[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
HEARING ON GROWTH OF THE TAX-EXEMPT
SECTOR AND THE IMPACT ON THE AMERICAN
POLITICAL LANDSCAPE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON OVERSIGHT
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 13, 2023
__________
Serial No. 118-OS05
__________
Printed for the use of the Committee on Ways and Means
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U.S. GOVERNMENT PUBLISHING OFFICE
55-787 WASHINGTON : 2024
COMMITTEE ON WAYS AND MEANS
JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio BILL PASCRELL, Jr., New Jersey
JODEY ARRINGTON, Texas DANNY DAVIS, Illinois
DREW FERGUSON, Georgia LINDA SANCHEZ, California
RON ESTES, Kansas BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania TERRI SEWELL, Alabama
KEVIN HERN, Oklahoma SUZAN DelBENE, Washington
CAROL MILLER, West Virginia JUDY CHU, California
GREG MURPHY, North Carolina GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee DAN KILDEE, Michigan
BRIAN FITZPATRICK, Pennsylvania DON BEYER, Virginia
GREG STEUBE, Florida DWIGHT EVANS, Pennsylvania
CLAUDIA TENNEY, New York BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota JIMMY PANETTA, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
Mark Roman, Staff Director
Brandon Casey, Minority Chief Counsel
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SUBCOMMITTEE ON OVERSIGHT
DAVID SCHWEIKERT, Arizona, Chairman
BRIAN FITZPATRICK, Pennsylvania BILL PASCRELL, New Jersey
GREG STEUBE, Florida JUDY CHU, California
CLAUDIA TENNEY, New York BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota SUZAN DelBENE, Washington
BETH VAN DUYNE, Texas GWEN MOORE, Wisconsin
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
C O N T E N T S
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OPENING STATEMENTS
Page
Hon. David Schweikert, Arizona, Chairman......................... 1
Hon. Bill Pascrell, New Jersey, Ranking Member................... 2
Advisory of December 13, 2023 announcing the hearing............. V
WITNESSES
Justin Chung, Legislative Attorney, Congressional Research
Service........................................................ 9
Scott Walter, President, Capital Research Center................. 22
Stewart Whitson, Legal Director, Foundation for Government
Accountability................................................. 33
Philip Hackney, Associate Professor of Law, University of
Pittsburgh..................................................... 39
MEMBER QUESTIONS FOR THE RECORD
Member Questions for the Record and Responses from Justin Chung,
Legislative Attorney, Congressional Research Service........... 98
Member Questions for the Record and Responses from Scott Walter,
President, Capital Research Center............................. 101
Member Questions for the Record and Responses from Stewart
Whitson, Legal Director, Foundation for Government
Accountability................................................. 126
PUBLIC SUBMISSIONS FOR THE RECORD
Public Submissions............................................... 134
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GROWTH OF THE TAX-EXEMPT SECTOR AND THE IMPACT ON THE AMERICAN
POLITICAL LANDSCAPE
WEDNESDAY, DECEMBER 13, 2023
House of Representatives,
Subcommittee on Oversight,
Committee on Ways and Means,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:02 p.m. in
Room 1100, Longworth House Office Building, Hon. David
Schweikert [Chairman of the Subcommittee] presiding.
Chairman SCHWEIKERT. So let's actually go ahead and start
ourselves.
Good afternoon. Welcome to today's Oversight Subcommittee
hearing on the growth of tax-exempt sector and the impact on
the American political landscape. If I could have altered that
title a little bit, I would have actually gone with The Use of
Pre-tax Money in These Types of Activities, because that is
also part of one of my fixations.
Today we would like to hear from our panel of expert
witnesses about the growth and changes the tax-exempt sector
has undergone as well as discuss some political activities of
these organizations.
We have read several articles about large sums of money, to
the tune of millions and millions of dollars, flowing from
foreign nationals into U.S.-based 501(c)(3)s and 501(c)(4)s,
which have directed these funds into influencing American
politics. While U.S. law makes it illegal for foreign nationals
to donate directly to U.S. candidates for office, it seems
these actors have found loopholes. This would raise eyebrows
for all Americans.
At the same time, I would like to emphasize that Americans
have a First Amendment right to contribute to these
organizations with their privacy intact. Under current law, and
I want to walk through a scenario, and this was as much for all
of us to sort of think through the exposure: under current law,
if Vladimir Putin were to donate money tomorrow to a U.S. based
501(c)(4), the organization is not required to disclose the
source of those funds. Hypothetically, this organization could
subsequently direct this money to a super PAC that could help
directly elect a candidate for U.S. office, for Federal office.
Some of our colleagues on the other side of this have
argued that Republicans are the drivers of dark money spending.
But I would like to point out the fact about Democrats' use of
sophisticated dark money networks in the hopes that they remain
intellectually consistent as we have this discussion. According
to Open Secrets, total dark money spending data from the 2020
election cycle shows that there were nearly 2-and-a-half times
more left-wing money than Republican money. While some
Democrats have called for closure of these loopholes, Open
Secrets has noticed that this hasn't stopped those very folks
calling for the closure of the loopholes from using these
loopholes.
CNN reported that during the 2020 presidential cycle Mr.
Biden enjoyed six times the amount of dark money that the
former President did. Mr. Biden had nearly $123 million of dark
money that backed his bid, as opposed to 22 million that backed
former President Trump. It wasn't just the 2020 presidential
cycle, though. The Democrat dark money advantage in 2018, 2019
mid-term elections continue.
I hope our witnesses today can educate us about where they
are, where there are vulnerabilities to allow this pre-tax
money to flow into things that intellectually, at least, as we
believe in the intent of the law, are inappropriate.
Chairman SCHWEIKERT. And with that I yield to my ranking
member.
Mr. PASCRELL. Thank you, Mr. Chairman. I would like to
start today with just a brief history lesson.
Chairman SCHWEIKERT. I couldn't stop you if I wanted to.
Mr. PASCRELL. It has been over 13 years since the Supreme
Court unleashed a tidal wave of dark money into politics
through the disastrous--or what I consider--a Citizens United
decision. And it was quite a controversy after that decision
and up to this day.
We have seen political 501(c)(4)s, particularly--the
chairman has mentioned those organizations pour over $1 billion
into Federal elections, every dollar, without any requirement
to disclose the funding source. I think, if you listened to the
chairman, he was very precise about that. My colleagues, my
friends on the other side of the aisle, are making today about
targeting tax-exempt organizations that don't align with their
politics.
Mr. Chairman, I ask unanimous consent to enter into the
record an op ed in the Los Angeles Times entitled,
``Republicans now want to investigate tax exempt groups, just
not their own,'' if I may.
Chairman SCHWEIKERT. So ordered.
[The information follows:]
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Mr. PASCRELL. All right. For a decade the other side hailed
the Supreme Court's hideous decision. I think it is a hideous
decision, you don't.
Chairman SCHWEIKERT. Actually, I----
Mr. PASCRELL. You are not so sure. Okay. To toss out a
century of campaign finance law and open up the floodgates to
unlimited dark money in our elections.
Look, neither side is privy to virtue on this stuff. I have
been saying that all along. However, I would like to change the
Supreme Court's mind about that, because I know it has opened
up for everybody. That is what I am talking about today.
In the aftermath of Citizens United, I introduced
legislation to keep foreign influence out of American
elections. You didn't remember that. My bill would have
prevented corporations controlled by foreign actors from making
any contributions to our elections. It got almost no Republican
support. That doesn't make them bad people, but it got no
support from the other side except one or two.
After it was included in a democratic package to promote
transparency, it died through a filibuster in the Senate.
Chairman SCHWEIKERT. We didn't do it.
Mr. PASCRELL. And when the IRS tried to crack down on dark
money a decade ago, the other side created a fake scandal to
falsely claim conservative groups. Don't get me started on the
Lerner case, because people's private information was given to
the public, and 6103 is pretty specific about that. It pertains
to both sides, Democrats and Republicans.
So, despite a comprehensive TIGTA report in 2017 finding no
unfair targeting, an appropriations rider pushed by the other
side the Republicans have blocked the IRS from issuing
regulations governing the very spending that you talked about
in your opening statement. That is a fact. I hope my colleagues
across the aisle will support finally allowing the IRS to do
its job.
There is a common ground to be found on tax-exempt
oversight. I personally believe it, or else I wouldn't say it.
But I am not optimistic, based on the testimony we are
expecting here in the openly partisan manner by which this
hearing was conceived.
Mr. PASCRELL. Thank you, Mr. Chairman, and it is good to
see you today.
Chairman SCHWEIKERT. And, Mr. Pascrell, I want to
congratulate you on your ceremony you have happening today. And
with that I would actually like to reach out for a few minutes
from the chairman of the full committee.
Chairman SMITH. Thank you, Chairman Schweikert, Ranking
Member Pascrell. It is great to be with you all.
The number of tax-exempt organizations in this country has
seen massive growth in recent years. That has coincided with a
huge influx of capital. Today there is almost 3 times the
number of charities in the United States compared to 30 years
ago. In the last 15 years, employment by non-profits has
increased by over 30 percent. By comparison, jobs in the
private sector overall only increased by 9 percent in the same
period.
The question is what is behind the explosion of these
organizations in the United States, and for what purposes?
A chief concern is the money from foreign nationals that
appears to be pouring into tax-exempt organizations, while at
the same time those same organizations are seeking to influence
American politics. Foreign nationals are prohibited from
directly donating to campaigns or outside political groups.
However, there is evidence that some individuals are acting
like a wolf in sheep's clothing and setting up tax-exempt
organizations for the purposes of affecting our political
process.
For example, a Swiss billionaire has reportedly given
hundreds, hundreds of millions through tax-exempt organizations
that were focused on promoting then-candidate Joe Biden's
agenda. This wealthy individual's organizations are part of a
broader network run and operated by an umbrella organization
called Arabella Advisors that have formed a key part of the
Democrat Party's political infrastructure in recent years.
Other billionaires have tried to influence elections
through a supposedly charitable back door. During the 2020
election, Mark Zuckerberg donated 328 million to 501(c)(3)
organizations that funded state and local election offices in
ways that may have helped one political party over another.
Americans should be concerned that wealthy foreign
nationals are using America's tax code to conceal their
attempts to influence the American political process, despite
being prohibited from donating directly to campaigns. The only
people that should be influencing the outcomes of American
elections are Americans.
As we explore these issues, I want to note the importance
of privacy protections for Americans who donate to tax-exempt
groups. As we protect our electoral process from foreign
influence, we cannot sacrifice or risk donor privacy for
Americans.
I am pleased we are having this hearing today, and I am
grateful to our witnesses for sharing their expertise with us.
I would note that two of our witnesses submitted formal
responses to the request for information we put out earlier
this year. My hope is that today's hearing will help us better
understand the growth of the tax-exempt sector and its impact
on American politics.
