Karl Rove And His Faux Tax-exempt Status

Karl Rove via ProPublica

         

New Tax Return Shows Karl Rove’s Group Spent Even More On Politics Than It Said 

by Kim Barker

ProPublica, Nov. 25, 2013, 9:04 a.m.

On its 2012 tax return, GOP strategist Karl Rove’s dark money behemoth Crossroads GPS justified its status as a tax-exempt social welfare group in part by citing its grants of $35 million to other similarly aligned nonprofits. (Here’s the tax return itself, which we detailed last week.)

The return, signed under penalty of perjury, specified that the grants would be used for social welfare purposes, “and not for political expenditures, consistent with the organization’s tax-exempt mission.”

The transaction also provides a window into one way social welfare nonprofits work around the tax code’s dictate that their primary purpose cannot be influencing elections.  Grants sent from one nonprofit to another may be earmarked for social welfare purposes, but sometimes end up being used to slam or praise candidates running for office.

“They have a bad grantee here,” said Marcus Owens, the former head of the IRS’ Exempt Organizations division, who looked at the documents at ProPublica’s request. “My question would be, ‘What has Crossroads done to recover that money?’ That’s what the IRS would expect.”

Crossroads spokesman Jonathan Collegio did not respond to questions from ProPublica about Americans for Tax Reform’s use of the grant or whether Crossroads would ask for it to be refunded.

Instead, Collegio wondered whether Americans for Tax Reform could have used resources carried over from 2011 to fund the 2012 election spending, rather than money from Crossroads. “Were resources carried over from 2011?”  he asked in an email to ProPublica.

But after consulting with tax experts, ProPublica determined Americans for Tax Reform couldn’t have used resources from 2011 for the political spending.

“That’s called bullshit with a serving of horseshit on the side,” Owens said.

Americans for Tax Reform reported a total of $10.3 million in assets in the beginning of 2012. Of those assets, $8.2 million was only available on paper, an amount due from a related charity, the Americans for Tax Reform Foundation. The rest –$2.1 million – was a combination of equipment, leasehold improvements, cash holdings, net accounts receivable, prepaid expenses and deferred charges. None of those amounts changed significantly by the end of 2012. In other words, the only known source for the money Americans for Tax Reform spent on politics was donations from Crossroads and others.  

Collegio didn’t respond to an email from ProPublica last Wednesday outlining how some of the Crossroads’ grant had to have been spent on election activities.

John Kartch, the spokesman for Americans for Tax Reform, also didn’t respond to ProPublica questions about the use of the Crossroads grant for politics.

Social welfare nonprofits, also known as dark money groups because they don’t have to report their donors, are allowed to spend money on politics as long as their primary purpose is social welfare. The groups often count so-called issue ads that stop short of advocating for or against a candidate and grants toward that social welfare mission. Since the Supreme Court’s 2010 Citizens United decision allowed corporations and unions to spend directly on election ads, these nonprofits have turned into the vehicle of choice for anonymous spending, dumping more than $254 million into the 2012 elections.

Of the 150 or so social welfare nonprofits that reported spending to the Federal Election Commission during the 2012 election cycle, Crossroads was king, the biggest anonymous spender by far. Americans for Tax Reform came in fourth, with $15.8 million.

On its 2012 tax return, made public last week, Crossroads said it gave its biggest grant,$26.4 million, to Americans for Tax Reform for “social welfare.”

In the last part of 2012, Americans for Tax Reform told the FEC it spent repeatedly on ads and mailers, $15.8 million altogether on so-called “independent expenditures,” mostly in the month before the election, opposing Democrats and supporting Republicans running for Congress. (Independent expenditures tell people they should vote for or against a certain candidate.) Most of that money, more than $10.7 million, was for media buys, to purchase air time on TV and radio for various ads. More than $1.6 million went to designing, producing and sending mailers. Most of the rest of the money went to ad production and phone banks. (Here are some examples of those ads.)

Americans for Tax Reform told the IRS in its tax return, obtained and made public by the watchdog group Citizens for Responsibility and Ethics in Washington (CREW), that it raised and spent about $31 million in 2012. Since the group got $26.4 million from Crossroads, only $4.6 million of its revenue came from other donors. At least $11.2 million of Crossroads money had to go toward the political ads reported to the FEC.

That means Americans for Tax Reform spent about 51 percent of its money on political ads reported to the FEC in 2012.

But the group also told the IRS on its tax return, signed under penalty of perjury, that it spent only $9.8 million on direct and indirect campaign activity in 2012, defining that spending as “engaged solely in the making of independent expenditures supporting and opposing candidates for federal office.”

Last Tuesday, CREW filed a complaint with the IRS and the tax division of the Department of Justice against Americans for Tax Reform and its president, Grover Norquist, alleging they deliberately provided false information to the IRS in the tax filing.

ProPublica and others have documented how such groups often minimize their political spending to the IRS. Although the IRS has been hesitant to establish any so-called “bright lines” for campaign activity, campaign finance and tax lawyers say independent expenditures reported to the FEC definitely qualify as political spending under the tax code.

Crossroads GPS itself counted all of its independent expenditures reported to the FEC in both 2010 and 2012 as part of its political spending reported to the IRS.

“Clearly, ads that tell people who to vote for or against are campaign intervention,” said a Congressional Research Service report on IRS rules on political ads prepared for Congress in August 2012. Last summer, the IRS told social welfare nonprofits that wanted to expedite their approval that political expenditures included administrative and overhead costs, and any expenditure on printed, electronic or oral statements supporting or opposing the election or nomination of any candidate for public office.

Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance, reviewed the Americans for Tax Reform documents at the request of ProPublica and said it was possible that the group was allocating overhead or other costs differently in its tax return than in its FEC filings.

