David Koch
Dark money: Billionaire libertarian David Koch at a New York City gala on May 2, 2017. Dia Dipasupil/Getty Images for Lincoln Center

With Republican megadonors like Charles Koch, 82, and his brother David, 77, advancing in age, a top GOP senator from the Kochs’ home state has proposed a special tax break for moguls who bequeath their riches to so-called “dark money” groups that advocate for policies and bankroll lawmakers’ election ads. Though Kansas Sen. Pat Roberts’ proposal did not make it into the Senate-passed version of the tax bill, it could still be added by the conference committee that will write the final $1.4 trillion tax cut legislation.

Although dark money groups are entitled to conceal the identities of their donors, reporting has shown the Koch brothers are some of most prolific deployers of such groups. Roberts’ proposal would provide a new post-mortem tax break to boost that activity — at a moment when the Republican Party’s biggest donors include septa- and octogenarians such as the Kochs, Sheldon Adelson, 84, Robert Mercer, 71, and Foster Freiss, 77.

Donors from Wichita-based Koch Industries, collectively, have been the number one contributor to Roberts during his career, providing him with more than $186,000 of campaign cash. A Koch-linked super PAC also boosted Roberts with a burst of television ads during his 2014 reelection bid.

Roberts’ proposal was included in a list of amendments considered for the tax bill by the Senate Finance Committee. A spokesperson for the committee told International Business Times that it did not have records of the full text of the amendment, and directed IBT’s request to Roberts’ office, which did not respond to questions about whether he will try to have the language included in the final tax legislation that will come before Congress. If it is included, it could boost groups that seek political influence without transparency.

“This can have the effect of reducing the overall amount paid in taxes on a wealthy individual’s estate when they die — or in some instances, creating a tax break for a billionaire’s post-mortem dark money donations,” Brendan Fischer, the director of federal and FEC reform at the Campaign Legal Center, told IBT in an email.

“Estate Tax Modification”

Current law taxes multimillion-dollar inheritances upon a taxpayer’s death: The money is taxed if it is put into a political group, but not if it is put into a charitable organization classified as a 501(c)(3) — a type of non-profit that is not permitted to engage in political advocacy. Roberts’ proposed exemption would change that, and expand the estate tax charitable deduction to include donations to politically active non-profits.

His amendment — which was never voted on by the committee — was described as an “estate tax modification for contributions to charitable organizations” and said it “would permit a deduction with respect to the computation of estate tax for bequests to 501(c)(4), (c)(5), or (c)(6) organizations.”

Under the law, 501(c)4 groups are “social welfare” groups, but in recent years they have become the most prominent form of dark money group. They can accept unlimited amounts of contributions, they are not required to disclose their donors, and while they aren’t legally allowed to spend more than 50 percent of their resources on political activity, they often get around this provision by not expressly advocating for or against a candidate, but instead thanking that candidate for promoting a policy agenda.

In the 2016 election cycle, 501(c)(4) groups spent $145 million on political advertising, according to the Center for Responsive Politics; 501(c)(5) groups, which are typically unions, spent $27.13 million. Trade associations, including the U.S. Chamber of Commerce and The Business Roundtable, are registered 501(c)(6) organizations.

Those groups spent nearly $33 million on political spending during the 2016 cycle. While 501(c)(5) groups — unions — are spending less so far in 2018 than they did in 2016, 501(c)(4) and 501(c)(6) groups are outpacing their spending from last cycle: 501(c)(4) groups are currently on pace to more than double the amount they spent in 2016.

Tax records reviewed by IBT show that Koch-linked political organizations Americans for Prosperity and Freedom Partners Chamber of Commerce — the latter of which has been dubbed “The Koch brothers’ secret bank” — are respectively organized as a 501(c)4 and 501(c)6, meaning they may have benefited from Roberts’ amendment.

“A Conference Can Do Pretty Much What It Wants”

Right now, there are discrepancies between the House and Senate versions of the tax legislation. The House-passed version of the bill fully repeals the estate tax, even though it only hits about 5,000 taxpayers a year. The Senate bill, by contrast, keeps the tax, but raises its threshold, so that it only applies to inheritances above $11 million.

A House-Senate conference committee is now charged with sculpting a single, final bill to be voted on by both chambers. The conferees are not bound by either of the original drafts of the bill — in seeking a compromise, they can add provisions that were never previously passed, meaning Roberts’ proposal could figure into the negotiations over the final changes to the estate tax.

“A conference can do pretty much what it wants, so long as it fits within the reconciliation rules, including the Byrd Rule and the strictures put in place by the joint budget resolution,” American Enterprise Institute scholar Norm Ornstein told IBT. “That includes things not in either House or Senate bill as passed.”

The granular details of Roberts’ proposal were never made public or subject to a vote, but Senate documents reviewed by IBT show the general outlines of his initiative.

“This amendment would permit a deduction with respect to the computation of estate tax for bequests to 501(c)(4), (c)(5), or (c)(6) organizations,” said Senate Finance Committee records, which also noted that the lawmaker had not come up with a method to make sure the proposal did not increase the deficit.

When Roberts first proposed his initiative, the Independent Sector — a group representing nonprofits, foundations and charities — asked lawmakers to discard it, arguing that it would distort the intent of charitable tax deductions.

“One of the most important protections of the charitable deduction is the assurance that the government subsidized gifts are directed in their entirety to serving the common good,” the group wrote. “Only 501(c)(3) charities are able guarantee donations will be used in this way, because they are prohibited from engaging in partisan political activity. The Roberts Amendment proposes to extend this benefit beyond public charities to allow tax-deductible gifts from estates to other types of organizations. This provision is another means of opening the door for charitable donations to be misused for the purposes for politics rather than the greater good.”

Roberts proposal follows his earlier legislation designed to prevent the Internal Revenue Service from restricting dark money groups from engaging in political advocacy.