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Charles Koch's audacious new $5 billion political scheme
Billionaire Charles Koch, who will turn 88 on November 1, is funneling his wealth into two secretive organizations that can continue his right-wing political advocacy for years. Koch structured more than $5 billion in donations to exploit a loophole to allow him to avoid paying capital gains or gift taxes. It's not surprising that Koch is familiar with the loophole — he spent hundreds of thousands of dollars lobbying to create it.
According to a profile published Tuesday in Forbes, in 2022, Koch donated $4.3 billion in Koch Industries stock to Believe in People, a newly formed 501(c)4 nonprofit organization. The organization is run by Koch's inner circle, including Chase Koch, his son, Dave Robertson, co-CEO of Koch Industries, and Brian Hooks, the co-author of Charles Koch's last book. The organization is so new, it has no publicly available filings.
In 2020, Koch also donated $975 million in Koch Industries stock to CCKc4, another 501(c)4 organization controlled exclusively by Chase Koch. (The organization's name is his initials.) In its 2020 IRS filing, CCKc4 listed its mission as "N/A."
But while little is known about the current activities of Believe in People or CCKc4, as 501(c)4 organizations, a large percentage of their assets — in this case, billions of dollars — can be spent directly on political campaigns. Koch was able to make this money available for political spending without paying a dime in taxes.
Large donations to charitable causes are not subject to gift taxes. But, after the Supreme Court's 2010 decision in Citizens United, 501(c)4 organizations began to engage directly in political campaigns, which are not charitable causes. So, by 2015, the IRS said they were considering applying the gift tax to large donations to 501(c)4 groups that were not used for charitable purposes.
For most people, this would not be a big deal. Today, gifts of up to $17,000 are already exempt from the gift tax, and the overall lifetime gift tax exemption is over $12 million. But if, like Charles Koch, you want to gift $5 billion and make it available for political spending, a gift tax could create a tax bill of nearly $2 billion.
Another option Koch had was giving his stock to a 527 political organization, which have long been exempt from gift taxes. But, under federal law, a gift of stock to a political organization is considered a sale. That means Koch would have had to pay capital gains tax. Further, 527 groups are required to disclose how they spend their money. 501(c)4 groups, on the other hand, can operate almost completely in secret.
In 2015, former Congressman Peter Roskam (R-IL) proposed the "Fair Treatment for All Gifts Act," to specifically exempt contributions to 501(c)4 from the gift tax. Politico described it as a "tax exemption for megadonors." The outlet reported that potential gift tax liability was "seen by fundraising operatives as removing one of the few remaining potential obstacles to unfettered big-money spending by nonprofit groups." The bill sailed through the House but was stalled in the Senate.
Charles Koch, through Koch Industries, hired a lobbying firm, Siff & Associates, PLLC, to advocate for Roskam's bill and related issues. In 2015 and 2016, Koch paid Siff & Associates $180,000 to push for the new gift tax exemption. One of the political organizations Koch created and funds, Americans for Prosperity, also advocated for Roskam's gift tax exemption. "People and organizations should not be silenced because of their political beliefs — certainly not by applying taxes in an inconsistent way. Your bill would prevent them from doing so," Americans for Prosperity wrote in a March 12, 2015 letter to Roskam.
Koch wasn't the only one interested in Roskam's legislation. Campaign finance experts warned that it would inject even more "dark money" into the political system. But Koch had allies from non-profit groups — and not just on the right. Liberal groups like Human Rights Campaign and Alliance for Justice, signed onto a letter advocating for the gift tax exemption, claiming it would "safeguard taxpayers and nonprofit organizations against unfair or biased treatment by the IRS in the future."
Ultimately, Koch's lobbying efforts paid off. Roskam's legislation was quietly included in a must-pass omnibus spending bill in December 2015. Now, Charles Koch is taking full advantage of the loophole he helped create.
Technically, the 501(c)4 groups recently created by Charles Koch can spend money on political campaigns as long as it is not their "primary purpose." But practically, Koch and his associates will be able to use the entities to spend as much money as they want on political campaigns without disclosing their spending or paying taxes.
Craig Holman, a campaign finance expert at Public Citizen, says that the IRS has essentially given up on enforcing limits on political activities. There are many non-profit organizations today, Holman told Popular Information, whose "primary purpose is electioneering activity." But the IRS allows them to "continue to claim nonprofit status." Holman described the 2015 passage of the gift tax exemption as "a case of big money winning."
Charles Koch's bogus political rebrand
Koch has spent millions propping up extremist groups like the Tea Party and far-right political candidates. But, following the 2020 election, he attempted a political makeover. In a November 13, 2020, profile in the Wall Street Journal, Koch claimed that he would no longer engage in partisanship. Instead, he would devote his resources "to building bridges across partisan divides to find answers to sprawling social problems." He described his political network's efforts to elect far-right Republicans as a "screw-up" that created "a mess." Moving forward, Koch said, he would "work together with Democrats and liberals."
This did not prove to be the case. Over the next two years, Koch's main political spending vehicle, Americans for Prosperity Action (AFP Action), spent $63,401,608 supporting Republican candidates for federal office, $5,576,858 opposing Democratic candidates, and zero dollars supporting Democratic candidates. 86.7% of AFP Action's spending bolstered candidates who were endorsed by Trump, according to a review of campaign finance data by Popular Information.
Overall, AFP Action spent 95% of its money on Republican candidates who were formally endorsed by Trump or who actively campaigned as Trump supporters. AFP Action spent just $3.5 million on candidates not aligned with Trump. In addition, Koch Industries PAC, which is also controlled by Charles Koch, was the top corporate supporter to members of Congress who voted to overturn the election.
Nevertheless, the media continues to promote Charles Koch as if he has evolved into a non-partisan truthteller. "What I think is very dangerous, very destructive for our country is that both parties are becoming increasingly authoritarian," Koch says in his most recent Forbes profile. There is no mention of Koch's continued monolithic support of Republican candidates, including Trump's strongest political allies.
The other billionaire
Koch is not the first right-wing billionaire to exploit this loophole. In 2020, Barre Seid, a conservative electronics magnate, transferred ownership of his company, Tripp Lite, to a newly-created trust led by right-wing activist Leonard Leo. The Marble Freedom Trust was registered as a 501(c)4 nonprofit.
When the power management company Eaton purchased Tripp Lite nearly a year later, Leo’s trust made $1.65 billion from the sale. At the time, this windfall was described as “the largest known donation to a political advocacy group in U.S. history.” ProPublica reports that the “structure of the donation allowed Seid to avoid as much as $400 million in taxes,” enabling Leo to net as much as possible. An analysis from the New York Times found that “the $1.6 billion that the Marble trust reaped from the sale is slightly more than the total of $1.5 billion spent in 2020 by 15 of the most politically active nonprofit organizations that generally align with Democrats.”
A co-chairman of the Federalist Society, Leo has played an instrumental role in appointing conservative judges to federal courts for years. Leo has also helped direct millions towards rolling back abortion rights, “stopping ‘woke’ culture, ending federal regulations on climate change, and limiting voting rights.” The full scope of Leo's ambitions for Marble Freedom Trust remains unknown.