“I do not see how any reasonable allocation differences could result in such a large disparity, however,” Mayer said.

Owens, the former IRS official, said it was possible that some of the media buy money reported to the FEC was later refunded by the TV stations. But even that money wouldn’t account for such a large gap, he said. Owens speculated that Americans for Tax Reform might have determined that some of its ads wouldn’t qualify for reporting to the IRS.

 “There’s just no way that could withstand scrutiny under the laws that exist,” Owens said. “What you have is two documents from the same group, one for the FEC and one for the IRS, both submitted under penalty of perjury. At least one is incorrect.”

Still, on Tuesday, Kartch insisted the $9.8 million figure on Americans for Tax Reform’s tax form, known as a 990, was correct, while ignoring requests from ProPublica to explain how it was derived.

“The correct number to use here is the $9.8 million figure as reported on our 2012 990, not the number you cite from an FEC report,” Kartch wrote. “ATR meets or exceeds the requirements of the FEC and the IRS according to their standards.”

He also scoffed at the CREW complaint, saying, “This attack is political and CREW knows it is nonsense.”

It’s not clear how the IRS might respond to the apparent misuse of the Crossroads grant or to the fact that Americans for Tax Reform seems to have underreported its political spending.

Complaints to the IRS about the tax-exempt status of Crossroads and other political social welfare nonprofits have been made since 2010, but they are still pending. So is an earlier CREW complaint against Americans for Tax Reform for its spending in 2010. A scandal that erupted in May over the IRS targeting the applications of Tea Party and other conservative social welfare nonprofits may have also made the IRS more likely to take a hands-off approach to the groups, experts say.

“They’re going to keep their heads down,” Owens said.

Update: The Center for Responsive Politics also wrote about Americans for Tax Reform using the Crossroads GPS grant for politics on Nov. 18
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Open Secrets: Dark Money

The following is a re-blog from Open Secrets Dot Org.  

The piece is as relevant to US politics and US society as state and federal government.  Money is flowing into US politics at an alarming and dangerous rate.  Ultimately, lobbying dollars and political contributions work for business entities and special interest groups. There are few to no organizations, which pour money into Congress on behalf of “The People.” It just does not happen comparable to money funneled to support 360 degree wealthy accumulation by the nation’s Top 20% (ers). 

As is the case with all ‘high information”, the following is not a quick read.  Of course, we are aware, people really do not like long reads. Well, there are times when our tendencies contribute to “low information.” Do you want to live your life as do most Fox News viewers? How about Beck viewers and listeners?  Or, better yet, people who visit Breitbart News Dot Com and actually feel they are being informed vs. entertained.  In fact, entertainment and political posturing is the basic media model for each of the three entities. 

Open Secrets, nor  do we have an answer to the horrors of purchased legislation, purchased votes, and purchased politicians However, we feel an obligation to inform. When information flows, good things eventually happen. What we do know is Citizens United open a door that leads to nothing the horrors of plutocracy. As the IRS attempted to investigate the legitimacy of the Citizens United money flood, it became immersed in conservative, “hands-off” our SCOTUS decision rhetoric  that lingers even today. 

OpenSecrets.org’s New Dark Money Data Measures Groups’ Politicization

by Robert Maguire on September 9, 2013 11:00 AM 

Update, Sept. 11: For clarity, we have added two paragraphs to this story (see *) explaining that the IRS and FEC definitions of political spending are not identical, and have rephrased headlines to two charts.

Building on our previous work on “dark money” nonprofits, the Center for Responsive Politics is rolling out new information on the activities of these groups that are playing an increasing role in U.S. elections. 

Dark money groups — politically active 501(c)(4) social welfare organizations and 501(c)(6) trade associations that, under tax law, don’t have to disclose their donors — aren’t supposed to spend the majority of their resources on politics. But over the last six years, a combination of Supreme Court decisions that loosened restrictions on their electoral activity, coupled with regulatory confusion, has led to a surge in their political expenditures. Direct spending on federal elections by 501(c)(4) and 501(c)(6) groups has risen from $10 million in 2004 to well over $300 million in 2012 — and that’s just counting what they reported to the Federal Election Commission, which doesn’t include all of their political spending.

And the nature of their activity has changed in recent elections. Nearly half of the political spending by these groups in 2004 went for communications to their own members — what the FEC calls “communication costs.” Now, it shows up almost entirely in the form of negative, often misleading ads aimed at influencing the outcome of elections. In 2012, only 2 percent of the spending by these groups was directed at their own members. 

But trying to sort out exactly what these groups are doing ranges from very difficult to impossible, given how little information is available to the public. For example, the groups must disclose their total spending on their IRS Form 990s, due annually. But nowhere do they have to break down those expenditures in detail and say exactly how they spent the money, as unions must in reports with the Department of Labor. On top of that, the 990s are filed anywhere from five to 23 months after the spending in question actually takes place. Once they’re filed, the IRS offers no searchable database or machine readable data to the public. It provides only scant summary data. 

To help get around some of the hurdles posed by the dearth of IRS data, CRP has manually input more than 14,000 records, with the aim of bringing more clarity to the financial activities of nonprofits that have spent money to influence, directly and indirectly, federal elections over the last three cycles. 

CRP’s data includes all politically active 501(c)(4)s and 501(c)(6)s, whether or not they have been granted tax-exempt status by the IRS. Such groups as Crossroads GPS, American Commitment, and Citizens for Strength and Security either have not received or not applied for exempt status. The IRS does not include such groups in the data it makes available. Also, CRP’s new data includes other information that’s absent from the IRS data: total expenditures, total grants and total political spending reported to the IRS, over a period of multiple years. 

