Did tax-exempt groups mislead the IRS on political spending?

January 17, 2013

OF ALL THE groups that pumped hidden money into politics in recent years, the most notable and peculiar included those that claim a “social welfare” purpose and have applied to the Internal Revenue Service for designation as nonprofit and tax-exempt. These organizations, known as 501(c)(4) groups for the section of the federal tax code that governs them, must report their donors to the IRS but not to the public. They have become a favorite vehicle through which to channel millions of dollars into campaigns without public disclosure.

By the IRS definition, such groups must “operate primarily to further (in some way) the common good and general welfare of the people.” The IRS has said that if groups meet this definition, they can participate in some political activity, as long as it is not the “primary” activity of the organization. However, the IRS has been vague about what “primary” means and has not issued new rules or guidance in recent years.

Now comes fresh evidence that some of these groups may have misled the IRS in applying for 501(c)(4) status. ProPublica, an independent, nonprofit newsroom that produces investigative journalism, has revealed that five conservative groups active in the 2012 elections told the IRS on their applications that they would not spend in politics. The application asks whether the group has spent or will spend “any money attempting to influence the selection, nomination, election or appointment of any person to any Federal, state, or local public office in a political organization?” The five groups all checked “No.”

But, according to ProPublica, they did it anyway. For example, Americans for Responsible Leadership, after filing its application, spent more than $5.2 million on campaign activities in October and early November, mostly on phone calls urging the defeat of President Obama. It also pumped money into trying to influence ballot propositions in Arizona and California, the news organization found. The other four groups that checked “No” were Freedom Path, Rightchange.com II, America is Not Stupid and A Better America Now. All of their applications are still pending, but they are permitted to operate while the application is under consideration. If the applications for tax-exempt status are turned down, the groups could end up having to disclose their donors to the public.

Another group, Crossroads GPS, which was a major player in the Republican campaign, is also applying for 501(c)(4) status. Crossroads maintains that it adheres to the law and its direct electioneering activity was less than half of its overall activity. Crossroads checked “Yes” in response to the political question, according to ProPublica.

It’s not only conservative groups that seek 501(c)(4) status; some backing liberal causes have also launched political ads in recent years.

About $322 million was poured into campaigns by these social welfare groups in the 2012 election cycle, ProPublica said. Before this spending grows larger in the next cycle, the IRS should provide clear guidance on how much political activity is appropriate for a social welfare organization. Certainly, there’s nothing wrong with some politics. But it is another thing when tax-exempt status is transformed into a license for shielding campaign donors from public view. That’s an abuse — and needs to be stopped.

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