) organizations designed specifically to exploit 
existing laws that were never designed for this new type of election 
spending.

Congress and the Treasury Department must act to clarify the rules 
surrounding political activity for nonprofits to ease enforcement, 
simplify true civic participation activities for nonprofits, and stop 
bad actors willing to flout the rules.

In this submission, we recommend several steps to rectify what's gone 
wrong and put nonprofits back on firmer ground.

Congress should:

      Pass legislation outlining objective standards for nonprofit 
political activity applicable to all 501(c) organizations, such as the 
Bright Lines Project proposal;\1\
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      Increase IRS funding for nonprofit enforcement;
      Approach IRS funding decisions apolitically; and
      Remove the budget rider preventing Treasury from making rules in 
this area for 501(c)(4)s.

The Treasury Department should:

      Begin a rulemaking to clarify political activity rules for 501 
(c)(3) organizations, which it can still do in advance of the repeal of 
the rider;
      Rescind the 2020 rule ending the requirement that nonprofits 
submit form 990 section B to the IRS.

Actions for Congress

 Pass Legislation Creating a Comprehensive Framework of Objective Rules 
        and Safe Harbors for All Nonprofits
The Bright Lines Project was drafted nearly a decade ago by a group of 
nonprofit attorneys (the drafting committee) who repeatedly heard from 
their clients that better rules were needed in this area (even before 
Citizens United and the IRS scandal of 2013, which made the need for 
new rules more obvious still). The rules are based around the rules 
governing (c)(3) lobbying, rules that have worked well for decades.

The drafting committee set out to create a comprehensive framework 
covering the full range of potential communications and transactions, 
defining safe harbors on one side and per se intervention on the other, 
with a much narrower range for prosecutorial discretion in the middle. 
This would achieve improved voluntary compliance--with more predictable 
standards of conduct--and have the immediate effect of invigorating 
nonprofit participation in our democracy.

The plan consists of objective rules designed to be easy to follow by 
nonprofit workers and IRS enforcers alike. The rules clearly define and 
differentiate between per se intervention and candidate advocacy, and 
lay out a safe-harbor system designed to encourage truly nonpartisan 
civic activity.

The rules define per se political intervention first, obvious political 
activity such as expressly advocating for the election or defeat of a 
candidate or political party. They specify that any communication that 
clearly refers to and expresses a view on a political candidate would 
generally be deemed political activity unless the communication fits 
within one of several specific exceptions that would protect:

      Legitimate grassroots advocacy on current policy issues;
      Nonpartisan efforts to educate the public on candidate policy 
positions; and
      Measured responses to candidate statements about the 
organization or its core issues.

These exceptions wouldn't be available for paid ``mass media'' 
communications--such as TV, radio, newspaper, direct mail, online 
advertising, and phone banks.

The plan recognizes that subjective analysis may be helpful in some 
cases, and so keeps the current test as a back-up in the unlikely event 
that the full analysis does not provide a clear answer.
Boost IRS Funding Generally, and for Nonprofit Enforcement
In addition, Congress should boost the IRS's funding in general and for 
nonprofit enforcement in particular. In 2018, the Tax Inspector General 
found \2\ that many complaints of impermissible political activity by 
nonprofits were not being referred to the correct committee for further 
investigation and potential audit. Increased staffing and funding of 
the Tax Exempt and Government Entities division should be prioritized 
to ensure that the recommendations of that report are fully 
implemented, and that adequate oversight of nonprofit political 
activity occurs.
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9ixaIODqHpcw3Lg3ePCaLlohXo8v
YpqEpbWgd3phs3nF1GaHOjQYHtjprqQTrgo2xb90oxp3u8uNaMTAb52dO1Epld-
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Approach IRS Funding Without Political Bias
The IRS's cash-strapped position increases the risk that fear of 
congressional retaliation could have a chilling effect on what issue 
areas the IRS and Treasury undertake drafting guidance or issuing 
NPRMs. Drafting new guidance or proposed rules, considering public 
comment to those rules, and revising and issuing new rules are resource 
consuming endeavors, particularly for an agency that lacks adequate 
funding. Fear of congressional punishment through appropriations could 
stop Treasury and the IRS from undertaking vital work to solve the 
problems this subcommittee has identified.
 Lift the Appropriations Rider Banning the Treasury Department From 
        Making Rules Surrounding 501(c)(4) Political Activity
Over and over for years now, Congress has renewed an appropriations 
rider in the Financial Services and General Government title that 
prevents the IRS and Treasury from clarifying the rules for political 
activity for social welfare organizations. This rider, inserted without 
transparency or debate in the final negotiations of the 2015 
appropriations bill, prevents Treasury from taking its inspector 
general's own advice on how best to avoid ``scandals'' like that of 
2013. In fact, the rider stopped a Treasury rulemaking on that very 
issue in its tracks.

Partisan budget riders are no way to make good law, and do not belong 
in budget negotiations. Congress should remove this rider and allow 
Treasury to make better rules for all nonprofits.

Actions for Treasury

Begin a Rulemaking for 501(c)(3) Organizations
It may seem counterintuitive that detailed standards for political 
activity would help section 501(c)(3) organizations. In fact, they have 
a particular need of guidance because of their significant presence in 
the U.S. and the dire consequences they face for crossing the nebulous 
line into impermissible political activity.

They are the most numerous among tax-exempt organizations; they have 
the most assets; and they, alone, risk revocation of their tax-exempt 
status as a result of any political activity, however minor.

Furthermore, many (c)(3) organizations seek to engage in the democratic 
process, especially in an election year, in ways that have long been 
accepted and even encouraged. In fact, both Congress and Treasury have 
long recognized that (c)(3)s play an invaluable role in preserving a 
healthy democratic system and an engaged citizenry. Yet, the experience 
of the Bright Lines Project drafting committee indicates that a lack of 
clear guidance in the political space has made many (c)(3)s overly 
risk-averse, causing these organizations to shy away from even the most 
benign nonpartisan efforts altogether. This creates a tremendous 
chilling effect on the speech of law-abiding 501(c)(3) organizations 
and deters long-standing civic engagement and voter education efforts. 
Perversely, the current system can also empower more brazen 501(c)(3) 
organizations to engage in overt efforts to influence election outcomes 
with little fear of enforcement action.

As the rest of this submission indicates, the best way to help 
nonprofits would be to issue rules that apply to all 501(c) 
organizations. However, in absence of congressional action lifting the 
rider restricting clearer definitions for (c)(4)s, a rulemaking 
providing guidance for (c)(3)s would be a good start.
Rescind the 2020 Rule Ending the Requirement That Some Nonprofits 
        Provide Donor Information to the IRS
In 2020, the Treasury Department ended the requirement that nonprofits 
that do political activity submit basic information about their donors 
to the IRS. Rescinding that requirement eliminated one of the only 
opportunities for enforcers to find and stop illegal foreign 
interference into our election system. The change also makes it harder 
to adequately enforce the rules, because bad-actor nonprofits will have 
more notice before an audit, giving them time to cook their books. 
Treasury should reinstate this requirement and take this opportunity to 
review other ways to prevent foreign election spending and other 
malfeasance.
Public Citizen on behalf of the Bright Lines Project deeply appreciates 
the opportunity to submit testimony for this important hearing, and we 
applaud the subcommittee for exploring these vital issues.

For further information or with any questions, please contact:

Emily Peterson-Cassin
[email protected]; 202-445-1401o

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