Chairman SMITH. I yield back, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Mr. Chairman. And just a
slight point of personal privilege, thank you for letting me do
a couple of these more technical hearings of areas of personal
interest. I think it is good public policy to delve into these.
So thank you, Mr. Chairman. We are now going to introduce the
witnesses.
Justin Chung is legislative attorney for the Congressional
Research Services.
Scott Walter is president of Capital Research Center.
Stewart Whitson is legal director at the Foundation for
Government Accountability.
Philip Hackney is associate professor of law at the
University of Pittsburgh.
Thank you for joining us all today. Your written statements
will be made part of the hearing record. You each have five
minutes.
An idiosyncrasy of this room, this room has horrible
acoustics. Get really close to that microphone. Please start.
STATEMENT OF JUSTIN CHUNG, LEGISLATIVE ATTORNEY, CONGRESSIONAL
RESEARCH SERVICE
Mr. CHUNG. Chairman Smith, Chairman Schweikert, Ranking
Member Pascrell, members of the subcommittee, my name is Justin
Chung, and I am a legislative attorney in the American law
division of the Congressional Research Service. Thank you for
the opportunity to testify today on tax-exempt organizations
and their involvement in political activity. As you have
requested, I will focus on three subjects.
First I will discuss the development of Federal law on tax-
exempt organizations with a focus on section 501(c)(3)
charitable organizations, and section 501(c)(4) social welfare
organizations.
Second, I will illustrate the growth of these groups over
the past several decades.
And third, I will explain the current reporting
requirements for these entities.
The Wilson-Gorman Tariff Act of 1894 contained one of the
earliest statutory references to tax exemption for charitable
organizations. The Act also established the requirement that
exempt charities operate for certain enumerated purposes.
Congress first introduced the separate tax exemption for social
welfare organizations in 1913. The Internal Revenue Code of
1954 introduced the current structure of the code, with section
501(c) describing the now familiar categories of tax-exempt
organizations. These included 501(c)(3) charitable groups and
501(c)(4) social welfare groups.
The 1954 code also established limits on political
activities: 501(c)(3)s were explicitly prohibited from
participating in or intervening in a political campaign of a
candidate for public office. The code did not impose the same
explicit limits on (c)(4)s. Subsequent IRS rulings gave (c)(4)s
more leeway to engage in lobbying and political activities than
(c)(3)s. The 1954 code further distinguished between a public
charity and a private foundation for 501(c)(3)s. Public
charities generally engage in greater public activity and
receive more public support than private foundations.
The 501(c)(3)s and (c)(4)s are the first and second most
common type of exempt organizations today. They differ in some
significant ways.
First, charitable contributions to (c)(3)s may be tax
deductible, while contributions to (c)(4)s generally are not.
Second, (c)(3)s and (c)(4)s differ in their ability to
engage in political activity, such as electioneering and
lobbying. For example, (c)(3)s may not engage in campaign
activity and may only conduct a limited amount of lobbying.
Meanwhile, (c)(4)s may engage in campaign activity as long as
it is not its primary purpose of the organization, and an
unlimited amount of lobbying if it is related to the group's
exempt purposes.
By many measures, there has been substantial growth among
501(c)(3)s and (c)(4)s over the past several decades.
Under its constitutional taxing power, Congress has the
authority to condition an organization's exempt status on
regular reporting of certain information. Section 501
organizations generally must file some version of the Form 990.
Schedules for the Form 990 request additional information. The
current schedule B and instructions do not delineate between
foreign and domestic contributions. Schedule B reports
substantial donors' contributions.
They also do not have specific instructions on reporting
the receipt of foreign contributions. Schedule B does not ask
501(c)(3)s and (c)(4)s to report the purpose and use of
contributions.
Generally, all 501 organizations, including (c)(3)s and
(c)(4)s, must report the dollar amount of significant
contributions on Schedule B. However, under the code and
current IRS regulations, whether donor information--that is,
names and addresses--must be reported in the Schedule B depends
on the type of organizations: (c)(3)s must report donor
information while (c)(4)s do not. Whether the donor information
by 501(c)(3)s is released to the public depends on whether it
is a private foundation or--a private foundation or a public
charity. Donor information by a private foundation is publicly
available, but not donor information reported by public
charities.
Thank you again for the opportunity to testify. I welcome
questions from the committee.
[The statement of Mr. Chung follows:]
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Chairman SCHWEIKERT. Thank you, Mr. Chung.
Mr. Walter.
STATEMENT OF SCOTT WALTER, PRESIDENT, CAPITAL RESEARCH CENTER
Mr. WALTER. Chairmen Smith and Schweikert, Ranking Member
Pascrell, distinguished members of the subcommittee, thank you
for the honor of testifying. I am president of the Capitol
Research Center, where we study how special interests engage in
politics, especially through non-profits.
I am excited to be asked to discuss foreign money in
American non-profits because in our deeply polarized world,
foreign money in our politics is opposed by nearly everyone:
left, right and center.
Last year, when I testified alongside today's Democratic
witness, he raised the specter of illegal foreign contributions
to 501(c)(4) non-profits and cited a journal article whose
author insisted foreign donations pose ``different and greater
dangers'' than legal domestic donations to (c)(4)s, donations
often criticized as dark money. Our happy task of bringing left
and right together on this threat should be even easier.
Because by far, the largest case I know of where foreign money
flows to American (c)(4)s and (c)(3)s involves a billionaire.
While conservatives don't insist billionaires shouldn't even
exist, as one Democratic member of this House has said, we do
criticize billionaire donors when they improperly interfere
with American politics, as when the Zuckerbergs gave a half
billion dollars to manipulate the 2020 elections.
Today we can focus on the Swiss billionaire and foreign
national, Hansjorg Wyss, who in the last two decades gave
roughly a half billion dollars to America's largest dark money
network, the sprawling empire run by Arabella Advisors. Don't
think I am pushing a conspiracy theory. My written testimony
carefully documents this foreign billionaire's meddling in
American politics, citing only mainstream media sources: The
New York Times, Politico, and the Associated Press, plus the
Federal Election Commission's general counsel.
The FEC's general counsel notes Wyss illegally-made direct
political contributions, though the statute of limitations has
expired, giving to Senator Dick Durbin and Representatives Jay
Inslee and Mark Udall, among others. The Associated Press calls
Wyss a Democratic-aligned megadonor, and reports his non-
profits helped ``bankroll efforts to lift President Joe Biden's
agenda, and paid for TV ads promoting Democratic
congressional candidates in the mid-terms.''
The New York Times reports, ``Tax filings show the Wyss
Foundation and (c)(4) Berger Action Fund donated $208 million
from 2016 through 2020 to 3 other non-profit funds that doled
out money to a wide array of groups that backed progressive
causes and helped Democrats in their efforts to win the white
House and control of Congress.''
Beneficiaries of Wyss's direct giving included
organizations that ``ran voter registration and mobilization
campaigns to increase Democratic turnout, and built media
outlets accused of slanting the news to favor Democrats.''
Politico reports Wyss gave $1 million to the National
Redistricting Action Fund, a sister group of Democrats'
National Redistricting Hub. This is truly shocking: a foreign
national billionaire appears to have affected the very
membership of this House and this committee. The lines
governing the districts you represent may have been carved in
part by this foreign money. The same foreign cash may have
funded the turnout efforts in your last elections.
Surely, we can all agree this is not the role of foreign
billionaires. Note that this foreign billionaire wasn't
operating alone. For two decades he has been joined at the hip
with the undisputed heavyweight of Democratic dark money, the
Arabella Advisors empire. The non-profits run by Arabella
include (c)(3)s and (c)(4)s. They are gargantuan. In the 2018
election cycle these non-profits raised $1.2 billion; in 2020,
2.6 billion; in 2022, 3 billion.
Several remedies have been suggested to deal with this
problem. Some are reasonable. For instance, legislation
introduced into the House that would prohibit (c)(4)s that
receive foreign cash from donating to super PACs for several
years. Other responses include Professor Hackney's suggestion
that private foundations be eliminated from the tax code, and
my own think tank's suggestion that (c)(3) foundations and
charities not be allowed to fund or execute voter registration
and turnout.
The President of Wyss's Foundation and (c)(4), Molly
McUsic, was involved in a massive (c)(3) voter registration
scheme that is still active and deserves its own hearing.
Some people call for greater enforcement by the IRS, but we
all know the IRS has been badly abused by both parties in the
past, and is always likely to have partisans like Lois Lerner
overseeing enforcement.
Lastly, there is the supposed all-purpose cure for
everything non-profit, namely government-coerced donor
disclosure. I am proud to stand with the NAACP of Bull Connor's
1950s Alabama and the NAACP of this afternoon who oppose that
ugly intrusion on the privacy of American citizens. Thank you.
[The statement of Mr. Walter follows:]
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STATEMENT OF STEWART WHITSON, LEGAL DIRECTOR, FOUNDATION FOR
GOVERNMENT ACCOUNTABILITY
Mr. WHITSON. Chairman Smith, Chairman Schweikert, Ranking
Member Pascrell, members of the committee, good afternoon. My
name is Stewart Whitson, and I am the legal director at the
Foundation for Government Accountability. FGA is a non-
partisan, non-profit organization that seeks to enhance the
lives of all Americans by improving welfare, workforce, health
care, and election integrity policy at the state and Federal
levels.
During the 2020 election, the Chan Zuckerberg Initiative
donated more than $400 million to fund election activities.
Most of those funds, coined Zuckerbucks, were provided to the
center for Tech and Civic Life, a left-leaning non-profit run
by a former Obama Foundation fellow. Marketed as money for
purchasing personal protective equipment in response to COVID-
19, the funds were instead used primarily to drive procedural
changes and get out the vote efforts that benefitted the left.
Groundbreaking research and analysis by my colleagues at
FGA revealed large disparities in Zuckerbucks funding
allocation. Counties won by President Biden in 2020 received
significantly more in Zuckerbucks funding than counties won by
former President Trump. The infusion of cash into certain
jurisdictions, those that leaned heavily Democrat, drove up
voter turnout in blue districts and allowed partisanship to
weasel its way into the one part of elections that is supposed
to be non-partisan.
In other words, it appears that CTCL, a 501(c)(3)
organization, used Zuckerbucks to hijack and transform the
government itself into a partisan get-out-the-vote tool.
Recognizing the danger posed by CTCL's efforts, 27 states have
passed Zuckerbucks bans, some bipartisan, prohibiting local
governments from applying for, accepting, or spending any
private funding for election administration.
Unfortunately, CTCL seems to be actively working to
sidestep these new state laws by rebranding itself as the U.S.