On the other side of the divide, at the FEC, these groups must file reports when they make certain political expenditures, but the agency doesn’t require them to provide identifying information — such as Employee Identification Numbers (EINs). So CRP has gone through three cycles of outside spending data and matched FEC filers with IRS identifiers, allowing us to link the two sets of data. 

The result is that we are providing multiple years of data reported to the IRS and the FEC, matched over the same time periods that the spending took place. We’ve included direct political spenders as well as what we call “dark money mailboxes” that reported no spending to the FEC themselves, but sent more than half their funds to politically active nonprofits. 

Not only have we matched spending reported to the FEC for the spenders themselves over the exact dates covered by each IRS report, but we have also incorporated recipient political spending into the donor profiles, so that users can get a better understanding of how much a donor’s grant recipients spent on politics. This information has never been provided anywhere until now.

Here are some of the larger findings that stand out in the new data.

From 2009 through 2011, overall spending reported to the IRS was often much greater during the election year.  

Looking at overall spending reported to the IRS for the three-year period from 2009 to 2011, at least 27 dark-money groups active in the 2010 midterms reported election-year expenditures that were more than the combined total of the two off-years, 2009 and 2011. On average, during this three-year period, more than 70 percent of the groups’ expenditures came during the election year. 

Top 10 Group	IRS 2009	IRS 2010	IRS 2011	Election- Year
Crossroads GPS	$0	$42,344,884	$22,375,630	65%
American Action Network	$1,446,675	$25,692,334	$11,482,833	67%
America Votes	$3,474,968	$14,193,741	$9,635,163	52%
American Future Fund	$1,913,598	$21,352,090	$3,637,462	79%
Americans for Tax Reform	$4,593,543	$11,379,668	$3,114,979	60%
Republican Jewish Coalition	$2,858,109	$12,409,886	$3,143,053	67%
Americans for Job Security	$3,490,547	$12,417,809	$2,481,855	68%
Susan B Anthony List	$2,837,834	$7,000,004	$3,531,134	52%
Americans for Limited Government	$1,840,743	$8,613,552	$1,038,919	75%
Faith & Freedom Coalition	$880,421	$5,661,250	$3,582,897	56%

Likewise, some of the most prominent donor organizations — 10 dark money mailboxes, for example — demonstrate the same trends. 

Dark Money Mailbox	IRS 2009	IRS 2010	IRS 2011	Percent Election-Year Spending
Center to Protect Patient Rights	$12,048,952	$60,245,391	$23,172,155	63%
Freedom & Values Alliance	$0	$1,070,585	$651,557	62%
Wellspring Cmte	$664,628	$11,521,432	$2,204,730	80%
TC4 Trust	$7,758,262	$30,880,071	$0	80%
American Justice Partnership	$2,225,711	$8,147,071	$1,849,827	67%
Patriot Majority USA	$76,269	$5,315,658	$0	99%
America’s Families First	$0	$7,647,638	$800,093	91%
Alliance for Freedom	$0	$4,375,434	$197,433	96%
Common Sense Issues Coalition	$9,054	$201,954	$23,924	86%
Atlantic Advocacy Fund	$18,963,628	$43,462,445	$13,964,521	57%

Significance?  We know that dark money groups engage in a lot of political activity during periods that are outside the FEC’s reporting windows, which means that their spending as reported to the FEC is often not an accurate measure of their participation in the electoral process. Unfortunately, those FEC reports are often the best metrics we have. That’s because the financial information reported to the IRS partially or entirely lacks important details like the group’s vendors, how much they were paid, for what products or services, and on what dates.  

Given the shortcomings of both IRS and FEC financial data on nonprofits, it’s important to look at the available information from different angles. Checking the ebb and flow of overall spending reported to the IRS and how it relates to election cycles is one way to do this.  

Dark Money Mailboxes Multiply. 

Dark money mailboxes are nonprofits with no direct federal political spending of their own and no substantial programs, staff, or volunteers. A majority of the spending by these groups goes for grants to other politically active nonprofits. (CRP has detailed the activities of several dark money mailboxes in our Shadow Money Trail series.)   

These organizations have proliferated with every election cycle, and as the 2012 filings start coming in, there may well be new discoveries. The following is a list of the top 10 such groups.

Dark Money Mailbox	IRS Spending	Grants	Percent Grants
Center to Protect Patient Rights	$95,466,498	$70,189,431	74%
Green Tech Action Fund	$28,243,610	$23,547,726	83%
Wellspring Cmte	$23,745,592	$16,886,369	71%
TC4 Trust	$38,638,333	$36,778,493	95%
American Justice Partnership	$15,693,198	$10,487,000	67%
Patriot Majority USA	$5,315,658	$2,896,708	54%
America’s Families First	$8,447,731	$7,794,000	92%
Atlantic Advocacy Fund	$103,089,084	$100,317,633	97%
Freedom & Values Alliance	$1,722,142	$1,717,346	100%
Alliance for Freedom	$4,572,867	$4,515,000	99%

(The Patriot Majority USA listed above is only one of three iterations of Patriot Majority USA.) 

Significance?  From a practical standpoint, dark money mailboxes serve two purposes. First, they add another level of opacity in a system where the sources of funds that ultimately are spent on politics are already difficult or impossible to find. If the IRS were to investigate, say, the 60 Plus Association‘s sources of income, it would also have to investigate the provenance of the money given out by three of its largest donors: the Center to Protect Patient Rights, TC4 Trust and Free Enterprise America, two of which are now defunct. 

