Business League/AAI

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              <span class="field field-name-field-sources field-type-node-reference field-label-hidden"><span class="field-items"><span class="field-item even"><a href="http://www.prwatch.org/">PR Watch</a> <span class="print-footnote">[1]</span></span></span></span>             /               <em>By</em> <em><a href="http://www.alternet.org/authors/brendan-fischer">Brendan Fischer</a> <span class="print-footnote">[2]</span></em>
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        <h1 class="node-title">Kochs Form New Dark Money Group To Hide Political Activities From Public</h1>
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          <div class="story-date"><em><span class="field field-name-field-date field-type-date field-label-hidden"><span class="field-items"><span class="field-item even"><span class="date-display-single" content="2013-05-02T08:04:00-07:00">May 2, 2013</span></span></span></span>

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The right-wing network funded by the billionaire industrialist Koch

brothers is being revamped after the 2012 elections, starting with a new

nonprofit called the "Association for American Innovation" that will

act as a hub for funneling undisclosed spending towards the Kochs'

political projects.With ambiguous IRS rules and a deadlocked Congress, they might get away with it.The role for the group, <a href="http://www.huffingtonpost.com/2013/04/26/koch-brothers-group_n_3164357.html">according to the Huffington Post</a> [3],

is to serve as a financing vehicle for the Koch political network,

which includes organizations like Americans for Prosperity. In some

respects it appears to be playing a similar role as the <a href="http://www.sourcewatch.org/index.php/Center_to_Protect_Patient_Rights#cite_note-open_secrets-0">Center to Protect Patient Rights</a> [4], a 501(c)(4) nonprofit run by Koch operative Sean Noble that <a href="http://www.opensecrets.org/news/2012/05/cppr.html">funnelled</a> [5] nearly $55 million to other front groups, which in turn ran ads attacking Democrats in the 2010 elections. The

Association for American Innovation will likely help the Kochs and

their allies continue avoiding transparency in political spending.Association Formed as "Business League," Perhaps to Avoid IRS ScrutinyThe

Association is organized under Section 501(c)(6) of the tax code,

setting it apart from many of the dark money groups active in the 2010

and 2012 elections, like Karl Rove's Crossroads GPS or Americans for

Prosperity, which are organized as 501(c)(4) "social welfare"

nonprofits.Section 501(c)(6) is reserved for business leagues

like the U.S. Chamber of Commerce or trade associations like the

pharmaceutical lobby PhRMA; but unlike those groups, there is little

evidence the Association exists to advance the interests of any

particular trade or industry. "A (c)(6) is exactly where you'd

expect captains of industry to go for political leverage out of the

public view, especially if the notorious 501(c)(4) organizations are

about to be more heavily scrutinized and regulated by the IRS," attorney

Greg Colvin, an expert in nonprofit law, told the Center for Media and

Democracy.  "Unlike a (c)(4), the organization would have no

pretense of promoting the common good and general welfare of the

community," Colvin said. "A 501(c)(6) is not a public interest

organization. It can promote the special interests of oil and gas,

pharmaceuticals, real estate developers, manufacturers, or free

enterprise capitalism generally."Donors to both 501(c)(6) "trade

associations" and 501(c)(4) "social welfare" nonprofits can remain

anonymous, providing a potential avenue for publicity-shy funders to

spend on elections while keeping their identities secret. Super PACs

must disclose all their donors, but nonprofits have no such obligation,

unless a donation was specifically earmarked for a political ad.And

the law governing both 501(c)(6) and 501(c)(4) groups are the same:

political intervention cannot be their primary purpose. But the IRS

rules for what constitutes political intervention are relatively

ambiguous and rarely enforced. And this provides an opening for the

Kochs and their allies to continue influencing elections from the

shadows.Kochs Exploiting "Vague, Unpredictable, and Unevenly Applied" LawsDespite

these limits on political intervention, several dark money nonprofits

last year did little else besides spend on election-related ads. Some

nonprofits <a href="http://www.propublica.org/article/controversial-dark-money-group-among-five-that-told-irs-they-would-stay-out">even told the IRS</a> [6] they would not spend a dollar on political intervention.There

