Schneiderman said anonymous cash has become a serious problem in the Empire State. N.Y. AG targets political nonprofits

The IRS has allowed an explosion in the growth of political nonprofits over the past few years, something that’s attracted national attention for how the agency investigated those groups.

Those groups are able to keep their donors secret, something that campaign finance watchdogs say has contributed to the explosion of political spending in recent cycles.


But that could change — in New York, at least. State Attorney General Eric Schneiderman this week moved to force all nonprofits — also called 501(c)4s — participating in politics in New York to disclose their donors — just like PACs, super PACs and candidates for office.

“It seems to be that the only reason in the post-Citizens United world to use a 501(c)4 instead of a super PAC — which enables you to spend all the money you want in support of or opposition to a candidates — is to conceal your identity,” Schneiderman told POLITICO in a Thursday interview.

( PHOTOS: 8 key players in IRS scandal story)

It’s the first major push anywhere in the country to crackdown on political nonprofits — even if it only applies to groups operating in New York state.

“I don’t have jurisdiction over federal elections,” Schneiderman said. “But I do have jurisdiction over nonprofit activity in New York.”

Government watchdog groups have long urged the IRS to stop 501(c)4 nonprofit groups from spending money on politics — arguing that federal law require them to be run as social welfare groups, not political committees. The agency has so far declined to put a stop to nonprofits spending big on politics — even as they asked intrusive questions of small tea party groups nationwide.

Nonprofit status exempts a group from taxes, allows them to file financial reports very infrequently — and, most importantly, gives them the ability to conceal their donors. Super PACs allow unlimited the same kind of independent spending, but require full disclosure of all donations and expenditures to the Federal Election Commission.

The rules could also shed some light on the donors and funding sources of big national nonprofit groups who spend money in New York state politics. The pro-President Barack Obama group Priorities USA, the Karl Rove-linked Crossroads GPS, and the nonprofit started by former Obama campaign aides Organizing for Action are all organized as nonprofits.

Schneiderman said it was clear from the explosive growth in political nonprofits that anonymous cash had become a major problem in his state — and he moved quickly to stop it.

“We just realized that there were all of these groups that were applying for c4 status. Some of them would spend all their money and go out of business before the IRS even got to them,” Schneiderman said. “It was clear that the regulatory apparatus was not working.”

The attorney general said that his regulations were no substitute for the IRS ultimately devising clear guidelines on what nonprofits can and cannot do.

“This is the entity that has to regulate nonprofits,” he said about the IRS. “The source of the problem is the lack of any coherent standards.”

But with the agency currently embroiled in a major scandal after revealing that they had subjected conservative groups to additional scrutiny, campaign finance formers believe that the IRS will be even more impotent to stop the flood of anonymous campaign cash.

The scandal “may cause the IRS to be even more timid enforcing the laws on election spending,” said Sen. Sheldon Whitehouse (D-R.I.) last month.

Schneiderman said the new rules adopted by New York should serve as a model to the nation — and the IRS.

“They could require disclosure easily if you’re spending money on electoral activity,” the attorney general said about the revenue agency. Instead, “this has generated into a lot of fumbling, bumbling and stumbling by IRS staff to deal with a completely incoherent standard in dealing with 501c4’s,” he said.

Critics said the new rules amounted to an infringement on free speech and targeting of groups that Schneiderman disagreed with.

The head of the conservative State Government Leadership Foundation — a 501(c)4 group — blasted the decision in a Wednesday statement.

“Schneiderman is silencing the voices of the people he does not agree with and illegally targeting organizations that are engaging in constitutionally protected conduct as determined by our nation’s highest court,” said executive director Chris Jankowski in a statement. “This is yet another example of nonprofits being targeted by some of our government’s most powerful arms. These actions by the attorney general stifle the First Amendment rights of those who dare to disagree with him,” Jankowski said.