Dark-money mailboxes have been tied to questionable activities around the country. In California, millions of dollars were funneled through a daisy chain of three nonprofits, including the Center to Protect Patient Rights, in what the California Fair Political Practices Commission called “campaign money laundering.“ 

Also, dark money can be used to diminish the likelihood of IRS scrutiny. Large contributions from one individual or corporation can trigger an audit to evaluate whether or not the recipient organization is serving the financial interests of the donor, a major no-no in the 501(c) world. To get around this, a donor, or small set of donors, can establish a constellation of nonprofits that then channel contributions to the same ultimate destination. 

Tens of millions of dollars in political spending goes entirely unreported to the IRS.

In 42 instances over the last four years, groups that reported at least $25,000 in spending to the FEC did not report political spending to the IRS. In nearly three-fourths of the cases, the spending they reported to the FEC was above $100,000, and in nine it was above $1 million. In 14 instances, the unreported political spending made up at least one-fifth of the group’s total spending as reported to the IRS, and in eight instances, the unreported spending ranged from 40 percent to 65 percent of the group’s expenditures. Such high levels of political spending could have raised suspicions at the IRS. 

The following groups had the largest amount of unreported political spending that also made up more than 20 percent of total spending the group reported to the IRS over the specified period.

Top 10 Group	Period	Total IRS Spending	FEC spending	Percent
Americans for Job Security	Nov 2007-Oct 2008	$12,343,781	$8,084,268	65%
Vets for Freedom	Jan 2008-Dec2008	$9,095,588	$4,757,685	52%
American Rights at Work	July2008-June2009	$16,450,569	$3,667,018	22%
Let Freedom Ring	Jan 2008-Dec2008	$7,364,554	$3,535,786	48%
Center for Individual Freedom	Oct 2010-Sept 2011	$5,757,719	$2,482,313	43%
Women’s Voices Women Vote Action Fund	Jan 2010-Dec 2010	$2,728,232	$1,128,162	41%
Americans for Job Security	Nov 2008-Oct 2009	$3,490,547	$890,488	26%
Ending Spending	Jan 2011-Dec 2011	$2,282,332	$688,090	30%
Judicial Confirmation Network	July2008-June2009	$1,405,553	$571,063	41%
American Energy Alliance	Jan 2008-Dec2008	$1,675,617	$485,307	29%

Two organizations — Let Freedom Ring and Nevada Advocates for Planned Parenthood — answered “yes” to a question on their tax forms asking whether they had engaged in efforts to influence the outcome of elections, directly or indirectly. Yet they did not report any political spending to tax authorities. 

Two other organizations — Americans for Job Security and Vets for Freedom — neglected to report political spending to the tax agency on two separate occasions. The largest discrepancies were in 2008, when Americans for Job Security’s $8 million in unreported political spending made up 65 percent of its total spending reported to the IRS; and Vets for Freedom’s $4.8 million in spending reported to the FEC, but not the IRS, made up more than half of the groups’ total outlays. 

*It’s worth noting that the FEC and IRS definitions of political spending are not identical. The IRS asks all filers of 990 forms to answer the question: “Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?” That’s more vague than the FEC’s reporting requirements and, on its face, would seem to include all spending reported to the FEC and possibly more. However, as the Congressional Research Service (CRS) noted in a report issued last year, spending on issue ads that run shortly before an election and must be reported to the FEC might not necessarily be required to be reported to the IRS. The only two rulings the IRS has released on when issue advocacy becomes campaign spending indicate that the agency applies a complicated “facts and circumstances” test, and, as CRS notes, there are no “bright-line rules.” 

However, some experts say that organizations should not imagine there’s a practical difference between what the two agencies are asking for. “I have never been presented with an example of spending that is sufficiently political to be reported to the FEC, but would not be political under the IRS definition,” said tax attorney Marcus Owens, a former head of the exempt organizations office at the IRS. 

Significance? The IRS has no system in place to monitor spending reported to the FEC, and, as we’ve noted, even if it did, the FEC doesn’t require nonprofits to provide their EINs; without those unique identifiers, it would be hard for the IRS to check political spending by the organizations it oversees. To assess the political activity of a nonprofit, the IRS relies to a great degree on how much the group claims to have spent engaging “in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office.”  

Millions more are only partially reported to the IRS.

At least thirteen groups that reported spending more than $25,000 to the FEC in either 2008 or 2010 reported spending much less than that on politics when they filed their 990s with the IRS. Together, these groups reported more than $51.6 million in spending to the FEC, while only reporting political spending of $24 million to the IRS over the exact same period.  

Top 10 Groups	Period	Total IRS Spending	Spending Reported to FEC	Political Spending Reported to IRS
American Action Network	July 2010-June 2011	$25,692,334	$18,885,679	$5,535,845
Freedom’s Watch	Jan 2008-Dec 2008	$36,933,305	$16,307,398	$10,745,848
Americans for Job Security	Nov 2009-Oct 2010	$12,417,809	$7,696,267	$4,351,478
Americans for Tax Reform	Jan 2010-Dec 2010	$11,379,668	$4,160,299	$1,859,239
Republican Jewish Coalition	Jan 2008-Dec 2008	$6,521,230	$1,163,002	$104,567
Alliance for a Better Minnesota	Jan 2008-Dec 2008	$3,752,685	$1,415,453	$754,500
Alliance for America’s Future	Feb 2010-Dec 2010	$7,669,093	$703,772	$343,776
West Virginia Conservative Foundation	Jan 2010-Dec 2010	$652,574	$534,974	$49,829
Citizens for the Republic	Jan 2010-Dec 2010	$1,177,452	$195,411	$88,456
Citizen Action of Wisconsin	Jan 2010-Dec 2010	$680,456	$110,617	$88,460

In all, about $67 million less in political spending was reported to the IRS than to the FEC in 2008 and 2010 by all groups that either failed to report or underreported political spending to the tax agency.