still has not been a public prosecution of a dark money group for

violating election or tax law in the 2012 or 2010 elections, an issue

that was the subject of a <a href="http://www.judiciary.senate.gov/hearings/hearing.cfm?id=2c79a170440dcdca9be971883a73cb83">Senate Judiciary Subcommittee hearing </a> [7]in April. "The tax rules are vague, unpredictable, and unevenly applied," Colvin <a href="http://www.judiciary.senate.gov/pdf/04-09-13ColvinTestimony.pdf">testified</a> [8] at

the hearing. "Only the most flagrant violations could be knowing,

willful, or deliberate and subject to criminal prosecution."To

assess whether an ad or expenditure counts as "political intervention,"

the IRS uses multi-factor "issue advocacy" rules and a vague "facts and

circumstances" approach. This includes enough wiggle room for dark money

groups run by the Kochs or others to argue that their ads or organizing

drives should count as "education" or "lobbying" rather than electoral

advocacy -- preserving their nonprofit status while shielding their

spending and funding from public view.The IRS and Treasury Department could create more bright-line rules but have failed to do so. Kochs Taking Steps to Thwart TransparencyThis

ambiguity in the rules governing nonprofits led to an unprecedented

level of secret spending in the 2012 elections. And that has inspired

calls for transparency from members of both parties, although the GOP as

a whole has consistently opposed disclosure legisation. In addition to

the DISCLOSE Act, which failed in recent sessions (largely because of

Republican opposition), Sens. Lisa Murkowski (R-Alaska) and Ron Wyden

(D-Ore.) have introduced the <a href="http://www.scribd.com/doc/138100014/Follow-the-Money-Act-Backgrounder">"Follow the Money Act"</a> [9] to

require any group that spends more than $10,000 on an election to

disclose the identities of donors who give $1,000 or more. The Kochs have <a href="http://www.opensecrets.org/news/2013/04/pepsico-koch-industries-others-lobby-against-donor-disclosure.html">lobbied against</a> [10] almost every proposal for greater transparency in election spending.The

fate of disclosure legislation remains unclear. But perhaps the Kochs

are nonetheless anticipating greater transparency requirements with the

creation of the Association for American Innovation: by a donor giving

to the Association, and the Association then contributing to a dark

money nonprofit like Crossroads GPS that spends on political ads, the

original donor's identity is almost certain to remain secret if

Crossroads GPS must disclose its donors. GPS would likely only report

the Association for American Innovation contribution, allowing the

original donor to keep their anonymity. "So long as huge amounts

and proportions of political campaign funds can flow through

multi-purpose 501(c) entities, the task of achieving public disclosure

will be almost impossible," Colvin told the Senate Subcommittee.Another

complicating issue is that the IRS has never clarified how much

political intervention is too much for a nonprofit. It cannot be a

"primary purpose," which could mean anywhere between 10 percent and 49

percent of the nonprofit's overall activites. It is also not clear when

one nonprofit transferring funds to another counts towards their

political intervention limit.Even if a group like the Association

were to specify that its transfer to another Koch group cannot be used

for electoral purposes (as defined under vague IRS rules), money is

fungible, so the contribution can free up more funds for the recipient's

explicitly political activity. And if the Association makes a

significant number of contributions to other nonprofits -- which they

will likely do -- and argues the transfers do not count as "political

intervention," the Association itself could devote more resources to

electoral politics without this becoming its "primary purpose."Take it to the States (but Avoid State Attorney Generals)Despite

entreaties from Colvin and other experts, the IRS has failed to create

more clear rules for nonprofits on how political intervention is defined

and how much is too much, and Congress has failed to revise the tax

code or pass disclosure legislation. This has left the door open to

abuse of the tax code by players like the Kochs. But some states have not been paralyzed by inaction.  In 2012, the Koch-connected Center to Protect Patient Rights was involved in a <a href="http://www.prwatch.org/news/2012/11/11845/california-elections-board-peels-back-layer-dark-money-onion-finds-more-onion/">shell game</a> [11] where

