[Congressional Record Volume 164, Number 161 (Friday, September 28, 2018)]
[Senate]
[Pages S6380-S6382]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DARK MONEY RULE
Mr. WYDEN. Mr. President, I am submitting two letters into the
Congressional Record in order to clarify the application of the
Congressional Review Act, CRA, to the recent rule Rev. Proc. 2018-38,
issued by the Treasury Department and the IRS, to dramatically weaken
the disclosure rules for large contributions to certain tax-exempt
organizations, including many that engage in political activity, what I
and others call the dark money rule. In doing so, I also want to take
the opportunity to comment on the rule itself and on the inappropriate
and irresponsible approach that the administration is taking to the
application of the CRA to the dark money rule.
By way of background, in 1971, as part of a general effort to improve
the ability of the IRS to assure that tax-exempt organizations are
complying with the tax and election laws, the Treasury Department
promulgated a legislative regulation requiring certain tax-exempt
organizations to disclose to the IRS, as part of their annual filing,
the identity of those who contribute $5,000 or more to the
organization. This information is not made available to the public,
except in certain cases, but it is can be used by the IRS, State tax
administrators, and other Federal agencies.
In recent years, this disclosure requirement has become
controversial. Some, particularly conservative groups, have called for
the rule to be repealed in an attempt to keep donor information out of
the hands of State tax administrators and law enforcement. Others have
urged that the disclosure rules be strengthened. I am one of them.
Following the 2010 Citizens United decision, more and more dark money
has flooded into secretive tax-exempt organizations and into election
campaigns in the form of such things as anonymous ``issue ads.'' I have
urged that the contributor information be made available to the public
and, further, that the IRS improve its application of the rules
designed to prevent tax-exempt organizations from engaging in excessive
political campaign activity under false pretenses of ``social
welfare.'' For example, I have been particularly concerned about
reports that a group that is tax exempt under Tax Code section
501(c)(4) that is associated with the National Rifle Association, which
has engaged in extensive political activity, may have received large
contributions from foreign sources.
In the midst of all of this controversy, on July 16, without any
public notice and comment or any consultation with me as ranking
Democratic member of the Finance Committee, the Treasury Department and
the IRS issued Rev. Proc. 2018-38, which invokes a narrow provision
that allows the Treasury Secretary to waive particular reporting
requirements in appropriate situations, to effectively repeal the
entire 1971 regulation requiring the disclosure of large contributions.
Perhaps coincidentally and certainly ironically, this was done late in
the evening of the day in which the Justice Department arrested an
alleged Russian agent, Maria Butina, for attempting to influence
American political discourse through a ``gun rights organization,''
later revealed to be the National Rifle Association, a 501(c)(4) dark
money political organization.
This was an outrage. It was terrible policy and a terrible process.
As I said at the time, the political brazenness of this action shocks
the conscience. At a time when the U.S. intelligence community is
warning that foreign actors are actively working to interfere in
American elections, the Trump administration has decided to tie the
hands of the only Federal agency with visibility into financial flows
of foreign funds into dark money political organizations.
When the administration proposed the dark money rule, it submitted
the rule to Congress for review under the CRA, which allows Congress to
disapprove rules after they have been issued. The administration's
submission to Congress explicitly states it was a ``Submission of
Federal Rules under the Congressional Review Act.'' Senator Tester and
I were determined to invoke this process in order to overturn the dark
money rule.
There was, however, a procedural problem. The CRA includes a
``clock,'' limiting the period for challenging a new rule, and, under
the terms of the CRA, that clock begins on the later of the date the
rule is submitted to Congress, and the date it is published in the
Federal Register, ``if so published.'' In this case, apparently for the
first time, we were dealing with a rule that had been submitted to
Congress for review under the CRA but not published in the Federal
Register because this is the sort of material that the IRS publishes in
the Internal Revenue Bulletin IRB, rather than in the Federal Register.
This created a technical question about how to apply the CRA time clock
to the IRS rule. To be clear, the question was not whether the CRA
applied to the dark money rule, but rather, when the clock for
congressional review began.
