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Democrats accuse foundation of abusing tax exemption

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WASHINGTON — Democrats are charging that commercials financed by an increasingly prominent conservative foundation with ties to the Tea Party violate the foundation’s tax-exempt status.

In a complaint filed this week with the Internal Revenue Service, lawyers for the Democratic Congressional Campaign Committee charged that the group, the Americans for Prosperity Foundation, has been running advertisements in Kansas, Missouri and Michigan that are inherently "political in nature," contravening a ban under federal tax law. A copy of the complaint was provided to The New York Times.

The foundation, which has just begun a $1.4 million ad campaign criticizing the economic policies in Washington as "wasteful spending," has become a vocal critic of Democratic policies and drew a rebuke this month from President Barack Obama.

Nonprofit groups like the foundation, which falls under section 501(c)3 of the tax code, are forbidden from participating in "any political campaign on behalf of or in opposition to a candidate." They may, however, seek to educate voters or conduct broader get-out-the-vote drives "if conducted in a nonpartisan manner," the IRS says.

The group’s tax-exempt status is crucial because it allows donors to take an income-tax deduction. Americans for Prosperity, which called the complaint without merit, said it had raised money from 70,000 individual donors.

The Democrats’ complaint cites four political advertisements that the group has been running. The ads do not name specific politicians, but they mount a broad attack on federal policies and initiatives like the "pork barrel" spending in the $862 billion stimulus plan and the new health care law, which the group says has imposed unfair burdens on small-business owners.

Congress divided along sharp partisan lines in passing those bills, and across the nation, Republicans are framing their campaigns around their party’s opposition to both measures. That makes the advertisements attacking the bills political in nature, Democrats argue.

Urging that the foundation be stripped of its tax-exempt status, the Democrats also argued that the spots piggyback on commercials paid for by a sister group, the Americans for Prosperity, which directly attack Democratic candidates in four districts by name. The Democrats charge that the foundation’s advertisements, particularly in coordination with the other ads, have made the Americans for Prosperity Foundation a de facto political action group in violation of the federal tax code.

Complaints from political parties that their rivals are violating the tax code are not uncommon, and the line between overt political campaigning and "voter education" under the law is notoriously fuzzy.

Tim Phillips, president of Americans for Prosperity, said the Democrats were going to the IRS because they "are scared of the impact AFP is making."

"Americans for Prosperity’s TV ads are protected by the First Amendment," he added. "While we have not even seen a copy of the complaint, we are confident that it is without merit."

The IRS declined to comment.


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