Significance? The IRS can’t effectively evaluate the political activity of a particular organization if it is not getting all the information it needs.  The agency does not systematically monitor spending that’s reported to the FEC, so it relies to a large extent on the political spending claimed by the filers on their 990s.  

Some organizations’ 2012 political spending alone surpassed their entire 2010 budgets.

Among groups that spent more than $50,000 on politics in 2012, 10 emerge as standouts because they spent more on politics in 2012 than they spent on everything in 2010.  

Group	IRS 2010	FEC 2012
Crossroads GPS	$42,344,884	$71,161,698
American Future Fund	$21,352,090	$25,404,956
Americans for Prosperity	$24,064,187	$36,364,103
Americans for Tax Reform	$11,379,668	$15,794,552
American Energy Alliance	$1,019,928	$1,361,500
Center Forward	$130,358	$2,057,089
Hispanic Leadership Fund	$228,613	$838,417
Emergency Cmte for Israel	$439,081	$827,965
Michigan League of Conservation Voters	$219,775	$860,237
Colorado Family Action	$64,578	$78,045

These 10 groups spent a combined total of almost $155 million in 2012 on politics, according to what they reported to the FEC — more than all of the spending reported to the FEC by 501(c)(4) and 501(c)(6) groups in 2010. In order to keep that total safely within IRS limits of political activity, they’re going to have to report more than $380 million in combined total expenditures to the IRS when they file their 990s covering 2012. That’s $280 million more in combined total IRS spending than these groups reported in 2010. Crossroads GPS alone accounts for $136 million of that increase. Its 2012 political spending of more than $71 million, as reported to the FEC, is nearly double its total 2010 budget. In order to keep that $71 million well under half of its total expenditures, it will need to report more than $177 million in total expenditures in 2012 on its tax return.  

Significance? It is normal for organizations promoting an agenda to be more active during an election year. Naturally, that is the time when the public and the media are paying the most attention, so organizations take advantage of election-year conditions to gain traction for their cause.  Of the groups CRP tracks, 160 filed 990s in the three-year period from 2009 to 2011, and 134 reported a rise in expenditures during 2010. 

But when a group’s spending surges dramatically in election years, particularly when the group in question is known to have made large political expenditures, it raises questions. 

Over the four-year period from 2009 through 2012, nine of the 10 groups listed here will have made, at a minimum, between 71 and 93 percent of their total expenditures for those four years combined during the election years of 2010 and 2012. Viewed together, these 10 groups reported a combined total of $68.7 million in total spending during the off years of 2009 and 2011. Using their total spending from 2010 and the spending they reported to the FEC in 2012, we’ve calculated a projected minimum estimate of what we expect their overall expenditures to be when they file their 990s covering last year. That analysis shows that the combined election-year overall spending totals for these 10 groups will come in at more than $483 million, a nearly seven-fold increase over off-year spending.

Attributable political spending puts some groups over the limit.  

Dark money groups rarely report that more than 30 or 40 percent of their total expenditures went towards political activities. One way they get around reporting too much in direct political expenditures is to make large grants to like-minded dark money groups and, sometimes, coordinate the expenditures. Factoring in this recipient political spending — by comparing the size of the grant to the group’s spending as reported to the FEC, then taking the smaller number — puts nine groups over the 50 percent political spending limit. Not factoring in recipient political spending shows just one group, American Action Network, spending above the limit.

Group	Period	Total IRS Spending	Donor’s FEC Spending	Attributable Recipient Spending	Total FEC Spending	FEC Spending with Recipients
Center to Protect Patient Rights	Jan 2010-Dec 2010	$60,245,391	$0	$36,675,105	0%	61%
Crossroads GPS	June 2010-May 2011	$42,344,884	$16,564,728	$11,095,406	39%	65%
American Action Network	July 2010-June 2011	$25,692,334	$18,885,679	$200,000	74%	74%
Republican Jewish Coalition	Jan 2010-Dec 2010	$12,409,886	$1,143,465	$8,000,000	9%	74%
Environment America	July 2008-June 2009	$10,573,775	$214,848	$6,514,090	2%	64%
Green Tech Action Fund	Aug 2008-Dec 2008	$2,375,000	$0	$2,375,000	0%	100%
Freedom & Values Alliance	Jan 2010-Dec 2010	$1,070,585	$0	$1,067,000	0%	100%
Common Sense Issues Coalition	Nov 2009-Oct 2010	$201,954	$0	$195,000	0%	97%
Annual Fund	July 2011-June 2012	$103,612	$0	$100,000	0%	97%

Even with recipient political spending factored in, these estimates are still on the low end for most groups, because many have state-level political expenditures and unreported “issue advocacy” that isn’t included here.  For example, in 2012, Americans for Job Security spent more than $1 million in judicial races in Michigan, according to the Michigan Campaign Finance Network, on top of the $16 million it reported spending at the federal level in 2012.

Significance? These totals do not attribute all political spending by recipients to the donor.  We compare the size of the grant with the recipients’ spending as reported to the FEC over the same period, then take the lower figure.  The aim is to get an estimate of how much political spending was facilitated by the donor.

The IRS has not yet made it clear whether giving large grants to other organization with political activities is a valid “social welfare” function. If not, the agency could take action against the groups that do this on a large scale.
_____________________ 

End Open Secrets

If you read the Open Secrets piece and are not alarmed at what you read, you are lost in a web of plutocracy.

Open Secrets: Dark Money

The following is a re-blog from Open Secrets Dot Org.  