Alliance for Election Excellence. According to an announcement
made by CTCL, the new program will distribute at least $80
million in funding across the country, while providing coaching
and other support to a select group of local election
officials. CTCL appears to have abused its 501(c)(3) tax exempt
status in 2020, and it may be actively working to do so again
in 2024.
But unfortunately, CTCL isn't the only 501(c)(3) group
whose actions should draw serious concern from this committee.
There is another group, Demos, that appears to be an even
graver concern.
So back in March 2021, President Biden signed Executive
Order 14019. We call this scheme Bidenbucks because it is
Zuckerbucks on steroids. Instead of Mark Zuckerberg, it is
President Biden. And instead of $400 million, it is unlimited
funding, resources, and reach of the Federal Government and its
offices located in states across the country. The order
commands the head of every Federal agency to develop a plan to
do two things: promote voter registration and promote voter
participation.
The order also commands all Federal agencies to solicit and
support ``approved third-party organizations''' to allow them
to use Federal resources to register and mobilize the voters
these groups target, and to do so on Federal property located
in every state.
So which groups will receive this special approval? We
don't know, because the Biden Administration refuses to
disclose the list or even the criteria for approval, not only
to FGA, but to the dozens of Members of Congress who have
demanded answers, as well.
Fortunately, Bidenbucks has not gone unnoticed by Congress.
And in fact, one of the members of this committee,
Congresswoman Claudia Tenney, has introduced legislation to
defund the Bidenbucks executive order.
In addition, dozens of members from both the House and the
Senate have demanded transparency from the Biden
Administration, calling out Demos for its outsized role in what
appears to be an unlawful, partisan effort to keep the current
President's political party in power.
So with that I thank the chairman for the opportunity to
provide testimony today, and I look forward to answering any
questions you might have.
[The statement of Mr. Whitson follows:]
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Chairman SCHWEIKERT. Professor.
STATEMENT OF PHILIP HACKNEY, ASSOCIATE PROFESSOR OF LAW,
UNIVERSITY OF PITTSBURGH
Mr. HACKNEY. Chair Smith, Chair Schweikert, Ranking Member
Pascrell, distinguished members of the subcommittee, thank you
for inviting me to speak with you today. I am a professor of
law at the University of Pittsburgh. I specialize in non-profit
organizations. From 2006 to 2011 I worked with the IRS chief
counsel in D.C., overseeing the tax-exempt sector. Today this
sector is my research focus.
Our overall legal structure for political activities of
non-profits is imperfect, but not bad. It is justifiable.
Indeed, at its best it is very good, a paragon of civil
society. As I told the Senate Finance Committee just last year,
where we fall down is enforcement. That failure lies in a
failed IRS budget and a failure of the IRS to pursue clear
violations. These failures do not favor one party, but favor
those interests with the means and the will to abuse that
structure. I focus on three fundamental points.
First, a diverse non-profit sector that fosters civic
participation and engagement is a gem of the United States.
Let's maintain that.
Second, the IRS budget for exempt organizations continues
to not be sufficient to ensure the laws are equally and fairly
enforced. The efforts to claw back the Inflation Reduction Act
dollars for the IRS need to stop.
Third, there are simple things the IRS could do to enforce
the law it is not doing.
Diverse non-profit sector. As you embark on this important
endeavor working to limit abuses of the non-profit sector, ask
the question how can I make sure that the cure we choose is not
worse than the disease? As John Gardner said about the non-
profit sector, it is the natural home of non-majoritarian
impulses. It comfortably harbors innovators, maverick
movements, groups which feel they must fight for their place in
the sun, and critics of both liberal and conservative
persuasion. These organizations make up what we--many refer to
as civil society. Crafting rules for this sector takes great
care. Voter registration, get-out-the-vote efforts, non-
partisan information regarding elections all fit well within
charity, and should be encouraged, not threatened.
The budget. Congress shrank the IRS budget over the past
decade. CBO reports the IRS budget fell by 20 percent from 2010
to 2018: 94,000 employees in 2010, 73,500, 2019. Fewest
employees IRS has had since 1970. By 2022 we are still at a
historical low of about 79,000. Worse yet, the EO group at the
IRS shrank from 889 employees to around 550 in 2019, and it did
not begin to recover in 2022, when you look at the data. Audits
in 2010, the IRS had about a 0.38 percent examination rate. By
2019 TIGTA counted that at 0.13 percent, negligible.
The tax-exempt sector grew. In 2010 charitable
organizations alone reported $2.9 trillion in assets; 2019,
$4.8 trillion in assets. The idea the IRS might be able to use
its resources to ensure compliance is laughable. Efforts, as
recommended by the GAO, to make better use of data is the only
way we are going to get out of this mess.
Is the IRS using enforcement information and reporting in
the EO sphere and political activities? Not really. IRS
recently chose less information, even though it recognizes
information reporting matters in stopping tax abuse. It ended
the collection of substantial donor information a few years
ago--documents occasions where a social welfare organization
represents to the FEC that it made independent expenditures,
but reports nothing to the IRS, nothing that would stop the IRS
from using that data.
Thank you for inviting me to speak today. The tax laws are
built fairly well to prohibit the deducting of campaign
expenditures and promote a strong non-profit sector. But the
current anemic IRS budget, the lack of IRS enforcement, and
failure to collect substantial donor information creates a
crisis. This undermines confidence in the tax system.
I urge Congress to maintain the Inflation Reduction Act
dollars for the IRS budget. Please release the rider stopping
rules from being enacted regarding (c)(4)s, and please protect
the independence of the non-profit sector. It matters. Thank
you.
[The statement of Mr. Hackney follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman SCHWEIKERT. Thank you, Professor.
In consideration of Mr. Pascrell having an appointment
shortly, I am going to ask Mr. Pascrell to go first, and then
Chairman Smith.
Mr. Pascrell.
Mr. PASCRELL. Mr. Chairman, I appreciate that.
Professor Hackney, welcome aboard.
Mr. HACKNEY. Thank you.
Mr. PASCRELL. Great witnesses.
Thanks to the Inflation Reduction Act, the IRS finally has
some resources to go after political malfeasance. You described
it well. In fact, on page one you talked about some things that
haven't been discussed in the way they have been discussed, and
that is the question of testimony in tax-exempt organization
and politics. Very interesting.
Can you expand on how the IRS could better regulate
political involvement by 501(c)(4) organizations, if allowed to
do so?
How damaging has the appropriations rider blocking such
regulations been to the proper oversight of the tax-exempt
sector?
Mr. HACKNEY. Thank you, Ranking Member Pascrell. So it has
been quite damaging, right? The IRS tried to enact rules to
clarify this world. The IRS Tea Party crisis that we talked
about earlier, involving Lois Lerner, was created largely by
the fact that the rules were unclear, and the IRS didn't know
what to do, and they looked like a gang that couldn't shoot
straight. As you noted, there was no targeting found, no
reports found that. And the IRS has made good on an effort to
try and clear up this problem in the future by clarifying how
much it is that you can spend.
With a (c)(4), it is unclear what it is that you can use.
The statute itself says exclusively you must use these dollars
for social welfare, and it has been determined that engaging in
political activities is not furthering a social welfare
purpose. If the IRS could enact rules regarding this, we could
clarify what kind of level of expenditures push you into that
area.
Mr. PASCRELL. Last year I wrote to the IRS. I write to them
frequently; it is a lovely day in the neighborhood with the
IRS, for the deep concern I have with the approval of
fraudulent charities that applied for tax-exempt status. The
form is 1023EZ. As you testified, this condensed form simply
does not require enough information from applicants to
establish legitimacy in many cases.
How can the IRS improve its oversight of the application
process for the organizations to receive tax-exempt status?
Mr. HACKNEY. Ranking Member Pascrell, it is a challenging
situation, given the employees that we have. I think we have to
come back to data and use cross-checks of these organizations
against other individuals and other tax forms, so I think it is
using much more sophisticated use of data.
Whether the Form 1023 can continue to exist, it is a hard
question. The IRS used it to get out of the backlog that it is
experiencing. It just couldn't keep up with the flow of the
applications that are coming in. But I think there is the
ability to use more data to cross-check against things. This is
similar to the situation where we have CREW pointing out that
independent expenditures are being reported to the FEC, but the
IRS is doing nothing about it and allowing these organizations.
I think there is a lot of spaces there where there can be more
cross-checking of data, and I think that could make it a
significant improvement.
Mr. PASCRELL. As you know, in 2020 the Trump Administration
issued a ruling ending the longstanding requirement for tax-
exempt organizations to disclose substantial donor names and
addresses to the IRS. Can you expand on the damage this has
done to our campaign finance system, especially as it relates
to preventing foreign actors to get involved in our own
elections?
Mr. HACKNEY. Absolutely. So (c)(4)s are able to do some
political campaign intervention, and they are not necessarily
reporting to the FEC about these activities. But the IRS used
to collect donor names and addresses on these forms. This
information is critical for the IRS to enforce other aspects of
the tax law, including a prohibition on inurement to (c)(4)s
and to other tax excise taxes that apply to misuse of these
funds. It has made the IRS blind. I called my article, when I
wrote on this, ``Dark Money Darker'' for this very reason. It
has made this money impossible to see, impossible to find, even
the foreign stuff that we were talking about, as Chairman
Schweikert had pointed out.
Mr. PASCRELL. Thank you, Mr. Hackney, and thank you to all
the witnesses who are excellent. I agree with a lot of what you
are saying, and I think we can come to some general agreement
here with the troops.
What do you think?
Chairman SCHWEIKERT. I am pathologically optimistic.
[Laughter.]
Chairman SCHWEIKERT. I am 61 years old with a 17-month-old.
And with that, thank you, Mr. Pascrell.
Mr. Chairman.
Chairman SMITH. Thank you, Mr. Chairman. I want to thank
each and every one of you for taking time out of your schedule
to be here.
Mr. Walter, there are very serious concerns with how 501(c)
tax-exempt organizations may be used not only to influence
American politics and our elections, but to do so with foreign
sources of funding. The organizations under Arabella Network,
for example, with which you are familiar, have reportedly
received millions of dollars from foreign nationals while
spending large sums of money on various political activities.
Can you explain how this money moves from foreign hands to non-
profits here in the U.S., and then into the political arena?
Mr. WALTER. Certainly. In the case that I especially was
focused on, that of Hansjorg Wyss, Mr. Wyss has a (c)(3)
private foundation with billions of dollars in assets. He also
has a (c)(4), the Berger Action Fund. That is pretty uncommon.
George Soros has that kind of arrangement, not many others do.
And his (c)(3) and his (c)(4) have donated to (c)(3)s and
(c)(4)s that are run by Arabella Advisors. And of course, those
(c)(4)s, in turn, are some of the biggest contributors to super
PACs and general partisan causes.
