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Friday, October 24, 2014         

NEW YORK TIMES


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IRS ignored complaints on spending by big tax-exempt groups

By NICHOLAS CONFESSORE

New York Times

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Over the last two years, government watchdog groups filed more than a dozen complaints with the Internal Revenue Service seeking inquiries into whether large nonprofit organizations like those founded by the Republican political operative Karl Rove and former Obama administration aides had violated their tax-exempt status by spending tens of millions of dollars on political advertising.

The IRS never responded.

During the same period, the agency singled out dozens of Tea Party-inspired groups that had applied for IRS recognition, officials acknowledged Friday, subjecting them to rounds of detailed questioning about their political activities. None of those groups were big spenders on political advertising; most were local Tea Party organizations with shoestring budgets.

For the IRS' bipartisan legion of critics, the agency's record has underscored its contradictory and seemingly confused response to the fastest-growing portion of the world of unlimited political spending: tax-exempt groups that have paid for at least half a billion dollars in campaign ads during the last two election cycles.

The IRS has done little to regulate a flood of political spending by larger groups — like Crossroads Grassroots Policy Strategies, co-founded by Rove, and Priorities USA, with close ties to President Barack Obama — as well as Republican leaders in Congress and other elected officials. And an agency that is supposed to stay as far away from partisan politics as possible has been left in charge — almost by accident — of regulating a huge amount of election spending.

"We've complained about a few big fish and we've heard nothing from the IRS," said Paul S. Ryan, senior counsel at the Campaign Legal Center, which filed many of the complaints with the agency. "We would far rather see scrutiny of these big fish — the groups that spent hundreds of millions of dollars to influence elections — than to see the resources spent on hundreds of small groups that appeared to spend very little on elections."

Almost all of the groups in question are organized under 501(c)(4) of the tax code, which regulates nonprofit groups engaged in promoting "social welfare." At least 16 such organizations spent $1 million or more on campaign advertising in the 2012 elections. (Crossroads GPS and Priorities USA also run super PACS with similar names that spent millions more.)

But because they purport to be engaged primarily in issue advocacy, not election advocacy, tax-exempt groups are not closely regulated by the Federal Election Commission. That task falls, instead, to the IRS, which can take years to investigate problems and is required to do so in strict secrecy.

Some groups, like Crossroads, filed applications for IRS tax-exempt status, claiming that they would be engaged primarily on research and educational activities but spending the bulk of their money on what appears to be political advertising. Others, like the American Tradition Partnership, operate for years at a stretch without filing federal tax returns, in seeming violation of the law. Many boast of their effect on political campaigns.

But while a few of the big groups have faced delays in having their tax exemption recognized by the IRS, none appear to have received the intense scrutiny accorded the Tea Party groups, which were asked dozens of questions about spending on political advertising and other election activities. Of 15 such groups represented by Jay Sekulow, a lawyer with the American Center for Law and Justice, none spent a dollar on broadcast advertising from 2009 through 2012, according to the Campaign Media Analysis Group.

IRS officials said they had also submitted as many as 200 other groups' applications to closer examination, but have declined to characterize those groups' political affiliation.

Chris Ashby, a lawyer who advises conservative groups, said the IRS might have focused on smaller groups because they seemed less likely to contest the reviews.

"The big groups are generally well-advised, lawyered up. Their tax forms are artfully drawn," Ashby said. Smaller groups, he suggested, made a better target for the IRS.

"Many of them don't have counsel," he said. "They probably aren't well-advised."

Unlike candidates and super PACs, which must register quickly with the Federal Election Commission and regularly file financial disclosures, 501(c)(4) groups can operate for years while waiting for the IRS to recognize their tax status. Nor are they required to disclose their donors — one reason they appear to be the preferred vehicle for large, publicly traded corporations that seek to influence elections without identifying themselves.

The IRS recognizes at least 44,000 organizations as 501(c)(4) "social welfare" groups, according to public agency data. They include homeowners' associations, car shows and sports clubs, as well as grass-roots groups like the Sierra Club or the National Rifle Association, which register voters, lobby Congress and run campaign ads.

But it is not clear exactly how much such groups can spend on elections, thanks to decades' worth of vague and sometimes contradictory laws, regulations and court decisions.

The tax code states that 501(c)(4) groups must operate "exclusively" to promote social welfare, a category that excludes political spending. Some court decisions have interpreted that language to mean that a minimal amount of political spending would be permissible. But the IRS has for years maintained that groups meet that rule as long as they not "primarily engaged" involved in election work, a substantially different threshold.

Nowhere do the rules specify what "primarily engaged" means, though there are indications that the agency has begun to re-examine the question.

In March, the IRS began sending out questionnaires to roughly 1,300 tax-exempt organizations, including some 501(c)(4) groups, regarding their political, lobbying and other activities. The agency has said it is merely seeking a clearer picture of how tax-exempt groups operate to ensure better compliance.

But the ambiguity of existing rules has left a loophole, critics argue, through which has passed hundreds of millions of dollars worth of thinly disguised election spending. In 2011, the Campaign Legal Center and Democracy 21, another watchdog group, filed a petition with the IRS asking it to issue clearer regulations on political activity by tax-exempt groups and to sharply restrict their election spending.

Others echoed those calls on Monday, saying clearer standards would stem violations — while limiting the danger of capricious investigations.

"I think if there were clear standards that limited the political activities that (c)(4)'s could engage in, it would really make it easier for the IRS to enforce the law without having to resort to things like the name that an organization chooses," said Lisa Rosenberg, a lobbyist for the Sunlight Foundation, which advocates for government transparency.






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