The piece is as relevant to US politics and US society as state and federal government.  Money is flowing into US politics at an alarming and dangerous rate.  Ultimately, lobbying dollars and political contributions work for business entities and special interest groups. There are few to no organizations, which pour money into Congress on behalf of “The People.” It just does not happen comparable to money funneled to support 360 degree wealthy accumulation by the nation’s Top 20% (ers). 

As is the case with all ‘high information”, the following is not a quick read.  Of course, we are aware, people really do not like long reads. Well, there are times when our tendencies contribute to “low information.” Do you want to live your life as do most Fox News viewers? How about Beck viewers and listeners?  Or, better yet, people who visit Breitbart News Dot Com and actually feel they are being informed vs. entertained.  In fact, entertainment and political posturing is the basic media model for each of the three entities. 

Open Secrets, nor  do we have an answer to the horrors of purchased legislation, purchased votes, and purchased politicians However, we feel an obligation to inform. When information flows, good things eventually happen. What we do know is Citizens United open a door that leads to nothing the horrors of plutocracy. As the IRS attempted to investigate the legitimacy of the Citizens United money flood, it became immersed in conservative, “hands-off” our SCOTUS decision rhetoric  that lingers even today. 

OpenSecrets.org’s New Dark Money Data Measures Groups’ Politicization

by Robert Maguire on September 9, 2013 11:00 AM 

Update, Sept. 11: For clarity, we have added two paragraphs to this story (see *) explaining that the IRS and FEC definitions of political spending are not identical, and have rephrased headlines to two charts.

Building on our previous work on “dark money” nonprofits, the Center for Responsive Politics is rolling out new information on the activities of these groups that are playing an increasing role in U.S. elections. 

Dark money groups — politically active 501(c)(4) social welfare organizations and 501(c)(6) trade associations that, under tax law, don’t have to disclose their donors — aren’t supposed to spend the majority of their resources on politics. But over the last six years, a combination of Supreme Court decisions that loosened restrictions on their electoral activity, coupled with regulatory confusion, has led to a surge in their political expenditures. Direct spending on federal elections by 501(c)(4) and 501(c)(6) groups has risen from $10 million in 2004 to well over $300 million in 2012 — and that’s just counting what they reported to the Federal Election Commission, which doesn’t include all of their political spending.

And the nature of their activity has changed in recent elections. Nearly half of the political spending by these groups in 2004 went for communications to their own members — what the FEC calls “communication costs.” Now, it shows up almost entirely in the form of negative, often misleading ads aimed at influencing the outcome of elections. In 2012, only 2 percent of the spending by these groups was directed at their own members. 

But trying to sort out exactly what these groups are doing ranges from very difficult to impossible, given how little information is available to the public. For example, the groups must disclose their total spending on their IRS Form 990s, due annually. But nowhere do they have to break down those expenditures in detail and say exactly how they spent the money, as unions must in reports with the Department of Labor. On top of that, the 990s are filed anywhere from five to 23 months after the spending in question actually takes place. Once they’re filed, the IRS offers no searchable database or machine readable data to the public. It provides only scant summary data. 

To help get around some of the hurdles posed by the dearth of IRS data, CRP has manually input more than 14,000 records, with the aim of bringing more clarity to the financial activities of nonprofits that have spent money to influence, directly and indirectly, federal elections over the last three cycles. 

CRP’s data includes all politically active 501(c)(4)s and 501(c)(6)s, whether or not they have been granted tax-exempt status by the IRS. Such groups as Crossroads GPS, American Commitment, and Citizens for Strength and Security either have not received or not applied for exempt status. The IRS does not include such groups in the data it makes available. Also, CRP’s new data includes other information that’s absent from the IRS data: total expenditures, total grants and total political spending reported to the IRS, over a period of multiple years. 

On the other side of the divide, at the FEC, these groups must file reports when they make certain political expenditures, but the agency doesn’t require them to provide identifying information — such as Employee Identification Numbers (EINs). So CRP has gone through three cycles of outside spending data and matched FEC filers with IRS identifiers, allowing us to link the two sets of data. 

The result is that we are providing multiple years of data reported to the IRS and the FEC, matched over the same time periods that the spending took place. We’ve included direct political spenders as well as what we call “dark money mailboxes” that reported no spending to the FEC themselves, but sent more than half their funds to politically active nonprofits. 

Not only have we matched spending reported to the FEC for the spenders themselves over the exact dates covered by each IRS report, but we have also incorporated recipient political spending into the donor profiles, so that users can get a better understanding of how much a donor’s grant recipients spent on politics. This information has never been provided anywhere until now.

Here are some of the larger findings that stand out in the new data.

From 2009 through 2011, overall spending reported to the IRS was often much greater during the election year.  

Looking at overall spending reported to the IRS for the three-year period from 2009 to 2011, at least 27 dark-money groups active in the 2010 midterms reported election-year expenditures that were more than the combined total of the two off-years, 2009 and 2011. On average, during this three-year period, more than 70 percent of the groups’ expenditures came during the election year. 

Top 10 Group	IRS 2009	IRS 2010	IRS 2011	Election- Year
Crossroads GPS	$0	$42,344,884	$22,375,630	65%
American Action Network	$1,446,675	$25,692,334	$11,482,833	67%
America Votes	$3,474,968	$14,193,741	$9,635,163	52%
American Future Fund	$1,913,598	$21,352,090	$3,637,462	79%
Americans for Tax Reform	$4,593,543	$11,379,668	$3,114,979	60%
Republican Jewish Coalition	$2,858,109	$12,409,886	$3,143,053	67%
Americans for Job Security	$3,490,547	$12,417,809	$2,481,855	68%
Susan B Anthony List	$2,837,834	$7,000,004	$3,531,134	52%
Americans for Limited Government	$1,840,743	$8,613,552	$1,038,919	75%
Faith & Freedom Coalition	$880,421	$5,661,250	$3,582,897	56%

Likewise, some of the most prominent donor organizations — 10 dark money mailboxes, for example — demonstrate the same trends. 