Chairman SMITH. Given that our election laws prohibit
foreign nationals from donating directly to the campaigns of
candidates for Federal office, do you think we should
reconsider how we look at foreign donations to tax-exempt
organizations that get involved in politics?
And do you have a specific policy change that you would
recommend?
Mr. WALTER. Well, as I said in my testimony, (c)(4)s are,
you know, obviously now, a critical part of the way American
politics operates. And people on both sides of the aisle today
have raised concerns about them. So it seems eminently
reasonable to accept the fact that they are engaged in our
politics and, therefore, should those (c)(4)s be able to accept
foreign dollars and then pass on money to super PACs when no
one is quite sure whether it was the foreign money or not.
So it seems reasonable, and has been introduced in the
House already, to have limits on (c)(4)s' ability to give to
super PACs if they are going to take foreign money. You could
simply forbid the (c)(4)s from receiving foreign money or you
could make it, the (c)(4), wait years before it donates to a
super PAC.
Chairman SMITH. During this committee's investigation into
501(c) tax-exempt organizations, we came upon a quote from Mind
the Gap, a Democrat super PAC that stated in a 2020 memo to
donors, in part, ``The single most effective tactic for
ensuring Democrat victory is 501(c)(3) voter registration.''
Mr. Walter, do you know if this group continues to hold this
view and communicate this to their donors?
Mr. WALTER. I do, thanks to reporter Teddy Schleifer at
Puck News. I can tell you that they have a 2024 cycle memo, and
let me just quote a sentence: ``Our strategy early in the 2024
presidential race will be to massively scale high-performing
voter registration and mobilization programs.'' The only
grantee they recommend is the Voter Registration Project, a
(c)(3).
Chairman SMITH. Mr. Whitson, a prime example of how
501(c)(3) tax-exempt organizations have found their way into
our political system is through the sponsorship of activities
related to the actual Administration of our elections in a
clearly partisan manner, the 300-million-plus in so-called
Zuckerbucks donated by Mark Zuckerberg being a recent example
of how private funds may have influenced the electoral process
as they found their way into the actual administration of
elections by state and local governments.
What impact do you see this sort of very large, private,
targeted sponsorship of electoral activity having on the
outcome of elections and on the American people's faith in a
fair and transparent system?
Mr. WHITSON. Thank you for that question, Mr. Chairman. So
it is kind of twofold. I think, number one, it is about
inspiring voter confidence and, number two, it is about what
the outcome is going to be.
And so for FGA we are not trying to litigate the 2020
election, but we are trying to learn from it. And so to answer
your question, if we want to look at what damage we think this
could do in 2024, we do have to look to 2020 and see what
damage it did then. And so again, as I alluded to, thanks to
the great work of our team, as far as their analysis and
research, we can see what some of the effect has been across
the country. And I will give you one example: Georgia.
So in Georgia, the population of Georgia only accounts for
about 3.2 percent of the population in the U.S. But Georgia
received nine percent of Zuckerbucks. Of the Zuckerbucks money
that went in, this is interesting, there are 6 counties that
received grants of over $1 million, all 6 of those counties
were won by Hillary Clinton in 2016 and won by Joe Biden in
2024. Nine out of the ten highest-recipient counties in the
State of Georgia were won by both Clinton and Biden.
So again, what we see from the past, what happened in 2020,
is money funneled disproportionately into Democrat strongholds
based on outcomes from 2016, and that the money funneled into
the jurisdictions, the outcome was that Joe Biden won at an
incredibly high rate. So it seems the money followed Democrats,
and it seemed to have benefitted Democrats, based on our
research.
Chairman SMITH. Thank you.
I yield back, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Mr. Chairman. Let me yield
myself a few minutes here, just to understand some things.
Mr. Chung, more because you have some of the technical
background, we have had a running discussion on some previous
hearings that the, is it a 990 form, where tax-exempts, whether
it be from a hospital to these, does that form need to be
redesigned for what the mission for both research purposes, but
also for us doing tax policy?
Mr. CHUNG. Yes, thank you for your question. As you know,
CRS is a non-partisan organization, so I can't say whether the
form should be designed or redesigned or not. I can describe
what information is presented to the IRS from exempt
organizations on those forms.
The Form 990 generally has information about revenue,
assets, and expenses of the organization, and then the
schedules to the schedules to the 990 contain more specific
information. And organizations may have to fill out those
various schedules, depending on different circumstances.
So as I mentioned in my testimony, the Schedule B contains
information about substantial donors, which is generally
understood to be $5,000 or more a year.
Chairman SCHWEIKERT. Okay. The professor said something
which was far beyond even things I have read, that there could
be as much as four trillion in assets held by these. Is that
something that CRS would actually be able to document, or is
that a number you have seen?
Mr. CHUNG. Yes, the IRS does report aggregate data from the
Form 990, and so that is information that is able to be found
out. And I was able to look up some specific numbers during my
preparation for this hearing.
So, for example, the IRS reported that in 1990 to 2022, the
number of 501(c)(3) organizations grew from 546,000 to about
1.48 million. And then there was, in lockstep with that
increase, an increase in the number of assets that they hold.
So from tax year 1990 to tax year 2020, total assets held by
(c)(3)s grew from $696 billion to 5.5 trillion.
Chairman SCHWEIKERT. Five point five trillion? Okay. At
some point that is actually going to be another area of
research.
Mr. Walter, the same sort of question on would a change in
the 990 forms make at least understanding what is really going
on out there in the world easier for the researchers?
And that same question for everyone.
Mr. WALTER. Yes, Mr. Chairman. There--I would be happy to
submit for the record reports that we have made suggesting a
variety of changes on the 990 and 990PF.
The most single obvious thing would be in the case of
Arabella Advisors. They have literally hundreds of fiscally
sponsored groups, and nothing in the 990 requires them to say
anything about those particular groups, which lets those groups
hide in greater darkness than a regular non-profit like mine.
Chairman SCHWEIKERT. Okay.
Mr. WHITSON. So this is an area a little bit outside of
FGA's wheelhouse. And so I think our biggest thing is, you
know, those who don't learn from history are doomed to repeat
it, and so we keep coming. I applaud the efforts to come up
with solutions, but our position is always to look at this,
look back to 2013 and the Lois Lerner example, but then also
look back even further to 1958, to the NAACP v Alabama case,
and just see in the past when----
Chairman SCHWEIKERT. That is donor disclosure.
Mr. WHITSON. Yes. And so any time we are in--yes, Mr.
Chairman.
Chairman SCHWEIKERT. Okay. Professor, 990, for those of us
who want to just do sort of aggregate research, do we need to
update the forms?
Mr. HACKNEY. Yes, and I will explain why. When I was there
2006 to 2011, the office did a major redo of it, and it
improved it in some ways. But the thing that I think is still
missing is a uniformity of concept.
So you can have organizations that are taking certain
terms, like community benefit that a hospital does, and have
all sorts of different concepts about what that concept means.
So I think the most critical thing is to have a uniform concept
of what individuals are reporting. So more definitional
aspects.
I think there could be improvement in the way that
information is presented. I haven't given enough thought about
it, but the uniformity of what it means when you use certain
terms, that would be an enormous help so that you have data
that you can compare. Right now you can't compare that. It is
apples to oranges.
One other thing. Churches don't report, which has its
benefits and its detractions. I have written about this. But
that creates a hole there, as well, so you miss some data.
But uniformity of terms would help a lot.
Chairman SCHWEIKERT. Okay. Look, I don't mean to ramble on
this, but there was a story, I think it is ProPublica, about a
year-and-a-half, two years ago. And the focus of the article
was actually the use of 501(c)(3)s and others, and almost
creating sort of a generational skipping trust, and the
movement of money, and the ways to use pre-tax monies. And only
two-thirds through the article then you got an, ``Oh, and by
the way, some of this is also going into politics.'' And that
is actually what generated part of this discussion here.
So it is both, pre-tax money isn't supposed to go into
politics. And if I need to fixate on that, I will. But also the
use of some of these pre-tax-type of entities as a way to avoid
certain taxes, also something we also need to understand. That
is a little beyond the scope of this, but that is where the 990
question comes in, there may be a much broader breadth here.
And with that I am going to reach over to Ms. Chu.
It is yours.
Ms. CHU. Thank you, Mr. Chair. Before I begin, I ask
unanimous consent to enter into the record written testimony
from Citizens for Responsibility and Ethics in Washington, or
CREW, and it says that Congress should take action to shine
light on dark money by empowering the IRS to both enforce and
clarify the rules governing political activity by tax-exempting
organizations.
Well, Professor Hackney, I am working with Senator Sheldon
Whitehouse, chair of the Senate Budget Committee, on
legislation to close a harmful loophole in the tax code that I
was so pleased you mentioned in your testimony. Wealthy
individuals who hold appreciated property like stock in a
company can actually donate that property to a 501(c)(4)
organization which is not subject to the gift tax, and
completely avoid paying capital gains taxes on that donation.
This loophole effectively gives a public subsidy to the
wealthy who seek to influence politics and elections through
dark money organizations. As I mentioned at a hearing last
week, billionaire Barre Seid donated $1.6 billion in stock
earlier this year to a right-wing non-profit organization that
engages in political activity, avoiding a tax bill of up to
$400 million.
So, Professor Hackney, can you briefly describe the
difference in the tax treatment of a donation of appreciated
property like company stock to a 527 political organization
versus the same donation to a 501(c)(4)?
Mr. HACKNEY. Thank you, Member Chu, great question. And I
think this is an issue that goes to the heart of Chair
Schweikert's interest in making sure we are neutral to this.
If you donate to a 527 or contribute to a 527, this is a
political organization carrying out election activities.
Section 84 of the code applies a tax on the gain to the
contributor, so they wIll pay tax on the difference between
what they bought the thing at, say they bought it at $10 and it
is now $100, they are going to pay tax on that gain, that $90
gain. You do the same thing to a (c)(4), there is no tax, no
gift tax either. So there is a real nice way, if you are
wealthy, to get tax advantage contributions and accomplish
political purposes, at least about 49 percent, potentially,
under many people's conceptions.
Ms. CHU. And many 501(c)(4) organizations do, in fact,
engage in political activity, as long as that is not their
primary purpose. Correct?
Mr. HACKNEY. That is correct.
Ms. CHU. So, in effect, a billionaire can receive a massive
tax break for donating appreciated stock to a 501(c)(4) that
seeks to influence our politics and elections, while also
avoiding the public disclosure rules that apply to 527
organizations like PACs. Correct?
Mr. HACKNEY. That is absolutely correct.
Ms. CHU. So, can you expand on why you suggest Congress
should consider closing this loophole and treating donations of
appreciated property to 501(c)(4)s in the same way as donations
to 527s for purposes of capital gains tax, and what impact that
would have in helping the IRS adequately enforce our tax laws
with respect to tax-exempt organizations and political
activities?
