Campaign watchdogs accuse top conservative group of violating tax laws

By Dan Eggen
Washington Post Staff Writer
Tuesday, October 5, 2010; 12:37 PM

Two campaign-finance watchdogs asked the Internal Revenue Service on Tuesday to investigate Crossroads GPS, the big-spending conservative group supported by Republican guru Karl Rove, for allegedly violating U.S. tax laws limiting the political activities of nonprofit groups.

In a complaint filed with the IRS, Democracy 21 and the Campaign Legal Center say the group - an arm of the American Crossroads political committee - is using its nonprofit status to shield the identities of its wealthy donors.

The complaint says "the group was organized to participate and intervene in the 2010 congressional races while providing donors to the organization with a safe haven for hiding their role."

Jonathan Collegio, spokesman for American Crossroads and Crossroads GPS, said the GPS group "carefully follows all laws" governing nonprofit organizations.

"This is a baseless complaint, filed by a partisan group that files baseless complaints for its living," Collegio said.

The dispute signals an early volley in the looming legal battle over election and campaign-finance rules for 2012, even as independent interest groups set new records for spending on the November midterms. Critics say a shifting legal landscape has made it even more attractive for politically minded interest groups to cloak their spending in the shelter of nonprofit organizations.

The allegations also underscore the increasing pressure on the IRS to broker such disputes amid gridlock at the Federal Election Commission, which has seen its powers eroded by the courts and is hobbled by partisan differences. A labor coalition filed a separate IRS complaint last month alleging tax violations by the nonprofit Chamber of Commerce.

"We're living in a new world now, and the IRS can't just stand on the sidelines anymore," said Fred Wertheimer of Democracy 21, who co-wrote the IRS complaint with Campaign Legal Center executive director J. Gerald Hebert. "You have groups basically using their nonprofit status to keep their donors secret."

The IRS, which in general does not publicly discuss such complaints, had no immediate comment on the letter.

Crossroads GPS - short for Grassroots Policy Strategies - is organized as a nonprofit "social welfare" organization under section 501(c)(4) of the federal tax code, which effectively means the group can raise and spend as much as it wants with minimal public disclosure.

But U.S. tax laws also say the primary purpose of such nonprofit groups cannot be political, including the "participation or intervention in political campaigns."

Hebert and Wertheimer argue that Crossroads GPS has made a mockery of that requirement, bragging about its plans to target Democrats and extolling the virtues of anonymity to donors.

Collegio accused Wertheimer and other campaign-finance activists of looking the other way when liberal groups, including nonprofits, spend big on elections.

"Liberal groups spent more than $400 million in undisclosed campaign money in 2008 alone, with nary a peep from liberal lobbyist Fred Wertheimer or any of his groups," Collegio said.

FEC records show the two Crossroads groups together have spent nearly $10 million so far in support of Republican candidates, part of a stated goal of more than $50 million by the midterm elections. The groups reported raising a total of $32 million as of late last month. The money was about evenly divided between the two.

Unlike Crossroads GPS, American Crossroads is organized as a so-called "super PAC," which can raise and spend as much as it wants on direct advocacy but must reveal donors. Records show that a handful of billionaires and their companies have contributed nearly all of American Crossroads' money, including Texas oilman Trevor Reese-Jones, Public Storage founder B. Wayne Hughes, and longtime Republican fundraiser Carl Lindner of American Financial Group.

A $400,000 contribution from the latter company would not have been possible before this year's landmark Supreme Court ruling in Citizens United v. Federal Election Commission, which found that corporations can spend as much as they want for or against political candidates.

That decision and others have helped unleash a frenzy of spending by groups outside the party system this year, most of it by donors who do not have to be publicly identified.

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