Dark Money Mailbox	IRS 2009	IRS 2010	IRS 2011	Percent Election-Year Spending
Center to Protect Patient Rights	$12,048,952	$60,245,391	$23,172,155	63%
Freedom & Values Alliance	$0	$1,070,585	$651,557	62%
Wellspring Cmte	$664,628	$11,521,432	$2,204,730	80%
TC4 Trust	$7,758,262	$30,880,071	$0	80%
American Justice Partnership	$2,225,711	$8,147,071	$1,849,827	67%
Patriot Majority USA	$76,269	$5,315,658	$0	99%
America’s Families First	$0	$7,647,638	$800,093	91%
Alliance for Freedom	$0	$4,375,434	$197,433	96%
Common Sense Issues Coalition	$9,054	$201,954	$23,924	86%
Atlantic Advocacy Fund	$18,963,628	$43,462,445	$13,964,521	57%

Significance?  We know that dark money groups engage in a lot of political activity during periods that are outside the FEC’s reporting windows, which means that their spending as reported to the FEC is often not an accurate measure of their participation in the electoral process. Unfortunately, those FEC reports are often the best metrics we have. That’s because the financial information reported to the IRS partially or entirely lacks important details like the group’s vendors, how much they were paid, for what products or services, and on what dates.  

Given the shortcomings of both IRS and FEC financial data on nonprofits, it’s important to look at the available information from different angles. Checking the ebb and flow of overall spending reported to the IRS and how it relates to election cycles is one way to do this.  

Dark Money Mailboxes Multiply. 

Dark money mailboxes are nonprofits with no direct federal political spending of their own and no substantial programs, staff, or volunteers. A majority of the spending by these groups goes for grants to other politically active nonprofits. (CRP has detailed the activities of several dark money mailboxes in our Shadow Money Trail series.)   

These organizations have proliferated with every election cycle, and as the 2012 filings start coming in, there may well be new discoveries. The following is a list of the top 10 such groups.

Dark Money Mailbox	IRS Spending	Grants	Percent Grants
Center to Protect Patient Rights	$95,466,498	$70,189,431	74%
Green Tech Action Fund	$28,243,610	$23,547,726	83%
Wellspring Cmte	$23,745,592	$16,886,369	71%
TC4 Trust	$38,638,333	$36,778,493	95%
American Justice Partnership	$15,693,198	$10,487,000	67%
Patriot Majority USA	$5,315,658	$2,896,708	54%
America’s Families First	$8,447,731	$7,794,000	92%
Atlantic Advocacy Fund	$103,089,084	$100,317,633	97%
Freedom & Values Alliance	$1,722,142	$1,717,346	100%
Alliance for Freedom	$4,572,867	$4,515,000	99%

(The Patriot Majority USA listed above is only one of three iterations of Patriot Majority USA.) 

Significance?  From a practical standpoint, dark money mailboxes serve two purposes. First, they add another level of opacity in a system where the sources of funds that ultimately are spent on politics are already difficult or impossible to find. If the IRS were to investigate, say, the 60 Plus Association‘s sources of income, it would also have to investigate the provenance of the money given out by three of its largest donors: the Center to Protect Patient Rights, TC4 Trust and Free Enterprise America, two of which are now defunct. 

Dark-money mailboxes have been tied to questionable activities around the country. In California, millions of dollars were funneled through a daisy chain of three nonprofits, including the Center to Protect Patient Rights, in what the California Fair Political Practices Commission called “campaign money laundering.“ 

Also, dark money can be used to diminish the likelihood of IRS scrutiny. Large contributions from one individual or corporation can trigger an audit to evaluate whether or not the recipient organization is serving the financial interests of the donor, a major no-no in the 501(c) world. To get around this, a donor, or small set of donors, can establish a constellation of nonprofits that then channel contributions to the same ultimate destination. 

Tens of millions of dollars in political spending goes entirely unreported to the IRS.

In 42 instances over the last four years, groups that reported at least $25,000 in spending to the FEC did not report political spending to the IRS. In nearly three-fourths of the cases, the spending they reported to the FEC was above $100,000, and in nine it was above $1 million. In 14 instances, the unreported political spending made up at least one-fifth of the group’s total spending as reported to the IRS, and in eight instances, the unreported spending ranged from 40 percent to 65 percent of the group’s expenditures. Such high levels of political spending could have raised suspicions at the IRS. 

The following groups had the largest amount of unreported political spending that also made up more than 20 percent of total spending the group reported to the IRS over the specified period.

Top 10 Group	Period	Total IRS Spending	FEC spending	Percent
Americans for Job Security	Nov 2007-Oct 2008	$12,343,781	$8,084,268	65%
Vets for Freedom	Jan 2008-Dec2008	$9,095,588	$4,757,685	52%
American Rights at Work	July2008-June2009	$16,450,569	$3,667,018	22%
Let Freedom Ring	Jan 2008-Dec2008	$7,364,554	$3,535,786	48%
Center for Individual Freedom	Oct 2010-Sept 2011	$5,757,719	$2,482,313	43%
Women’s Voices Women Vote Action Fund	Jan 2010-Dec 2010	$2,728,232	$1,128,162	41%
Americans for Job Security	Nov 2008-Oct 2009	$3,490,547	$890,488	26%
Ending Spending	Jan 2011-Dec 2011	$2,282,332	$688,090	30%
Judicial Confirmation Network	July2008-June2009	$1,405,553	$571,063	41%
American Energy Alliance	Jan 2008-Dec2008	$1,675,617	$485,307	29%

Two organizations — Let Freedom Ring and Nevada Advocates for Planned Parenthood — answered “yes” to a question on their tax forms asking whether they had engaged in efforts to influence the outcome of elections, directly or indirectly. Yet they did not report any political spending to tax authorities. 