Mr. HACKNEY. I think the fundamental aspect is that I think
Congress has made a choice, and I think we as a nation have
made a choice that the government should be neutral as to
politics. Section 84 would stop this from happening at the
(c)(4) level. Our (c)(4)s are absolutely engaging in politics.
This would put a tax.
And one of the things that is particularly problematic
about it is the wealthier you are, the more benefit you get
from these rules. Putting Section 84 there would make the fisc
neutral to these matters, as Chair Schweikert is looking to
accomplish. I think Section 84 is a really good start to an
answer to Chair Schweikert's questions.
Ms. CHU. And you have talked quite eloquently about the
need for IRS enforcement. I found a statistic. In 2010 the IRS
reviewed more than 65,000 applications and rejected 517. But in
2022 the number of applications grew exponentially to 136,000,
and they rejected just 86 of those applications. So, can you
tell us why IRS enforcement is so important?
Mr. HACKNEY. It is key, because these dollars are being
used to carry out the most important things we do. If there is
no check on that, we subject ourselves to fraud, and we subject
our fisc to being abused in significant ways, and the Federal
Government effectively endorsing problematic activities.
I think we need a stronger application checking system and
a stronger audit system. It makes a difference in terms of our
non-profit sector that is carrying out such important aspects:
our health care, getting food on the table of people,
supporting elections, and supporting our democracy. That is
key.
Ms. CHU. Thank you.
I yield back.
Chairman SCHWEIKERT. Unanimous consent to accept the
documents for the record from Ms. Chu.
[The information follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman SCHWEIKERT. Now we are going to go to two to one,
Mr. Fitzpatrick.
Mr. FITZPATRICK. Thank you, Mr. Chairman.
Thank you all for being here today. During my time in the
FBI, one of my roles that I had was serving as national
director of the Bureau's Campaign Finance and Election Crimes
Enforcement program. And my job, and those that worked with us,
was to ensure that the American people could rely on their
government institutions having unshakable integrity, especially
our electoral systems.
Foreign individuals, foreign entities have no business
interfering or influencing our elections in any way, shape, or
form at any level of government. And Congress certainly has a
responsibility to improve the security of our elections and to
restore faith and confidence in our institutions. So I want to
commend the chairman for holding this hearing today.
Mr. Chung, if I could start with you, currently there is no
requirement for tax-exempt organizations to report whether a
contributor is, in fact, a foreign individual or foreign
organization. Sir, in your research and in your experience, is
there any way of estimating where certain contributors to
501(c)(3)s and (c)(4)s are making their donations from?
Or better put, are there--there are certain nations, such
as our strategic competitors and adversaries, which have
individuals or entities that are donating heavily to tax-exempt
organizations. Have you seen that in your experience?
Mr. CHUNG. So let me describe what the Schedule B of the
Form 990 requires. It does depend on the type of 501(c) [sic]
organization you are talking about.
So 501(c)(4)s do not have to disclose their donor
information, meaning the names and addresses of their
substantial donors. They simply need to disclose the dollar
amount. Whereas, for 501(c)(3)s, they are required by the
statute to disclose the names and addresses of their
substantial contributors. So the amount of information that law
enforcement agencies would be able to get from the Schedule B
depends on what type of 501 organizations we are talking about.
So it depends.
Mr. FITZPATRICK. Mr. Walter, specifically zooming in on
state ballot initiative and referendums, have you seen any
evidence of foreign involvement, either overtly or covertly, in
the ballot initiative, particularly at the state and local
level?
Mr. WALTER. Thank you for the question, Congressman. The
ballot initiatives have an unusual part in our political
process, because it is a case where 501(c)(3)s, as well as
(c)(4)s, are allowed to play in ballot initiative elections.
And therefore, yes, you do see a great deal of (c)(4) and
(c)(3) money going into that. And we know that there are cases
like Mr. Wyss's, where there are foreign dollars going into
that. And that, by the way, is another policy change that has
been argued, that you could change the law to forbid foreign
money for ballot initiatives.
Mr. FITZPATRICK. Do any of the others wish to comment on
that?
For reference, there is a piece of legislation, the Stop
Foreign Funds in Elections Act, authored by yours truly, that
just passed the House Committee on Administration. I encourage
all my colleagues on both sides of the aisle to join that
legislation.
I yield back, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Mr. Fitzpatrick.
Mr. Steube.
Mr. STEUBE. Thank you, Mr. Chairman.
It is undeniable that the growth of the tax-exempt sector
has had a significant effect on the American political
landscape. Many of these groups help provide a voice for
millions of Americans to effectively communicate important
political messages across the ideological spectrum.
Unfortunately, other non-profit entities have abused the system
to pursue more nefarious goals.
In the 2020 election Facebook founder Mark Zuckerberg
funneled nearly $350 million through a non-profit called the
Center for Tech and Civic Life, or CTCL, to 2,500 election
departments across 47 states. These Zuckerbucks, a term used to
describe private entities donating money to fund the official
government vote counts, were distributed by CTCL, which was run
by a former Obama Foundation fellow.
As conservatives have been decrying for years now, and as
Mr. Whitson notes in his testimony, there was massive disparity
in the amount of funds allocated to red counties versus blue
counties. The flooding of cash by private leftist activities
into our election systems and structures went uncriticized by
the left in the mainstream media, but it helped their side.
As both sides decry the other for use of dark money funding
campaigns, I want to focus on the use of private money injected
into the government itself to advance candidates in the
Democratic Party. In Mr. Whitson's testimony, I would like to
quote a line that he said: ``It appears that CTCL, a 501(c)(3)
organization, used Zuckerbucks to hijack and transform the
government itself into a partisan, get-out-the-vote tool.''
That is very troubling.
The Constitution makes explicitly clear in Article I,
section 4 that individual states have the primary role in
establishing election law and administering our elections. Yet
that did not stop President Biden from issuing Executive Order
14019, which tramples on states' rights and enables Federal
agencies like the GSA to engage in voter registration and share
election information. This is simply not the role of the
Federal Government, and taxpayers should not be paying for it.
Allowing private individuals and companies to fund official
election practices opens the door to corruption and the
weaponization of non-partisan civic institutions for political
gain. The abuse of non-profits to manipulate the functions of
government for partisan purposes must stop. I am glad that more
than half of the states in the union have passed legislation to
stop this. We need every state legislature in the country to
pass legislation to prohibit state and local election officials
from accepting private donations to fund election-related
expenses.
Mr. Whitson, I will start with you, since I quoted some of
your testimony. You point out these Zuckerbucks were focused on
certain jurisdictions favorable to candidates of the Democratic
Party. And I heard your exchange with the chairman about doling
out the funding based on geographic area. But if you could
expound on that, I would appreciate it.
Mr. WHITSON. Yes, thank you for that question, Congressman.
So what it appears from our research is that dollars were
distributed into jurisdictions that were perceived as blue
strongholds, primarily. And although the grant program was
opened up to everyone, it appears that certain jurisdictions
were probably targeted with communications and things like that
to encourage them to apply for the grants. So some grants did
go to red counties, but the vast, vast majority went to blue
counties.
And so I gave that example of Georgia, which you can look
at it from the outside, and you can see this kind of looks like
they found a swing state. They are pushing a disproportionate
amount of money into this state, and it is only going into blue
strongholds where Hillary Clinton won in 2016.
But there is a lot of other examples. So another one is
Pennsylvania. 25 million in Zuckerbucks were awarded, and more
than 90 percent of the grant dollars went to counties that Joe
Biden won. Michigan received $15 million in Zuckerbucks, and
more than $7 million went to the City of Detroit alone, which
is a known Democrat stronghold.
Wisconsin, and here is an interesting one, because it goes
beyond money, it is also the coaching aspect. In Wisconsin,
10.1 million, of which 1 million was funneled into Green Bay,
Wisconsin. To put it in perspective, Green Bay's election
budget was $330,000, and so that increased their budget by a
staggering 331 percent. And so, what makes Green Bay more
troubling, too, is an employee from CTCL was put on the ground
to help coach the election administrators there on how to run
their program more efficiently.
And again, going back to some of the comments we were
saying earlier, it is not just about stopping fraud, but it is
also the appearance of fraud. We want to inspire confidence in
elections. And so when that kind of behavior takes place from a
private organization, takes over the functioning of the
election itself, that creates doubt. And that is problematic,
no matter what side of the aisle you are on.
Mr. STEUBE. And you go into detail about the Bidenbucks
program that will result from the taxpayer-funded voter turnout
program started by President Biden. And in my limited time
left, if you could, just expound upon that.
Mr. WHITSON. Yes. So that program is calling for every
Federal agency to use those Federal agencies to basically
conduct voter registration with these ``approved third-party
groups.''
And so what we know so far from Health and Human Services,
more than 1,400 federally qualified health centers across the
country are being turned into voter registration hubs. The
Department of Labor is turning 2,300 American job centers into
voter registration hubs. Housing and Urban Development sent
guidance to more than 3,000 public housing authorities, who
control over 1.2 million housing units, to use those as voter
registration hubs. The Department of Education sent guidance to
use work-study funds to pay students to work on and off campus
to register people. So that is just a flavor of what is going
on.
Mr. STEUBE. Thank you guys for being here today. I yield
back.
Chairman SCHWEIKERT. Thank you, Mr. Steube.
Ms. Moore.
Ms. MOORE. Thank you very much, Mr. Chairman, and thank our
witnesses for appearing today.
I just maybe want to start with Mr. Chung, just seeking
some clarification. What we are generally talking about is dark
money. Is that fair? The testimony that we have heard today,
they are talking about what they consider dark money in
campaigns, 501(c)(4)--that activity.
Mr. CHUNG. Thank you for the question.
Ms. MOORE. It is from undisclosed funding sources. They can
engage in political activity while not disclosing their donors,
as long as this is not their primary activities, and that the
definition of what activity that they can engage in?
Mr. CHUNG. To the extent that dark money means a lack of--
--
Ms. MOORE. It is a nickname for it. But, you know, we heard
testimony here today, I believe, from Mr. Walter, about a
couple of people in particular that are funneling money all
over the country for get-out-the-vote efforts. But when we talk
about dark money, isn't that a much broader category of very,
very wealthy people, for the most part?
I am thinking about running around with get-out-the-vote
tee shirts on that are non-partisan, as compared to, after
Citizens United, the Supreme Court decision in Citizens United,
that this is much more of an avenue for political activity for
wealthy people. Am I wrong about that when we look at concerns
about dark money?
Mr. CHUNG. [No response.]
Ms. MOORE. So, Mr. Hackney, can you answer that for me?
Mr. HACKNEY. Yes, ma'am, Representative Moore. It is
primarily about wealthy individuals having the ability to put
money into an election without their fingerprints upon it so
you are not able to see where those dollars are coming from.