After consulting with the Parliamentarian, who advised that the CRA
process would be clarified if the IRS would confirm, in writing, that
the rule would not be published in the Federal Register, I sent Acting
IRS Commissioner David Kautter a brief letter asking him to do so. This
seemed to me to be a very straightforward request. The IRS's own
internal procedure manual makes clear that matters that are issued as
``revenue procedures'' are published in the IRB rather than the Federal
Register. Further, an IRS official had informally confirmed by email
that would be the case here. On top of that, the dark money rule was in
fact published in the IRB on July 30.
I ask unanimous consent that my August 21, 2018, letter be printed in
the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
United States Senate,
Committee on Finance,
Washington, DC, August 21, 2018.
Hon. David Kautter,
Acting Commissioner and Assistant Secretary of the Treasury
for Tax Policy, Internal Revenue Service, Washington, DC.
Dear Acting Commissioner Kautter: As you know, on July 26,
the Treasury Department and IRS submitted to the Senate,
[[Page S6381]]
under the Congressional Review Act (CRA), Rev. Proc. 2018-38,
which modifies the information to be reported to the IRS by
certain organizations exempt from tax under section 501(a) of
the Internal Revenue Code.
Under the CRA, the period for potential Congressional
review begins on the later of the date of submission to
Congress or publication in the Federal Register, ``if so
published.'' My understanding is that revenue procedures are
not published in the Federal Register but instead are
published in the Internal Revenue Bulletin.
In light of this, it would facilitate the Congressional
review process if the IRS would confirm in writing that the
IRS will not submit Rev. Proc. 2018-39 for publication in the
Federal Register. I would appreciate it if you would do so.
Please call me or have a member of your staff contact
Tiffany Smith or Mike Evans of the Finance Committee
Democratic staff if you have any questions.
Thank you for your assistance with this.
Sincerely,
Ron Wyden,
Ranking Member,
Committee on Finance.
Mr. WYDEN. Mr. President, my letter went unanswered for almost 5
weeks. Eventually, the Parliamentarian indicated to both Democratic and
Republican staff that she was prepared to allow Senator Tester and me
to move forward with a disapproval resolution under the CRA without an
IRS response to my letter, so that we would not lose our right to
challenge the rule on a timely basis. Based on this, on Monday,
September 24, Senator Tester and I submitted our disapproval
resolution, S.J. Res. 64. That same day, I finally received a reply
from Acting Commissioner Kautter. In it, he confirmed, at long last,
the elementary proposition that the dark money rule would not be
published in the Federal Register. In addition, he went on to discuss
an issue I had not raised in my original letter. He stated that,
despite the fact that the administration had formally submitted the
rule to the House and Senate for review under the CRA, understanding
now that Senator Tester and I intended to challenge the rule under the
CRA, the Treasury Department intended to reverse its previous decision
and argue that Rev. Proc. 2018-38 was somehow not subject to
congressional review.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Department of the Treasury,
Internal Revenue Service,
Washington, DC, September 24, 2018.
Hon. Ron Wyden,
Ranking Member, Committee on Finance,
U.S. Senate, Washington, DC.
Dear Senator Wyden: Thank you for your inquiry regarding
whether the IRS will submit Revenue Procedure 2018-38 for
publication in the Federal Register.
Revenue procedures are not published in the Federal
Register; rather, they are published in the Internal Revenue
Bulletin (IRB). Revenue Procedure 2018-38 was published in
IRB 2018-34 and will not be published in the Federal
Register.
Not all revenue procedures, including many transmitted to
Congress using the form prescribed by the Office of
Management and Budget (OMB), meet the definition of a rule
under the Congressional Review Act (CRA). We define a revenue
procedure as ``an official statement of a procedure by the
Service that affects the rights or duties of taxpayers or
other members of the public under the Internal Revenue Code,
related statutes, tax treaties, and regulations, or
information that, although not necessarily affecting the
rights and duties of the public, should be a matter of public
knowledge.'' Chief Counsel Directives Manual (CCDM) section
32.2.2.3.2 (emphasis added). Procedural rules that do not
substantially affect the rights or obligations of the public
are not subject to the CRA. See 5 U.S.C. Section 804(3)(C).
