Tangled web: The IRS role in campaign finance


Dark Money

With the burgeoning scandal about the Internal Revenue Service (IRS) singling out small conservative nonprofit groups for scrutiny, upcoming hearings, and a Justice Department investigation, the public is getting a quick schooling in the byzantine ways tax exempt "social welfare" groups get involved in the political game. 

A long list of nonprofit groups spend big on politics. They run the gamut from well known organizations of long standing, like the U.S. Chamber of Commerce to Crossroads GPS, the brainchild of Republican strategist Karl Rove. As reported in the New York Times, even as it was apparently targeting small Tea Party groups for added scrutihy, the IRS did not respond to requests by reform groups to investigate the bigger political nonprofits, such as Crossroads or Priorities USA, which has close ties to President Barack Obama, 

The truly curious universe of politically-oriented nonprofits demonstrates how murky the line has become between groups whose primary focus is issue advocacy and those that target candidates in political races. Since the 2010 Citizens United decision by the Supreme Court opened the door to unlimited campaign spending by incorporated entities, more and more groups (the IRS told the Washington Post its caseload doubled) applied for the 501(c)4 status enjoyed by issue advocacy groups.

Here is a quick tour through some of Sunlight's reporting on the role political nonprofits have played in recent elections that shows what a tangled web the campaign finance system has become and how difficult that makes it to follow the money: Whether they are large or small, conservative or liberal, or something in between, all of these nonprofits have three things in common is, first, they are tax exempt, second, they are not required  to disclose their donors and third, even though they are heavily involved in spending on elections, they do not regularly file with the Federal Election Commission.

  • Wearing many hats. Numerous political organizations maintain more than entity to influence poliitcs. For example, Patriot Majority USA is a nonprofit organized as a 501(c)4; the group emerged in 2010 spending big to help Senate Majority Leader Harry Reid, D-Nev.,  retain his seat in a tough race.  Patriot Majority PAC is a super PAC funded largely by unions that spent more than $400,000 last year opposing Republican presidential candidate Mitt Romney. Patriot Majority USA Fund is a group organized as a "527," which discloses donors to the IRS. They all share a common officer, Democratic operative Craig Varoga.
  • Nonprofits funding Super PACs. Super PACs can collect and spend unlimited amounts of money on elections. The catch: they must disclose their donors to the Federal Election Commission. However, sometimes the donors to the super PAC are–surprise!–nonprofit groups that don't disclose their donors. In the 2012 elections, a super PAC known as the Global Integrity Fund Action Network spent $2.4 million on independent expenditures favoring Republicans in two congressional races and Mitt Romney in the presidential campaign. An examination of its first reported donors showed that two nonprofit organizations–New Models LLC and the Government Integrity fund, the nonprofit sister of the Super PAC–contributed a combined $1.1 million to the super PAC. Sunlight's reporting showed that the Government Integrity Fund Action Network was run by a Columbus lawyer. He got his direction on what races to target from an Ohio state lobbyist who employed a former aide to Ohio's Republican state Treasurer Josh Mandel. The super PAC supported Mandel's failed Senate campaign last year. And that practice was nothing new. Sunlight first reported on such "dead end" disclosures in October 2010. 
  • Campaign fund morphs into social welfare group. President Barack Obama himself spun off a campaign organization into a 501(c)4 group, Organizing for Action (OFA),  that is continuing to advocate for his policies. In February, for example, it ran a paid media campaign to pressure 13 Republican members of Congress to support strengthening background checks for gun purchasers. After coming under criticism by reform groups, OFA announced it would voluntarily disclose its donors, but it is only doing so four times a year in an awkward format making it more difficult to analyze. Its first disclosures last month revealed that the big donors are largely familiar faces–half of the two dozen donors who gave at least $10,000 to the OFA were also major bundlers of contributions to Obama's presidential campaign.
  • Republican connected nonprofit runs targeted get-out-the-vote effort–Israel. Allen Roth, a longtime aide to Ronald Lauder, a cosmetics heir who has become the patron of Jewish causes and Republican candidates, runs an interlocking group of nonprofits that has gotten involved in the nexis between hawkish Israeli politics and U.S. elections.  A 501(c)4 run by Roth, Americans for Jerusalem,  ran a get-out-the-vote effort last fall in Israel's American expatriate community; while the group claimed it was a bipartisan effort, others charged it was an attempt to score votes for Romney. The link to Roth was not at all clear on the organization's website–connecting the dots was only possible by searching out the organization's corporate filings in Delaware.  Earlier this year, Secure America Now, another group run by Roth, did ads and published questionable polling to oppose the nomination of Chuck Hagel to become defense secretary. Organized under the 501(c)4 section of the tax code, the group has a sister 501(c)3 organization, the Secure American Now Foundation.
  • Nonprofits spending but not reporting. A nonprofit group called Checks and Balances for Economic Growth placed ads across the swing state of Ohio last October that criticized the Obama campaign's claim that coal miners were forced to attend a Mitt Romney campaign rally and featured miners decrying the administration's "war on coal." The group never reported its expenditures to the Federal Election Commission (FEC), though some of the ads were picked up by Sunlight's Ad Sleuth tool, which captures records kept by broadcasting stations of political advertising. Last month the advocacy group CREW called on the FEC to investigate whether the group had violated election law by not reporting its expenditures; it also asked the IRS to investigate whether several other nonprofit groups also run by Checks and Balances Executive Director DanPerrin, were continuing to function illegally after their nonprofit status had been revoked by the agency.

To see a list of nonprofit groups that reported spending in the 2012 elections to the FEC, click here