Ms. MOORE. And these are 501(c)(4) organizations.
Mr. HACKNEY. Dark money is primarily 501(c)(4), but can be
501(c)(6) business leagues, as well. And both of those
organizations do not have to report their donors.
Ms. MOORE. Okay, and so we have heard a lot of complaints
here today from our guests about, you know, these voter
registration schemes. And what I am saying is that what we have
said that campaigning is that money is speech. So, these are
people--when we look at the demographics of about 64 percent of
the people who are eligible to vote, this is the new American
majority. They are young people, they are people of color, they
are unmarried women. And so, outreach to them politically, not
leading them toward a particular candidate, is this the speech
that we are--we have talked about today that is supposed to be,
you know, at the pinnacle of corruption?
Mr. HACKNEY. Representative Moore, generally, the dark
money concept absolutely is not about voter registration. That
is more happening within (c)(3)s and has long been a part of
it. In my opinion, the most important things we can do in a
democracy is get our people to be registered to vote, and get
out to vote. We should have everybody: red districts, blue
districts, all across the nation. And to the extent charities
can do that, I think they should.
Ms. MOORE. I mean, this is a charitable social activity.
Because I know that if you move around a lot, if you are poor,
you may not know it is Election Day. And so we are--left to
those people who could afford to do commercials on TV, buy
radio time, you know, the regular people will not have any
voice, so I just want to change the tone, Mr. Chairman, of
this, and just remind people that if there are things we need
to make sure of to keep foreign money out of the 501(c)(4)
political activities, let's work on that.
But let's not turn this into a corrupt view, as the
chairman of the full committee said, of voter registration, I
mean, why are we looking at a view of wanting more people to
register to vote as something that is negative? We had a 66
percent turnout in 2020. And are we really sitting here
grieving over that at this point, and trying to legislate
against people's ability to do this? I hope not.
And Mr. Chairman, thank you for your indulgence with my
little rant here, and I yield back.
Chairman SCHWEIKERT. Thank you, Ms. Moore.
Ms. Tenney.
Ms. TENNEY. Thank you, Mr. Chairman, and I thank the
witnesses for being here.
I don't think it is any secret that I founded the Election
Integrity Caucus after my quite, my very interesting election
of 2020, where on Election Day I was winning by 28,422 votes--
and yes, we counted every vote--after 100 days. We even
registered voters in January that counted in November of 2020.
So I really appreciate the talking about this issue.
In the Election Integrity Caucus, we have over 60 members.
We have had some people retire. We are always looking to have
Democrats. And of course, some of my Democrat friends from New
York City, once they lost the primary, said, ``We need more
election integrity,'' so I would love to have them join on as
emeritus members.
But I put in the End Zuckerbucks Act because, and
thankfully, that lead was taken by a number of states around
the country to end Zuckerbucks, and Mr. Walter, thank you so
much for continuing to fight the election integrity issue, and
thank you for the shoutout to Mr. Whitson for promoting the
Free and Fair Elections Act to get rid of the Biden executive
order that is really electioneering, and an attempt to, in a
partisan way, use the government in place of what Zuckerbucks
was out to do, using dark money. And the darkest of dark money
is exactly as you cited, Mr. Walter, this newfound way to use
(c)(4)s into (c)(3)s, and to hide the fact that these are
partisan. And Zuckerbucks was a perfect example of how partisan
these were.
And I don't think it comes as any surprise to anyone that
the 2020 election really came down to three states, and it was
about 44,000 votes. Our entire U.S. election in 2020 was about
44,000 votes, really just, you know, as you cited with Georgia,
Arizona, and Wisconsin, very narrow margins and a huge amount
of money coming from Zuckerbucks to really prime the pump and
get out the vote. And yet the Democrats always say, ``Well,
this widespread fraud,'' well, I don't know if that is what I
would call it, but I would call it priming the pump and taking
advantage of the use of these not-for-profits in a negative
way.
I worry, as Mr. Steube did, about this problem with what is
happening with this new executive order in using our federal
agencies without any oversight from taxpayers to be able to
fund this. And I just wanted to first ask Mr. Walter if you
could maybe give us a little bit of follow-up on what is going
on with the Alliance for Election Excellence that was created
by CTCL, and where that is taking the CTCL, and what we are
seeing in response to Zuckerbucks.
Mr. WALTER. Well, thank you for the question, Congresswoman
Tenney, and thank you for your leadership on the issue.
You are quite right. With the help of you and others
bringing attention to the problem of Zuckbucks, the majority of
American states have now banned such private funding in their
elections. However, I give the Center for Tech and Civic Life
credit. They have rebranded this effort into the Alliance for
Election Excellence, and they have amazing schemes about this.
So they will, in places where they are not able to simply
write checks, they will say, oh, we are going to give you
credits, or we are going to give you scholarships, and you can
spend the credits at our partner organizations. And oh, by the
way, we are going to come in and give you improvement plans for
how you can better run your office.
Ms. TENNEY. Let me ask you this, because this is highly
partisan. And you referred to pop-up groups. It appears that,
from your reporting, there are over 340 so-called pop-up groups
that remain under the 990 purviews, our ability to look at
where this dark money comes in. Can you explain how partisan
these are, and why they are something that the IRS should be
looking into, and they are not?
Mr. WALTER. Well, the Arabella Advisors is the poster child
for this sort of thing. They admit to having over 500 pop-up
groups that they have created over the years, and these groups
will pop up long enough to attack you in your election and
disappear.
And a pop-up group does not have to report. It doesn't have
a board. It doesn't have to report any individual things that
regular non-profits do, like how much they spend on
fundraising, and all sorts of things like that. So they stay in
the dark.
Ms. TENNEY. So as Professor Hackney would say, talk about
making dark money darker. I want to ask you a question, though.
In Mollie Hemingway's book, ``Rigged,'' she goes into
extensive discussion about the influence of the Zuckerbucks and
the Mark Zuckerberg money. She even makes the conclusion that,
had it not been for Zuckerbucks, the results of the 2020
election would have been different. How do you feel about her
conclusion on that?
Mr. WALTER. Well, I am proud to say that if you check her
footnotes, you will find a lot of our research there. And we
studied every single battleground state and both the great
disproportion, as my colleague here said, in the funding of
Democrat areas is enormous. And the increase in Democrat
turnout in the funded parts of those states is much greater
than in the other part, the unfunded parts of those states. So
I don't think it is unreasonable at all to believe that they
made the difference in those states.
Ms. TENNEY. So you agree that it influenced greatly the
outcome of the 2020 election?
Mr. WALTER. Very much so, and all our data can be
downloaded online, crunch the numbers yourself if you don't
believe me.
Ms. TENNEY. Thank you so much, I yield back.
Thank you to the witnesses again.
Chairman SCHWEIKERT. Thank you, Ms. Tenney.
Mrs. Fischbach.
Mrs. FISCHBACH. Always a challenge for me to reach the
button. It is a challenge of being short.
But Mr. Hackney, you know, I just wanted to walk through a
little scenario with you, and then I am going to ask everybody
for their opinion on it. But if a foreign national from a
country that is an adversary of the United States wanted to
donate millions of dollars to a 501(c)(3), is there any
reporting requirement--I think you mentioned earlier--that
would let Americans know that the American adversaries are
funding a non-profit?
Mr. HACKNEY. The government itself would get names and
addresses on the Schedule B, because the Schedule B names and
addresses have not yet been removed. There is a challenge to
that. Buckeye Institute has a case challenging that. But right
now, the government has that information, but the public does
not. So the public does not have that information.
Mrs. FISCHBACH. Could this non-profit then spend millions
of dollars on issue advocacy campaigns to support policies that
reduce, let's say, American's energy independence or any other
they may come up with?
Mr. HACKNEY. So let's be precise on issue advocacy. When we
are talking about issue advocacy, it is a great question. Issue
advocacy are commercials that go into a policy space, and many
(c)(3)s will argue that they are able to engage in some of this
space without violating the campaign intervention.
If it moves----
Mrs. FISCHBACH. But the money, if you are following the
money, I mean, I understand----
Mr. HACKNEY. You would not be able to see it.
Mrs. FISCHBACH. You would not be able to see it. Could that
same non-profit funded by American adversaries use the funds to
conduct get-out-the-vote activities in targeted, or not
targeted, but in places that maybe support a certain candidate?
Mr. HACKNEY. Yes. So a charitable organization is able to
carry out get-out-the-vote efforts, and there is nothing that
stops that from taking place, no.
Mrs. FISCHBACH. And then, could that same non-profit also
send money to a 501(c)(4) organization that is able to donate
to a super PAC which can run television and all of that?
Mr. HACKNEY. Right, yes. So this is an interesting aspect.
The Supreme Court itself in Regan versus Taxation with
Representation found that the limitation on lobbying for
charities, satisfied the First Amendment challenge because the
(c)(3) can give money to a (c)(4), and in turn give it to a
PAC. So under First Amendment principles, we have long accepted
this as an aspect. But yes, you are correct, they can do that.
Mrs. FISCHBACH. So yes, okay. I open it up to the rest of
the panel if any of you would like to comment on that. You
know, so those non-profits could impact American elections in
all kinds of ways, but there is no way for Americans to even
know how much of the money they received from foreign
nationals. Is there any comments that you would like to make
about kind of the scenario?
Anyone? I have a few minutes. I didn't know if I would have
minutes left, so I was trying to abbreviate things, but anyone
wanted to comment on that, kind of following the money trail?
Mr. Walter?
Mr. WALTER. Well, I would just say that the examples I gave
are the most egregious ones I know of, and they happen to be on
the left with Democrats. But I certainly oppose foreign
nationals helping anybody, and I would think that, again,
across the aisle, this is something we could all agree on. We
don't want Russian oligarchs contributing. We don't want
Chinese communist princelings contributing. We don't want Arabs
who may have old, very painful views of women and homosexuals
interfering in our elections. There are no shortage of problems
that could arise from this.
And we heard talk earlier about campaign finance reform. No
campaign finance laws ever touch (c)(3)s.
Mrs. FISCHBACH. Thank you. Anyone else?
With that, Mr. Chair, I will yield back. Thank you.
Chairman SCHWEIKERT. Thank you, Mrs. Fischbach.
Ms. Van Duyne.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
Last month the committee held a hearing examining how
unreported donations from foreign entities are influencing our
colleges and our universities, and charitable donations through
university endowments have grown astronomically to the tune of
billions of dollars, while American universities have become
hotbeds for left-wing indoctrination, often at the cost of
student safety and well-being.
The recent reports of violence against Jewish students on
college campuses is just the most recent example. Last week,
presidents of so-called elite universities could not answer
simple questions about genocide. We continue to see
opportunities for universities to say and do the right thing,
yet when given the opportunity to do so they double down on
their failed policies. University leadership's response, or
lack thereof, raises serious concerns for the well-being of
students, faculty, and staff, and calls into question the types
of messages that these entities are promoting.
