“Political Donors Chase Funding Alternative; IRS’s Proposed Rules Limiting Social-Welfare Groups Send Lawyers Scouting for Taxable, For-Profit Options to Raise Cash”


With the Obama administration moving to curb campaign activity by certain nonprofit groups, lawyers are scouring the tax code for other financial vehicles that would allow political donors to continue to spend money on elections while remaining anonymous.

One option gaining attention: Creating or using taxable, for-profit businesses for political purposes. But that idea is already raising questions about whether donors would be operating genuine companies, or merely running campaign groups in disguise.

Another possibility drawing interest, election lawyers say, is for donors to organize themselves as trade associations, akin to the U.S. Chamber of Commerce, which doesn’t have to disclose donor names.

The search for new ways to collect and distribute campaign cash comes because the Internal Revenue Service proposed rules in November to restrict political activity by social-welfare groups, known in the tax code as 501(c)(4) groups. Social-welfare groups aren’t supposed to make electioneering their primary activity. But their use in campaigns has soared in the last two years, in part because they can accept donations of unlimited size and don’t have to disclose the names of their donors.

This is why I’ve testified that the only kind of effective campaign disclosure law is one targeted at the nature of the advertising/activity and not the tax form of the organization engaged in the activity.


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