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Kochs Form New Dark Money Group To Hide Political Activities From Public

"Business League" will keep political spending in the shadows.

Photo Credit: Suzanne Tucker /


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,  according to the Huffington Post, 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  Center to Protect Patient Rights, a 501(c)(4) nonprofit run by Koch operative Sean Noble that  funnelled 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 Scrutiny

The 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" Laws

Despite these limits on political intervention, several dark money nonprofits last year did little else besides spend on election-related ads. Some nonprofits  even told the IRS 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  Senate Judiciary Subcommittee hearing in April. 

"The tax rules are vague, unpredictable, and unevenly applied," Colvin  testified 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.