We generally submit revenue procedures to Congress and to
the Government Accountability Office (GAO) out of an
abundance of caution and in the interest of keeping Congress
fully informed. This longstanding practice serves two goals.
First, it allows Congress to consider whether a revenue
procedure is subject to the CRA by requesting advice from
GAO. Second, if a revenue procedure meets the definition of a
rule under the CRA, the consequences of failing to submit it
when required are significant. Because rules are effective
only after submission to Congress, a revenue procedure that
is later deemed to be a rule would not be effective if it had
not been submitted following the CRA. Consequently, our
submission of a revenue procedure using the standard CRA form
prescribed by OMB does not necessarily indicate that we have
determined the revenue procedure is subject to the CRA.
We do not believe Revenue Procedure 2018-38 is a ``rule''
within the meaning of the CRA, and we are consulting with GAO
on this matter. See 5 U.S.C. Section 804(3)(C). In this
revenue procedure, we exercised our discretion under existing
regulations to limit our receipt of personally identifiable
donor information that is not necessary for efficient tax
administration. The revenue procedure did not alter the
substantive standards or criteria that apply to tax exempt
organizations, nor did it alter the requirement that
organizations maintain donor information and submit the
information to the IRS upon request. The revenue procedure
imposed no new substantive burdens and in no way limited
public access to return information that was previously open
to public inspection. For these reasons, we believe Revenue
Procedure 2018-38 is exempt from the CRA.
I hope this information is helpful. If you have questions,
please contact me, or a member of your staff may contact
Leonard Oursler, Director, Legislative Affairs.
Sincerely,
David J. Kautter,
Acting Commissioner.
Mr. WYDEN. Mr. President, acting Commissioner Kautter's response is
deeply troubling, for several reasons.
First, why did it take so long? Every bureaucracy has its problems,
but almost 5 weeks, on a time-sensitive matter, the answer to which
should be clear in 5 minutes? As I said on the Senate floor last week:
``It looks to me like the administration has a policy on their hands
that they know is corrupt--that they know is undemocratic. And so
they're playing hide the ball. Because the more the public hears about
this dark money rule, the less they like it.''
Further, the argument Acting Commissioner Kautter makes in the letter
is utter nonsense. In the first place, he mischaracterizes the CRA, in
a way that would render the entire law unworkable. For over 20 years,
here is how the CRA has worked: If the administration submits something
to Congress under the CRA, that is that; it is subject to congressional
review under the terms of the CRA. In the Senate, that means the clock
starts, and the period for the consideration of a disapproval
resolution begins. If, on the other hand, the administration does not
submit a matter under the CRA, but a Senator or Representative believes
that the matter nevertheless should be subject to the CRA, that Senator
or Congressman can ask the Government Accountability Office to review
whether the CRA applies. This has happened about 20 times since 1996.
Congress has never required the GAO to opine on the applicability of
the CRA to a rule formally submitted by an agency to the Congress for
review under the CRA. In Acting Commissioner Kautter's letter, he
fabricates out of whole cloth a new requirement for congressional
review, which runs counter to precedent established over the past two
decades.
Acting Commissioner Kautter takes the position that the
administration's submission of the rule under the CRA is not
dispositive. It is, instead, just a starting point, to, as he writes,
``allow[ ] Congress to consider whether a revenue procedure is subject
to the CRA by requesting advice from GAO.'' This is unprecedented
because all previous requests to GAO related to matters that had not
been submitted under the CRA. It is inconsistent with the plain text of
the CRA and with longstanding practice, in which we only resort to a
GAO opinion for matters that have not already been submitted under the
CRA. It also is completely unworkable because it would require GAO to
review every rule submitted under the CRA, to confirm that it is indeed
subject to the CRA. Said another way, it would require the Senate to
look behind all 4,271 rules submitted by agencies to the Senate in this
Congress under the CRA to determine if the CRA, in fact, applied. We
cannot have ``do-overs'' here.