The 501(c)(3) organizations are expected to abide by
ethical standards that promote the public good. And I think we
have got ample reason now to doubt whether or not they are
meeting that standard. So Mr. Walter, in your research, have
you seen instances where universities are using their
endowments as a tool to support faculty positions and advance
program missions that push some extreme political views?
Mr. WALTER. Thank you for the question. Yes, we, as you
say, we have seen this very vividly in recent weeks. And
perhaps I would suggest you might consider entering into the
record a superb Wall Street Journal op-ed on this problem by
the brilliant philanthropy scholar, Les Lenkowsky, who wrote
very clearly about this, and even raised the possibility that
places like Harvard and the University of Pennsylvania may be
endangering their tax exemptions by their actions.
Ms. VAN DUYNE. I appreciate that. The 501(c)(4)s are held
to a standard where 51 percent of activity must be educational,
and cannot spend a majority of time on lobbying, and yet
universities are not held to this standard. Correct?
Mr. WALTER. That is correct, nor do they have a minimum
payout requirement on their endowment.
Ms. VAN DUYNE. Do you have any concerns about, right now,
some of the dollars, where they are flowing from into these
universities?
Mr. WALTER. Well, that has been massively documented,
especially from Chinese sources. There is a deeply disturbing
amount of foreign dollars going into universities.
Ms. VAN DUYNE. Are there any particular universities that
you think we should be looking at?
Mr. WALTER. There are so many that I hesitate to name them.
I mean, the Confucius Institute is probably the single most
egregious example, but that is in many universities.
Ms. VAN DUYNE. Mr. Walter, do you see an issue where
universities are hiding behind the title of education, yet are
actively indoctrinating students and pushing a liberal agenda?
Mr. WALTER. Yes. In fact, I quoted a friend who, when he
went to visit a campus with his son to consider it, they were
bragging. The professor was bragging about how he turned
students into social activists. I don't think that is a proper
role for universities, especially given their tax exemptions.
Ms. VAN DUYNE. I appreciate that. I am a graduate from
Cornell University, and we had a university professor there, a
history professor, Russell Rickford, who recently was talking
about the Hamas atrocities on October 7 in Israel and the Gaza
Strip, and he called them, we won't use the words that he used,
because I don't want to give him that much credit, but it was
horrible for me to see that happening at my university, my alma
mater, and not to have him fired immediately. Instead, he has
been placed on leave after there was a tremendous amount of
pressure. But he is still getting paid.
Mr. WALTER. Yes. May I add, too, this shows you a real
example of how donor disclosure is such a threat. I do not want
to see Jewish donors harassed because they have been forced by
the government into the spotlight because of their giving to
support non-profits that support Israel.
Ms. VAN DUYNE. I appreciate that.
While the IRS has shown in the past that they cannot
enforce laws on this unbiasedly, how can Congress change the
laws to ensure that these requirements are being properly
enforced?
Mr. WALTER. Well, that is a tall order, and I don't know
that there is a way to make it all better.
As I said, I think a lot of the worst abuses come up either
because there is no law, like there is no law against foreign
nationals contributing to non-profits, or because the law is
extremely murky, like the law governing (c)(3)s and voter
registration. So clarifying the laws will often improve things
considerably.
Ms. VAN DUYNE. Mr. Whitson, do you have anything to add to
that?
Mr. WHITSON. The only thing is whenever there is an
instance where the focus can be on the adversary versus the
501(c)(3), (c)(4), that should be the instinct. And so, if the
adversary is China, and there are things we can do to monitor
Chinese funding before it comes in, things like that, in my
mind, would be the first focus. And then, where you find areas
where you can't, then you can explore other avenues. But I
would always start with that in mind.
Ms. VAN DUYNE. Thank you very much, and I yield back.
Chairman SCHWEIKERT. Thank you, Ms. Van Duyne.
Mr. Feenstra.
Mr. FEENSTRA. Thank you, Mr. Chair.
And thank you for all of your testimonies. You hear a
reoccurring theme that we have problems, and we have a lack of
information. This is being seen through all agencies and what
we do, especially when it comes to waste and fraud. So, I am
trying to look for solutions. What can we do to resolve our
problems that we have here?
We met with the folks at CAO, and the Federal data is in
such a poor state that the ability to investigate fraud is
severely limited. We have reached out to the CRS and IRS on
total utilization of a tax credit. They can't provide any
information on this. It is tough to operate Federal programs
when you can't get data and you can't then create the solution
to the problem. And that is what we are having here. So that is
what I want to talk about.
Mr. Chung, we have heard concerns from witnesses today
about the money from foreign nationals coming into our
political system through the non-profit sector. But I would
also like to know what tax-exempt organizations need to report
in terms of their activity outside the United States, including
grants, fundraising activity, investments, and stuff like that.
So if you look on the Schedule F of the Form 990, is there
anything that we can change on this form or that you look at it
and say, all right, this is what we have to report, and this is
what we should be reporting?
Mr. CHUNG. Yes, thank you for the question. CRS is a non-
partisan organization, so I can't say what should and shouldn't
be changed about the form, the schedule of the Form 990. I can
generally describe what is available in that form. And it is,
as you mentioned, it is supposed to report foreign activities
of a tax-exempt organization. And they report it by region.
Mr. FEENSTRA. Yes, that is a problem, isn't it?
I mean, you think about reporting by geographic regions as
opposed to an organization in totality. Do you see that as a
problem?
Mr. CHUNG. Well, I can't, respectfully, I can't say if it
is a problem or not, but there certainly isn't information
about the organization that those grants may be going to.
Mr. FEENSTRA. Right, right, right. Well, Mr. Chung, if you
just take a step back, and I know that you can't talk about
some of these things, but would you say one of the key issues
is the lack of information that we currently are getting?
Mr. CHUNG. Yes, thank you for the question again. So there
is varying levels of information that is required to be
disclosed by a tax-exempt organization, and it is going to
depend on the type of organizations we have.
So generally, 501(c)(4) organizations have less disclosure
requirements.
Mr. FEENSTRA. Very little disclosure requirements.
Mr. Walter, can you answer some of these questions?
I mean, what is your thought in this area?
I mean, I just look at it and say, all right, we are the
taxing body here. I mean, we have to have the information to
make good decisions and create solutions.
Mr. WALTER. Well, I do worry that there is a lack of
information provided about foreign activities by U.S. exempt
organizations. There is--the concern, of course, sometimes they
are operating in a dangerous part of the world, in which case
it can be touchy to be revealing that. On the other hand, we
have a whole report on how the Soros philanthropies have almost
certainly violated U.S. law by meddling in European elections.
Mr. FEENSTRA. Right, right. And I am not talking about
private information. I am talking about the quality of
information. To me, it is the quality of information of what we
are getting that we can make decisions, and that is where we
can go after some of these bad actors.
The bottom line is we have bad actors in what is happening.
Mr. Whitson, can you comment on any of this?
Mr. WHITSON. Congressman, nothing more to add, other than
kind of what I alluded to earlier. If there is a way to target
the foreign adversary or the person we are worried about
instead of the 501(c)(3) or (c)(4), I think that is the first
place to start, and then to take it from there.
Mr. FEENSTRA. Exactly right. And again, I just think there
has got to be protocols from the IRS and CRS to say, hey, this
is the information we need. That is part of this body's job, I
think, is to start going down that path and say, what are the
data that we want?
And I get it, there is private data that we don't want to
collect, but there is also the quality of data that we should
collect, and that we could do something with, and then follow
the law.
Thank you, and I yield back.
Chairman SCHWEIKERT. Thank you, Mr. Feenstra.
Ms. Malliotakis.
Ms. MALLIOTAKIS. Thank you very much. I appreciate everyone
being here today to talk about the role that the tax-exempt
sector has played positively in our economy, but also some of
the issues that certainly need oversight. As we know, bad
apples can spoil the bunch.
As you all know, we are currently fighting an unprecedented
number of migrants coming through our southern border, and it
is firmly believed that assistance is being provided to
thousands of these individuals before they even set foot in the
U.S., from being told what to say and some even having the
business cards of non-profits and immigration attorneys in
their possession.
We know that individuals crossing our border through the
southern border, quite frankly, every single one of those
individuals is paying the drug cartels to get here. That is the
reality. That is how the drug cartels are making billions of
dollars every month that then they in turn use to traffic drugs
into this country and kill young Americans. We saw 100,000
deaths. So it is all connected. I mean, that is the bottom line
here.
And we have non-profit organizations that are helping in
this trafficking of individuals that end up profiting these
drug cartels poisoning Americans. So I guess my question is, we
know of some larger names. Catholic Charities has come up.
Salvation Army. I mean, one of my local news affiliates, they
said that the Salvation Army even provided migrants with a
plane ticket and a note directing the TSA to allow the
individuals through airport screening and to board the plane,
like that piece of paper is supposed to be their identification
to get on the plane. I mean, this act alone should be grounds
for swift action.
But we also know that Catholic Charities in San Antonio has
arranged more than 4,000 flights to cities like Chicago and
Denver and New York.
My city is dealing with a crisis now because of the
President's open border policy, and we have local institutions
who are helping. They are getting tens of millions of dollars
in contracts to house these individuals. They are taking away
an assisted living facility from seniors in my district to put
these individuals who just cross into our country from the
border. And after just residing in 30 days, Bill DeBlasio tried
to pass a law that says they can actually register to vote if
they have work authorization, which is just outrageous.
And then you have these groups, Legal Aid Society, for
example, in New York City, that is pushing the mayor to
continue to house these individuals, saying that the New York
City Right to Shelter law actually applies to citizens of other
countries. It was meant for New Yorkers, not citizens of other
countries.
So you have all these non-profits, local and national, that
are playing a role in this illegal immigration, okay, and we
have to figure out a way to stop it. And so my question for Mr.
Walter, to start, would be, you know, considering these, the
role that these 501(c)(3) organizations are playing, they are
relying on taxpayer-funded grants from the Biden Administration
or elsewhere to do this. They are receiving private funds, they
are receiving foreign funds, they are receiving all sorts of
government funding to continue this madness that my mayor says
is going to destroy New York City. And we see what is happening
all across, completely.
What can we do about this? Should taxpayers be concerned
about these 501(c)(3) entities that directly undermine our
efforts to secure the border and help relocate unvetted
individuals to communities all over the country?
And what can we do about it as an oversight committee?
Mr. WALTER. Well, thank you for the question. Government
funding of non-profits is always a problematic issue. The great
Senator Daniel Patrick Moynihan, a Democrat, from New York,
famously was disturbed deeply as he saw a growing percentage of
non-profits, who should really be supported by private
citizens, become more and more supported by the government,
because it creates precisely this problem that you say. On the
one hand, I believe the non-profits do care about the
sufferings of immigrants. But at the same time, they are given
this enormous financial incentive to increase the number of
immigrants precisely to increase the amount of government
dollars coming into themselves. And I think charities dominated
by government dollars are not going to be as effective as
charities supported by private citizens.
