Koch Bros. and the Use of the 501c(6) Over 501(c)(4) to Hide Donors

Nick Confessore follow-up to yesterday’s Politico report makes the key point:

But the returns also reflect a significant shift in the tax strategies the Koch operation deploys to avoid challenge from the Internal Revenue Service, which limits how much nonprofit groups can spend to aid or defeat candidates.

Other donor clearinghouses, along with nearly all of the political groups they support, register with the I.R.S. as “social welfare” groups under Section 501(c)4 of the tax code. That has let such groups spend money on elections while keeping their donors secret — drawing increasing regulatory and legislative scrutiny from critics who assert that some of the groups are violating campaign laws.

But Freedom Partners established itself in November 2011 as a 501(c)6 “business league,” typically a trade association of corporations, like the Chamber of Commerce, organized to promote a common business interest. Instead of donors, it has more than 200 “members,” each making a minimum $100,000 contribution, which Freedom Partners classifies as member dues. The approach gives it many of the same advantages social welfare groups have, with one significant addition: Some contributions to the group may be tax deductible as business expenses.

This is why I long been saying (see my testimony regarding DISCLOSE ACT II) that effective campaign finance disclosure reform must target the nature of the activity not the organizational form a group takes. Otherwise, as Roy Schotland argued a few years ago, the Koch Bros and others would just form a veterans group under 501(c)(19) or take some other form.

 

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