Second, Acting Commissioner Kautter's position is inconsistent with
administration practice. In submitting the dark money rule to the
Senate, the administration was not simply trying to be courteous and
transparent, making sure the Senate was aware of the latest
developments at the IRS. It was, instead, complying with the CRA, based
on a determination that the rule was subject to the CRA.
This is reflected in the process established in the Internal Revenue
Manual, IRM. One section of the IRM relates to ``Congressional Review
of Rules.'' After describing the CRA general rule and three exceptions,
the IRM says, ``Revenue rulings, revenue procedures, notices, and
announcements that are rules under the [CRA] must be submitted for
congressional review before they can become effective. Whether a
revenue ruling, revenue procedure, notice, or announcement is
considered a
[[Page S6382]]
rule subject to reporting is determined on a case-by-case basis.
Ministerial revenue rulings and revenue procedures; notices and
announcements relating to error corrections, personnel matters, or
proposed rules; and press releases generally will not be considered
rules under [the CRA].''
Thus, the IRS's own process requires the agency to determine, on a
case-by-case basis, whether a document issued by the IRS constitutes a
rule for purpose of the CRA. The IRS in fact exercises judgment about
whether to submit a revenue procedure as a rule under the CRA: As of
September 10, the IRS had issued 45 revenue procedures in 2018, only 27
of which were submitted to the Senate. Specifically, in this case, on
July 26, over the signature of the Chief of the IRS Publications and
Regulations Branch, the IRS and the Treasury Department submitted, to
Vice President Pence, as President of the Senate, a copy of Rev. Proc.
2018-38, entitled a Submission of Federal Rules under the Congressional
Review Act. The submission was docketed in the Senate as EC-6097, and
it was referred to the Finance Committee.
Finally, even if the administration had not submitted the dark money
rule under the CRA, there is no question the rule is subject to the
CRA. The CRA applies to rules as defined under the Administrative
Procedure Act, which states in relevant part that a rule is ``the whole
or part of an agency statement of general . . . applicability and
future effect designed to implement, interpret, or prescribe law or
policy,'' with three exceptions: rules of particular applicability;
rules relating to agency management or personnel; and rules of agency
organization, procedure, or practice that does not substantially affect
the rights or obligations of nonagency parties.
The dark money rule is clearly a statement of general applicability
and future effect. The only real question, then, is whether it is
subject to one of the exceptions, particularly the exception for
``rules of agency organization, procedure, or practice that [do] not
substantially affect the rights or obligations of non-agency parties.''
Here, it is clear that the rule has a substantial effect on nonagency
parties. Under the provisions of IRC section 6103, State tax
administrators may obtain from IRS tax-exempt donor information for
State tax administration purposes. As a result of Rev. Proc. 2018-38,
State tax administrators will no longer have the right to obtain donor
information from the IRS, undermining States' ability to enforce tax-
exempt rules on organizations operating within their borders. Further,
as the Treasury Department clearly stated in a July 16 press release,
Rev. Proc. 2018-38 will reduce the burden of disclosure and filing
obligations of tax-exempt organizations because they no longer will be
required to disclose the identifies of large donors. This is a big
deal. It will significantly inhibit IRS enforcement efforts, and it
will make it easier for dark money to continue to flood in. Indeed,
that is why so many groups have been urging that the disclosure
requirement be repealed.
As a final note, the IRS may argue that repeal of the disclosure rule
is insignificant because the IRS doesn't systematically cross-check
this data against other sources of tax information. This is a large
part of the problem of IRS failing to enforce existing laws relating to
political activity of tax-exempt organizations. To my mind, the IRS
should be using this information in order to maintain the integrity of
our tax-exempt rules and election laws. If, for example, an
organization named Russian Oligarchs, LLC made large contributions to a
tax-exempt organization, it seems to me that this is something the IRS
should want to know. At a time when foreign actors are actively
attempting to interfere in American elections, law enforcement, the
IRS, and State tax administrators need to have visibility into the
financial flows of political nonprofits. The argument that we should no
longer collect this information because the IRS is failing to use the
information to enforce the law gets things precisely backward.
I urge my colleagues to support Senator Tester and me as we work to
overturn this outrageous dark money rule.
____________________