Abuse of tax loophole led to IRS scandal


Daniel Werfel, 42, was appointed acting commissioner of the IRS Thursday. He is from the president's Office of Management and Budget.

The IRS has been targeting conservative Tea Party groups that have applied for tax exempt status as social welfare organizations, but there are groups on both sides of the spectrum that may be hiding the sources of their political contributions. There is a local watchdog group that has been following the money.

It's a big story that the IRS targeted Tea Party groups for special scrutiny. On Friday, the first congressional hearing begins. But look at how this started with the IRS trying to monitor the political activity of tax-exempt organizations. These are so called 501(c)(4) groups that are not required to report who gives them money.

At MapLight on Berkeley's Shattuck Avenue, researchers are following the money, but in the last couple of years, the amount of money they cannot trace has ballooned. A graph has outlined the political expenditures by 501(c)(4) corporations -- these "social welfare" organizations who don't have to reveal source of their funding.

"There was a headline today, basically said 'Billionaires dominating our political system' that's what's happening and it's new," said Former Sen. Russ Feingold, D-WI.

Feingold co-authored the McCain-Feingold campaign finance reforms, but he says the high court's citizen's united decision created a gigantic loophole. At Berkeley-based MapLight, Daniel Newman says the 501(c)(4)s were never supposed to be overtly political.

"They were never designed to do this. The typical 501(c)(4) group might be a volunteer fire department," said Newman.

But now tax exempt 501(c)(4) social welfare groups are wading deep into the nastiest part of political campaigns.

"You had groups like Crossroads GPS on the right, Priorities USA on the left, raising and spending tens of millions of dollars on attack advertisements," said Newman.

Tens of millions of dollars for attack ads -- tear down your opponent and leave your candidate of choice free and clear to say he or she had nothing to do with it and the source of the funding that pays for those ads can be legally hidden.

"They are pretending that they are just running issue ads to convince people on topics, but they're actually campaigning for or against people and that's an enormous abuse," said Feingold.

Feingold is a visiting lecturer at Stanford's law school. He tells ABC7 News the law must be strengthened.

But at MapLight they're wondering why the IRS would target little guys like the Tea Partiers, but approve big 501(c)(4)s run by guys like Karl Rove.

"The scandal is why hasn't the IRS apparently gone after these groups that are spending tens of millions of dollars of secret money that actually do impact our elections," said Newman.

Now we've seen both conservative and liberal groups taking advantage of this loophole to hide political contributions. But the so-called "dark money" is by no means equally split. Of the more than $300 million that was untraceable in contributions spent last year, 85 percent of it went to support conservative candidates, 15 percent was spent for liberals.

Copyright © 2024 KGO-TV. All Rights Reserved.