Anonymous Gifts for Political Activities Draw Little Scrutiny

Although 501(c)(4) organizations established this year by operatives working for the major political parties have become significant players in the 2010 election cycle, it's unlikely they will draw much scrutiny for their campaign activities, the New York Times reports.

Since the 2006 election, 501(c)(4) organizations have grown in popularity as conduits for large, unrestricted donations by both Republicans and Democrats. Although contributions to (c)(4)s are not tax-deductible and political activity cannot be the primary purpose of the organization, (c)(4)s, unlike Section 527 groups and political action committees, are not required to identify their donors.

One such group, Crossroads Grassroots Policy Strategies, has spent millions of dollars on television commercials attacking Democrats in key Senate races across the country, the Times reports. But while the monitoring of such groups is the responsibility of the Internal Revenue Service, the agency has little incentive to police them. What's more, because (c)(4)s are not required to get the agency's approval until after they file their first tax form — in many cases, more than a year after they have become active — the agency often doesn't know they exist.

"These groups are popping up like mushrooms after a rain right now, and many of them will be out of business by late November," said Marcus Owens, an attorney with Caplin & Drysdale and the former head of the IRS's exempt organizations division. "Technically, they would have until January 2012 at the earliest to file anything with the IRS. It's a farce."

Michael Luo. "Donor Names Remain Secret as Rules Shift." New York Times 09/20/2010.