Ms. MALLIOTAKIS. No, it is actually, it is very true, what
you are saying. And I think what can we do about this?
Because, like, even in New York City we have an
organization called Homes for the Homeless that was running an
assisted living facility. They literally kicked out veterans
and seniors, from the assisted living facility and then turned
around and entered a contract with the city in which they are
making $28 million over the next couple of years to house these
migrants instead. I mean, that is horrible. So how do we
disincentivize this, or how do we hold these municipalities
accountable that are actually doing it?
Mr. WALTER. Well, that is certainly a tall order. I mean,
in the end, it is the border crisis itself that is the greatest
single driver of this.
Ms. MALLIOTAKIS. That is right. So President Biden should
just do his job and secure the border, or Chuck Schumer should
take up our Border Security Act. I completely agree with you.
It would be nice if the Senate did something over there.
I yield back.
Chairman SCHWEIKERT. Thanks, Ms. Malliotakis.
Mr. Smucker.
Mr. SMUCKER. Thank you, Mr. Chairman.
A few weeks ago, this subcommittee held a hearing on the
use of 501(c)(3) tax structures by universities, and how
foreign influence has been used to, in some cases, promote
anti-Semitism on our college campuses. And a key takeaway from
that hearing was the need for transparency. And I would like to
build on what we learned on that day, and touch on how foreign
money is also perhaps influencing journalism, and how U.S.
citizens receive their news and information.
All of us here are aware of the influence that media and
news organizations have on public opinion, and we are learning
that foreign money is permeating journalism sources, as well,
perhaps being leveraged to spread patently false and biased
information, as well as encourage anti-Semitism and anti-
Americanism.
We are also aware of how foreign governments have used the
media to sow distrust, discord, creating doubt in national
institutions and in each other. An example, Qatar is a prime
example of a country that, not always aligned with U.S. values,
leveraging its ability to mask money to exert influence.
Qatar funds the Al Jazeera Media network, which posts
blatant lies about Israel's efforts to root out Hamas
terrorists after the horrific attacks on October 7. And they,
Al Jazeera, recently stood up a new entity called AJ+, which
leverages apps such as TikTok to reach young viewers and spread
not only biased disinformation, but also dangerous lies about
Israel and propaganda in support of Hamas. Some of these videos
include the celebration of radical criminals occupying the U.S.
military ship attempting to deliver military arms and aid to
Israel, as well as promoting divestment from Israel and Israeli
companies.
In 2020 the DoJ asked AJ+ to register as a foreign agent
under the Foreign Agents Registration Act due to their funding
from the Qatari Government, and as of today that has not yet
occurred. They haven't registered.
And just by way of comparison, Al Jazeera Media retains 136
press credentials for the House gallery, while The New York
Times only retains 86 such passes.
We have heard today about the Arabella Advisors Group, and
how they use their complicated organizational structure to
peddle foreign dollars into our electoral system. Arabella
Advisors, through its new venture fund, has also influenced
U.S. media by funneling money to stand up new media websites
such as the Capital Journal in Ohio; Courier Newsroom, which
has established new sites across a variety of key presidential
battleground states, including Arizona, Virginia, Wisconsin,
Michigan, and Pennsylvania.
I think transparency is needed into understanding these
foreign sources and how they are funding these entities. So
maybe to Mr. Walter, Mr. Whitson, should we be concerned about
this?
And we are--obviously, we want to protect First Amendment
principles. A free press is absolutely critical. But I think so
is transparency into, you know, who is funding our journalism
and our news sources. I would like to get your thoughts on
that. Is this an appropriate concern?
Mr. WALTER. Thank you for your question, and especially for
your concern about the crisis of anti-Semitism in America
today, which is wrapped up in exactly what you are talking
about.
I spoke earlier about the possibility of adjusting the Form
990 of the IRS so that fiscally sponsored projects would have
to be reported more clearly. Some of those Arabella efforts you
were talking about are fiscally sponsored projects that are
completely opaque to the public and to you for oversight.
I would also add that it is important to recognize that, I
was talking about Mr. Wyss's work with Arabella. Well, I quoted
The New York Times, which has done actually some very good
reporting on what Wyss and Arabella have done. And one of the
things that spurred them was that they managed to uncover it
only because of WikiLeaks, a huge effort by Wyss, funded by
Wyss, carried out by Arabella to have a whole hive of fake news
sites around the----
Mr. SMUCKER. Thank you.
Mr. Whitson, anything to add here? Any suggestions?
Mr. WHITSON. Nothing to add, other than I share your
concern about trying to find a solution to this problem and
then causing an even bigger problem.
And so I think one thing, and I am sure you would agree, is
just more speech is better. And so, if there are other outlets
that are giving other sides of the information, is the Federal
Government doing anything to make it harder? Are the Federal
agencies going after Twitter and cutting off a source of
information that gives people an alternate view?
So those kinds of things, that would be the better way to
attack this, I think, than--or, you know, maybe so.
Mr. SMUCKER. Thank you, and I am out of time.
Thank you, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Mr. Smucker.
Chairman's prerogative, I want to make sure I listened
carefully, because it was one of the original points,
particularly around the opening. So, Professor, can you play a
game with me for a second?
Professor, congratulations. You are a billionaire. Yay. And
you decide to take a substantial portion of your wealth and
give it to a 501(c)(3). You get a tax deduction, yes? If it is
a non-profit----
Mr. HACKNEY. It is complex, in terms of how much you can
get, because it depends on how much income you have.
Chairman SCHWEIKERT. No, no, but----
Mr. HACKNEY. You will get a deduction, right.
Chairman SCHWEIKERT. You just--yes.
Mr. HACKNEY. A deduction.
Chairman SCHWEIKERT. Yes. And that (c)(3) could actually
take some of that largesse and give it to (c)(4).
Mr. HACKNEY. It depends if it is a private foundation or
not. That creates some challenges with that.
Chairman SCHWEIKERT. Yes, but if they were structured--and
that is--they could use that (c)(3) money to cover all the
expenses within that (c)(4), and maybe certain communication
projects and voter education, maybe even voter registration.
And the (c)(4) then could--because money is quite fungible, as,
you know, in the Ways and Means Committee, that (c)(4) could
also make direct contributions to a super PAC, as we call them.
Mr. HACKNEY. The (c)(4) could be making that. We could not
use (c)(3) money to accomplish that purpose, so you would have
to be accounting for that explicitly.
Chairman SCHWEIKERT. Yes, but----
Mr. HACKNEY. But the (c)(4) potentially can give money to a
super PAC, as well.
Chairman SCHWEIKERT. Okay. I appreciate that. I understand
there is a number of--we are concerned about foreign money,
which is, just by policy, is not supposed to be in our
elections.
The other concern I have is also there had been a principle
that in elections it is after-tax money, it is not pre-tax
money. And if this is a way to drive resources, particularly
those with, congratulations, you being a billionaire now, and
trying to understand that, and is it something we would
identify if we fixed the 990 forms, or is there something that
is much more complex?
Particularly as we get ready to do more tax policy, we have
the debates amongst ourselves on the tax gap, but also the
stunning amounts of resources now that are moving into our
politics and trying to understand why. You know, what is the
ultimate incentive when a medium-sized state like mine has a
couple-hundred-million-dollar, you know, U.S. Senate races and
those things?
So we are not going to solve it here today, but your
participation is truly appreciated because we are trying to get
our heads around both what are the incentives, have we created
gaps in our intention in the statutes, and how do we fix it?
The last thing I will also say, if any of you have any
brilliant ideas in your drafting of if you were ever to do a
more universal 990, what it would look like, because that has
been one of our collection projects this year.
And with that, let's actually call ourselves to, oh, Mr.
Davis, you snuck in. All right, get close to the microphone. I
am going to give Mr. Davis five minutes.
Thank you for joining us, Mr. Davis, you are up.
Mr. DAVIS. Well, thank you. Even though I am not a member
of this committee, I find the subject matter very interesting,
and I had a question or two that I wanted to explore. Let me
thank all of you for your expertise and the information that
you have been sharing.
Professor Hackney, let me just begin. I am proud to co-lead
the Charitable Act with Representatives Blake Moore, Chris
Pappas, and Michelle Steel that would create an above-the-line
charitable deduction.
And charitable giving is at the core of our American
values. Although our tax code rewards charitable giving by
itemizers, it leaves out the vast majority of taxpayers who do
not itemize. We know that charitable giving failed in 2022, the
largest year-over-year decline since tracking started. Yet we
know that gifts increased when the temporary above-the-line
charitable deduction existed in 2020 and 2021.
Could you talk a little bit about how an above-the-line
charitable deduction can help both non-itemizers and the
charitable community, which creates a, I think, great
opportunity for utilization of our tax system?
Mr. HACKNEY. Absolutely, Representative Davis. Thanks for
the question.
Currently, some data a couple of years ago were suggesting
that, as a result of the change in the 2017 Tax Act that
significantly increased the standard deduction--up to 24,000,
and it is around 27,000 this year--most people cannot itemize,
and cannot deduct charitable contributions. Maybe nine percent.
I haven't seen good data recently, but it is a very small
minority of people. It is mainly very high-income individuals
that are able to take this charitable contribution deduction.
That has a problematic aspect, I think, on our charitable
sector, because it is driven by high-income individuals, rather
than everybody else.
So I like the idea of expanding it to a wider range of
audiences to encourage more giving. Currently, giving is not
encouraged for most people, and you see that in the numbers.
Data are down for non-profits, lots going to donor-advised
funds, but it is coming from very wealthy individuals, rather
than a broad democracy-enhancing charitable sector. So I think
this would improve things for the non-profit sector by bringing
more dollars in and improve the way they think about what they
are doing to think more about the American people in a broad
sense.
I am very happy with the charitable sector in general, but
I think having a more democracy aspect to it would be an
improvement.
Mr. DAVIS. Well, thank you very much for that.
And Mr. Chairman, I don't have any further questions, but
let me thank you again, and also ask unanimous consent to
submit for the record a number of letters of charitable
organizations advocating for this to become reality.
Chairman SCHWEIKERT. So ordered.
[The information follows:]
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Chairman SCHWEIKERT. I would like to thank our witnesses
for appearing today, and thank you, Mr. Davis, for joining us.
Please be advised that members have two weeks to submit
written questions to be answered later in writing. Those
questions and your answers will be made part of the formal
record of this hearing.
Thank you for joining us. We are adjourned.
[Whereupon, at 3:52 p.m., the subcommittee was adjourned.]
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