Laws Permit Thousands of Chamber-like Groups to Keep Donors Secret, Review Finds

WASHINGTON, Oct. 15, 2010— -- President Obama and top Democrats have singled out for criticism the U.S. Chamber of Commerce for not disclosing the identities of donors behind its massive 2010 election advertising campaign.

But the administration's focused criticism belies the fact that nonprofit groups' practice of keeping identities of their donors secret is not unusual or illegal.

An ABC News review of Internal Revenue Service records finds that the Chamber is one of at least 90,908 nonprofit groups that enjoyed the same political campaigning and financial disclosure privileges in fiscal year 2009.

Under the 501(C)(6) section of the tax code, "leagues, chambers of commerce, and real estate boards" that promote a "common business interest" can register with IRS for tax exempt status and engage in political campaigning relatively unrestricted so long as it's not their primary activity.

These nonprofit groups, including those that engage in political activities, are not required to publicly reveal the names of donors -- a practice many, including liberal groups, defend.

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"It would be an administrative nightmare," said William Lutz, a spokesman for the group Defenders of Wildlife, responding to some critics' calls for greater disclosure. "The vast majority of donors are small dollar amounts not given for a specific race."

Colin Hanna, president of the conservative nonprofit group Let Freedom Ring, Inc., said privacy is important because "donors who are disclosed wind up being subjected to increased appeals -- and donors wind up, in effect, being hounded."

If an individual or corporation donates money to a nonprofit group with specific instructions that the funds be used in a political race, the group must then publicly disclose the information to the Federal Election Commission. But experts say most donations do not come with such political strings attached.

At the same time, at least 137,276 "social welfare" nonprofits, known as 501(C)(4) groups and including the National Rifle Association and Planned Parenthood Action Fund, also enjoy similar disclosure rules and the ability to keep donors' identities private, according to IRS.

"The world of 501(c)(4, 501(c)(6), tax-exempt organizations is vast," said Tara Malloy, associate counsel for the Campaign Legal Center.

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These groups, which have been demonized by the Obama administration, are also controversially permitted to use unlimited corporate or union money for their political activities because of the Supreme Court's recent Citizens United decision.

"The electorate is in the dark," said Malloy, talking about political spending by nonprofit groups that do not reveal their donors. "Americans have the idea that information should be out in the open so the electorate can make an informed vote."

The Chamber of Commerce has received the most scrutiny because of the extraordinary $20 million it has spent in this election cycle so far. The group is running ads in 27 states, hammering mostly Democratic candidates for their policies, but they are also supporting at least 10 Democrats in races across the country.

Defenders of Wildlife has only spent $800,000 this election cycle, according to FEC records. Let Freedom Ring, Inc., has spent around $1,000.

"It's the big fish in the pond," said Malloy. "There are many less problematic groups, such as homeowners associations, and local chambers of commerce that have no political activity."

Close behind the Chamber in fundraising prowess is Crossroads GPS, a nonprofit with ties to Republican strategist Karl Rove. Together with sister group American Crossroads, a "super PAC," they have raised $56 million.

President Obama and groups such as the Campaign Legal Center have expressed concern that such an organization's main purpose is political campaigning, so it therefore should not be considered an issue-oriented nonprofit organization with immunity from having to disclose its donors.

"Just tell us where the money's coming from," said Vice President Joe Biden. "Why can't the Chamber say, 'These are where the contributions are coming from'? Why can't Karl Rove tell us where the contributions are coming from?"

Still, experts say many of these groups are within their rights under the law to keep their donors private, and that if the White House doesn't agree with the law, it should work with Congress to enact a change.

"Since the IRS permits non-disclosure and we convey that [to our donors], we can't subsequently disclose," said Hanna.