Lax Internal Revenue Service rules help groups shield campaign donor identities

T.W. Farnam and Dan Eggen
Washington Post Staff Writers
Thursday, March 10, 2011; A21

American Crossroads GPS, an advocacy group that reported spending about $17 million on advertising before the midterm elections, generated controversy by using its nonprofit status to shield donors' identities.

As it turns out, the Internal Revenue Service hasn't even approved the group's nonprofit status. Crossroads filed an application in September but the agency has not acted on it.

That's not a problem as far as the law is concerned - the tax code allows an organization to operate as a nonprofit before it receives such status. Many groups do not file the paperwork until it is time to send in their first tax return.

The issue is more than a matter of paperwork, however. Watchdog groups say that Crossroads and other groups active in campaigns are taking advantage of lax IRS enforcement to offer political donors anonymity.

Crossroads GPS was founded with backing from Karl Rove, a political adviser to President George W. Bush, and concentrated its spending to produce attacks on vulnerable Democrats last year. But the group was formed as a "social welfare" organization under the tax code, allowing it to avoid revealing donor names.

The watchdog group Citizens for Responsibility and Ethics in Washington (CREW) discovered that Crossroads's application had not been approved.

Crossroads spokesman Jonathan Collegio said that any new nonprofit would face the same IRS backlog and that "reading anything into it beyond a typical procedural issue is irresponsible."

Collegio added: "CREW focuses its complaints overwhelmingly against conservative groups - ignoring that Crossroads GPS complies fully with the same laws that govern 137,000 nonprofits, all of which can legally engage in advocacy."

Under the tax code, interest groups active in campaigns are allowed to form as nonprofits and keep donor rolls private as long as politics is not their "primary purpose," which typically means that no more than half of their budget is spent on election activity.

The Supreme Court ruled last year that corporations, nonprofits and unions can spend directly from their treasuries on hard-hitting campaign ads as long as candidates do not control the spending.

The role of interest groups grew in last year's campaign. Crossroads, the National Rifle Association, the Service Employees International Union and similar organizations spent about $270 million on elections in 2010, up from $54 million in the 2006 midterms.

This week, CREW filed a complaint with the IRS concerning another nonprofit group, the American Action Network. The organization shares an office with Crossroads and spent millions on advertising in states with competitive House and Senate races. The watchdog asked for an investigation of whether this violated the group's tax status.

"It's sort of the Wild West of tax law," said Melanie Sloan, CREW's executive director. "Nobody seems to feel any compunction about following tax codes."

American Action Network officials did not respond to requests for comment.

An IRS spokesman declined to comment.

Crossroads has spent money this year on television ads focused on issues, helping to satisfy the requirement that its "primary purpose" is not elections.

War of words

In Washington, no messaging battle is too small. Consider a recent campaign by the Sierra Club, which printed stickers proclaiming: "I (heart) Clean Air." The items were handed out at recent hearings held by the Environmental Protection Agency on proposed greenhouse-gas regulations.

It didn't take long for the American Petroleum Institute to come up with a pithy response, handing out its own stickers that read: "I (heart) Clean Air and Jobs." Like the Sierra Club version, the API sticker features a red heart, white background and black text.

API spokesman Carlton Carroll said the slogan reflects the industry group's view that environmental and economic policies need to be balanced.

"We have been making progress to improve the environment, and we believe that we can continue to do so without harming job creation," Carroll said.

The Sierra Club, meanwhile, has adopted a tone of amusement. Said spokeswoman Holly Shulman: "You know that the American Petroleum Institute is suffering with public opinion when it chooses to recycle at all, but especially when it chooses to recycle Sierra Club campaign slogans."

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