Montana view: Court right to throw out dark-money rule

The Montana Standard

August 6, 2019

The public comment and review process isn't optional; it's the law. In essence, that's what U.S. District Judge Brian Morris said in throwing out an Internal Revenue Service rule that the Trump administration unilaterally imposed.

That new rule told tax-exempt 501(c)4 social welfare organizations that they no longer had to report the names of their large donors to the IRS with their annual 990 reports. Treasury Secretary Steven Mnuchin apparently saw no use for this information, even though many of these groups spend up to half of their revenue trying to influence elections and government policy.

Montana Gov. Steve Bullock objected and sued to overturn the rule. He was joined by New Jersey Attorney General Gurbir Grewal. They argued that because their states (and others) rely on IRS data to determine whether tax exempt organizations are complying with state laws, the IRS rule adversely affects the states. New Jersey was contemplating the costs of trying to collect this information itself.

For a century, IRS policy has been to share data with state revenue authorities. To be clear, the IRS wan't releasing donor lists to the public, but it was providing that information to states. Thus, states didn't have to duplicate efforts and they could more efficiently review information from entities that operate in multiple states.

Morris agreed that Mnuchin's change failed to follow U.S. law. The Administrative Procedure Act "requires that agencies advise the public through a notice in the Federal Register of the terms or substance of a proposed legislative rule and allow the public a period of time to comment," Morris wrote. Montana and New Jersey must have "the opportunity to submit written data and opposing views or arguments, as required by the APA's public notice and comment process before it changes the long-established reporting requirement."

Mnuchin could appeal Morris' decision to the Ninth Circuit U.S. Court of Appeals, or he could start the legally required public review process. Meanwhile, labor unions and certain other tax exempt organizations such as the National Rifle Association and the American Civil Liberties Union will have to resume disclosing to the IRS the identity of donors who provide $5,000 or more in support in a tax year. State revenue agencies will again have access to that information.

With the presidential election looming next year and most tax-exempt organization's 990 forms due this fall, this is an opportune time to ensure that federal and state revenue officials know the origin of the vast sums that such untaxed entities are collecting.

In Montana, the DISCLOSE Act, which Bullock, Sen. Duane Ankney and Rep. Frank Garner championed, passed the 2015 Legislature and vastly improved transparency in state election spending. Among other things, it requires that independent election spenders report their expenditures.

The 2019 Legislature and Bullock took another step toward reducing the influence of big money with Senate Bill 326 that forbids foreign nationals and foreign businesses spending to influence Montana elections. The law also prohibits candidates from accepting foreign contributions. That law will take effect on Oct. 1.

Raph Graybill, Bullock's chief legal counsel represents the state in the IRS rule lawsuit. "When you make big changes to disclosure requirements, states have a real stake in that," Graybill told the Associated Press. All Montanans have a stake in holding political spenders accountable.