After election, dozens of super PACs shut down

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Colbert Super PAC SHH! – Secret Second 501c4 – Trevor Potter
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After an election that saw unprecedented spending from outside groups, more than a hundred super PACs have already hit the self-destruct button. Many of the now-defunct organizations spent more on themselves than they did supporting political candidates.   

Stephen Colbert announced on the Monday edition of his Comedy Central program the demise of his super PAC, Americans for a Better Tomorrow, Tomorrow, Inc., on his Comedy Central show. With Trevor Potter, a former Federal Election Commissioner who served as a legal consultant to the group, by his side, Colbert pointed to a loophole that allows super PACs to effectively disappear without accounting for their leftover cash. FEC records show that the group filed its termination paperwork the next day. 

But most groups disappeared without nearly the fanfare Colbert offered his. According to the FEC, 111 other super PACs have filed termination papers this year, 59 in November alone. Though super PACs can receive donations in unlimited amounts, 82 of the groups reported receiving no contributions in the 2012 election cycle. Of the remainder, many spent almost as much on operational costs as they did trying to influence voters, if not more:

  • Fifty-four of the super PACs that shut down were tied to a man named Douglas J. Edwards. None of the groups, which were all named with a word plus the phrase "for Liberty," reported raising or spending any money. The goals of the many organizations are unknown, and efforts to contact Edwards were unsuccessful. 
  • Galpac, Inc., a super PAC based in Boulder, Colo., was started with a $250,000 donation from L. Thomas Galloway, of the law firm Galloway and Associates PLLC. Galpac spent $100,000 on operational costs, including $27,000 to Caplin & Drysdale and $13,000 to Galloway and Associates; more than $38,000 went to two individuals for "payroll expenses." The group repaid $150,000 to Galloway and disbanded without supporting any candidates. Galloway was unavailable for comment. 
  • Nebraska United, a super PAC that filed its termination in July, took in one $10,000 donation from Dr. Richard Roberts, a former executive at Mutual Pharmacy Co. Roberts donated more than $2 million to conservative super PACs, including Treasure Coast Jobs Coalition and American Crossroads. Nebraska United spent $4,500 on a television ad that never aired; the rest went to legal and administrative fees before the group shut down. When asked about the purpose of the group, the treasurer responded, "To be honest, I don't really remember. I know it was in Nebraska."
  • Secure Arizona PAC, though it raised close to $150,000, made only one $17,500 expenditure to oppose Senate candidate Jeff Flake, R-Ariz. The organization spent $112,000 on operations, including media and legal consulting, surveys and banking fees, before refunding its remaining cash and filing termination papers. 
  • Sam Rohrer, a Republican Senate candidate in Pennsylvania, was supported by $18,000 in expenditures from Sam vs. the Machine, a super PAC that took in $36,000 in donations. The group reported spending $29,000 in operating expenses while spending only $12,000 on independent expenditures. While these totals appear to be incorrect due to filing errors, the expenses still seem heavily tilted toward operating the PAC rather than supporting a candidate. 

While Colbert makes light of his disappearing super PAC, along with its nearly $800,000 in remaining funds, he doesn't mention the nearly $480,000 that the group actually spent. 

Less than $80,000 went to satirical ads supporting Herman Cain and opposing Newt Gingrich and Mitt Romney during their presidential campaigns, but the group spent far more — $400,000 — on its own operations. According to FEC records, the organization spent $128,000 on compliance, media, finance and other types of consulting; $47,000 went to apparel manufacturing; and $53,000 to "fundraising supplies." Colbert's super PAC spent $90,000 on "legal services" delivered through Potter's firm, Caplin & Drysdale. 

Just before it shuttered, the group still held nearly $800,000 left in the bank. To hide the money, the super PAC gave it to a 501(c)4 non-profit organization, along with an agency letter, which instructs the non-profit what to do with the cash. "The theory of that is if the PAC tells the c4 what to do with it, then it isnt the c4's money — its just a pass-through," said Potter, the group's legal consultant, in an interview with Sunlight. According to the FEC, this step took place on Nov. 12, when the super PAC donated $773,705 to Colbert Super PAC SHH Institute. Potter says that the donation won't appear on the books of the Colbert Super PAC SHH! Institutite.

The SHH! Institute must then pass the money to another 501(c)4 organization. Because that group's name will not appear on either the FEC filing by the super PAC, or the publicly available tax return of the SHH! Institute, it's effectively secret. The secret organization can spend the money any way it likes–provided it's consistent with the laws covering 501(c)4 organizations.

Potter says they have been very careful to hide what happens to the money. "It took four Caplin & Drysdale lawyers about three days to figure out," he said, and explained their discovery of the agency letter is what made the process possible. Because of the agency letter, "the second c4 doesn't have to tell the IRS where the money went."

Even though an explanation of the loophole they discovered was broadcast on cable TV and repeated through several news outlets, Potter says he doesn't know of anyone else who's used it. "The thing is you actually have to get rid of the money. If you keep it in your account longer than this year, then you do have to report it."

Potter believes most super PACs are more likely to stick around for more elections, or if they do decide to shut down, they will give their money to charity. 

Sunlight was unable to find another group that jettisoned its money in the same fashion as Colbert's super PAC– at least so far.