Montana governor sues over IRS policy on tax-exempt groups

Montana's governor and the state Department of Revenue filed a lawsuit against the Internal Revenue Service and the U.S. Department of the Treasury Tuesday over a recent decision to end the requirement that some tax-exempt groups disclose the identities of their major donors.

The lawsuit seeks to block policy changes that benefit social welfare, unions and business associations that spend millions of dollars on political ads.

"We're coming up on the most momentous midterm election in a generation," Gov. Steve Bullock said in a statement. "The IRS and the administration are sending absolutely the wrong message at the wrong time: Spend money to get corporate interests elected and we'll work to cover your tracks."

This is the third time in recent months that Bullock, a Democrat considering a 2020 presidential run, has inserted himself and Montana into national issues and continues his efforts in support of transparent elections.

In January and June, Bullock signed executive orders requiring companies with state contracts to abide by net neutrality rules and to report their political contributions, even disclosures that aren't required under federal law.

Attorney General Tim Fox, the state's chief legal adviser and a Republican, wasn't aware of the lawsuit.

"The attorney general first learned about the lawsuit on Twitter," spokesman Eric Sell said. "Governor Bullock's office only contacted us once the lawsuit was filed. Since the state's chief legal officer was not consulted prior to the filing, this looks like a political stunt by someone not focused on the job he currently occupies."

The lawsuit, filed in U.S. District Court in Great Falls, argues the July 16 policy change would allow organizations to take unlimited corporate, or even foreign, contributions to influence elections.

Bullock and the Revenue Department argue the policy change should be overturned because it was made without taking public comment and hurts states' abilities to determine whether organizations should be given tax-exempt status because states rely on data from the IRS.

The IRS doesn't need the donor information to effectively enforce tax law and can request it in the case of an audit, Treasury Secretary Steven Mnuchin said last week.

"If the IRS knows that an organization is engaged in political activity and receives a disclosure that the organization's only significant contributors are foreign nationals, then the IRS is well-positioned to identify and stop a serious violation of federal law," the lawsuit argues.

The IRS did not immediately return a phone call seeking comment Tuesday.

Bullock has worked to make the fight against dark money in elections a major part of his legacy as both attorney general and governor. As attorney general, he defended the state's Copper Kings-era law that restricted direct spending by corporations on candidates and political committees, but lost when the U.S. Supreme Court applied to state elections its 2010 Citizens United decision allowing corporate spending.

In 2015, as governor, he pushed through the Disclose Act, a law that updated the state's campaign finance rules to require more disclosure and additional filing by candidates and political committees. The law has so far withstood multiple legal challenges that argue it runs counter to Citizens United.

"The way they're upending almost 50 years of IRS practice is by this revenue procedure," which would allow more dark money to flow into the 2018 elections, Bullock said. "Montanans want fair and open elections."

U.S. Sen. Jon Tester, D-Montana, introduced legislation Monday to overturn the policy change.