$11 million was shuffled between three different groups to influence

two California ballot initiatives. But since November, California's

elections board has been digging deep into what it calls this "campaign

money laundering" effort, <a href="http://www.huffingtonpost.com/2013/03/24/california-dark-money_n_2943688.html">most recently</a> [12] issuing a round of subpoenas to determine who provided the original funds. Other states are also taking action. Montana and its state courts have <a href="http://www.pbs.org/wgbh/pages/frontline/government-elections-politics/big-sky-big-money/montana-court-rules-dark-money-group-violated-state-law/">successfully enforced disclosure laws against</a> [13] a dark money group that had tried keeping its donors secret. <a href="https://docs.legis.wisconsin.gov/2013/related/proposals/sb166">Bipartisan legislation</a> [14] in

Wisconsin would require greater transparency for "issue ads" that run

near an election. And New York's Attorney General issued new rules to <a href="http://tpmmuckraker.talkingpointsmemo.com/2012/12/new_york_dark_money_rules.php">require donor disclosure</a> [15] by dark money groups that spend more than $10,000 in an election.  And

here arises another advantage to organizing the Association for

American Innovation as a (c)(6): unlike (c)(4)s, they largely will not

fall under the jurisdiction of state attorney generals.

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      <em>See more stories tagged with:</em> <div class="field field-name-field-tags field-type-taxonomy-term-reference field-label-hidden">
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          <div class="field-item even">
      <a href="http://www.alternet.org/tags/koch-brothers-0">koch brothers</a> <span class="print-footnote">[16]</span>,     </div>      <div class="field-item odd">
      <a href="http://www.alternet.org/tags/center-media-and-democracy">Center for Media and Democracy</a> <span class="print-footnote">[17]</span>,     </div>      <div class="field-item even">
      <a href="http://www.alternet.org/tags/dark-money-groups">dark money groups</a> <span class="print-footnote">[18]</span>    </div>  </div>

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    <div class="print-source_url"><strong>Source URL:</strong> <a href="http://www.alternet.org/news-amp-politics/kochs-form-new-dark-money-group-hide-political-activities-public">http://www.alternet.org/news-amp-politics/kochs-form-new-dark-money-group-hide-political-activities-public</a></div>
    <strong>Links:</strong><br />[1] http://www.prwatch.org/<br />

[2] http://www.alternet.org/authors/brendan-fischer

[3] http://www.huffingtonpost.com/2013/04/26/koch-brothers-group_n_3164357.html

[4] http://www.sourcewatch.org/index.php/Center_to_Protect_Patient_Rights#cite_note-open_secrets-0

[5] http://www.opensecrets.org/news/2012/05/cppr.html

[6] http://www.propublica.org/article/controversial-dark-money-group-among-five-that-told-irs-they-would-stay-out

[7] http://www.judiciary.senate.gov/hearings/hearing.cfm?id=2c79a170440dcdca9be971883a73cb83

[8] http://www.judiciary.senate.gov/pdf/04-09-13ColvinTestimony.pdf

[9] http://www.scribd.com/doc/138100014/Follow-the-Money-Act-Backgrounder

[10] http://www.opensecrets.org/news/2013/04/pepsico-koch-industries-others-lobby-against-donor-disclosure.html

[11] http://www.prwatch.org/news/2012/11/11845/california-elections-board-peels-back-layer-dark-money-onion-finds-more-onion/

[12] http://www.huffingtonpost.com/2013/03/24/california-dark-money_n_2943688.html

[13]

http://www.pbs.org/wgbh/pages/frontline/government-elections-politics/big-sky-big-money/montana-court-rules-dark-money-group-violated-state-law/

[14] https://docs.legis.wisconsin.gov/2013/related/proposals/sb166

[15] http://tpmmuckraker.talkingpointsmemo.com/2012/12/new_york_dark_money_rules.php

[16] http://www.alternet.org/tags/koch-brothers-0

[17] http://www.alternet.org/tags/center-media-and-democracy

[18] http://www.alternet.org/tags/dark-money-groups

[19] http://www.alternet.org/%2Bnew_src%2B