Two other organizations — Americans for Job Security and Vets for Freedom — neglected to report political spending to the tax agency on two separate occasions. The largest discrepancies were in 2008, when Americans for Job Security’s $8 million in unreported political spending made up 65 percent of its total spending reported to the IRS; and Vets for Freedom’s $4.8 million in spending reported to the FEC, but not the IRS, made up more than half of the groups’ total outlays. 

*It’s worth noting that the FEC and IRS definitions of political spending are not identical. The IRS asks all filers of 990 forms to answer the question: “Did the organization engage in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office?” That’s more vague than the FEC’s reporting requirements and, on its face, would seem to include all spending reported to the FEC and possibly more. However, as the Congressional Research Service (CRS) noted in a report issued last year, spending on issue ads that run shortly before an election and must be reported to the FEC might not necessarily be required to be reported to the IRS. The only two rulings the IRS has released on when issue advocacy becomes campaign spending indicate that the agency applies a complicated “facts and circumstances” test, and, as CRS notes, there are no “bright-line rules.” 

However, some experts say that organizations should not imagine there’s a practical difference between what the two agencies are asking for. “I have never been presented with an example of spending that is sufficiently political to be reported to the FEC, but would not be political under the IRS definition,” said tax attorney Marcus Owens, a former head of the exempt organizations office at the IRS. 

Significance? The IRS has no system in place to monitor spending reported to the FEC, and, as we’ve noted, even if it did, the FEC doesn’t require nonprofits to provide their EINs; without those unique identifiers, it would be hard for the IRS to check political spending by the organizations it oversees. To assess the political activity of a nonprofit, the IRS relies to a great degree on how much the group claims to have spent engaging “in direct or indirect political campaign activities on behalf of or in opposition to candidates for public office.”  

Millions more are only partially reported to the IRS.

At least thirteen groups that reported spending more than $25,000 to the FEC in either 2008 or 2010 reported spending much less than that on politics when they filed their 990s with the IRS. Together, these groups reported more than $51.6 million in spending to the FEC, while only reporting political spending of $24 million to the IRS over the exact same period.  

Top 10 Groups	Period	Total IRS Spending	Spending Reported to FEC	Political Spending Reported to IRS
American Action Network	July 2010-June 2011	$25,692,334	$18,885,679	$5,535,845
Freedom’s Watch	Jan 2008-Dec 2008	$36,933,305	$16,307,398	$10,745,848
Americans for Job Security	Nov 2009-Oct 2010	$12,417,809	$7,696,267	$4,351,478
Americans for Tax Reform	Jan 2010-Dec 2010	$11,379,668	$4,160,299	$1,859,239
Republican Jewish Coalition	Jan 2008-Dec 2008	$6,521,230	$1,163,002	$104,567
Alliance for a Better Minnesota	Jan 2008-Dec 2008	$3,752,685	$1,415,453	$754,500
Alliance for America’s Future	Feb 2010-Dec 2010	$7,669,093	$703,772	$343,776
West Virginia Conservative Foundation	Jan 2010-Dec 2010	$652,574	$534,974	$49,829
Citizens for the Republic	Jan 2010-Dec 2010	$1,177,452	$195,411	$88,456
Citizen Action of Wisconsin	Jan 2010-Dec 2010	$680,456	$110,617	$88,460

In all, about $67 million less in political spending was reported to the IRS than to the FEC in 2008 and 2010 by all groups that either failed to report or underreported political spending to the tax agency.

Significance? The IRS can’t effectively evaluate the political activity of a particular organization if it is not getting all the information it needs.  The agency does not systematically monitor spending that’s reported to the FEC, so it relies to a large extent on the political spending claimed by the filers on their 990s.  

Some organizations’ 2012 political spending alone surpassed their entire 2010 budgets.

Among groups that spent more than $50,000 on politics in 2012, 10 emerge as standouts because they spent more on politics in 2012 than they spent on everything in 2010.  

Group	IRS 2010	FEC 2012
Crossroads GPS	$42,344,884	$71,161,698
American Future Fund	$21,352,090	$25,404,956
Americans for Prosperity	$24,064,187	$36,364,103
Americans for Tax Reform	$11,379,668	$15,794,552
American Energy Alliance	$1,019,928	$1,361,500
Center Forward	$130,358	$2,057,089
Hispanic Leadership Fund	$228,613	$838,417
Emergency Cmte for Israel	$439,081	$827,965
Michigan League of Conservation Voters	$219,775	$860,237
Colorado Family Action	$64,578	$78,045

These 10 groups spent a combined total of almost $155 million in 2012 on politics, according to what they reported to the FEC — more than all of the spending reported to the FEC by 501(c)(4) and 501(c)(6) groups in 2010. In order to keep that total safely within IRS limits of political activity, they’re going to have to report more than $380 million in combined total expenditures to the IRS when they file their 990s covering 2012. That’s $280 million more in combined total IRS spending than these groups reported in 2010. Crossroads GPS alone accounts for $136 million of that increase. Its 2012 political spending of more than $71 million, as reported to the FEC, is nearly double its total 2010 budget. In order to keep that $71 million well under half of its total expenditures, it will need to report more than $177 million in total expenditures in 2012 on its tax return.  

Significance? It is normal for organizations promoting an agenda to be more active during an election year. Naturally, that is the time when the public and the media are paying the most attention, so organizations take advantage of election-year conditions to gain traction for their cause.  Of the groups CRP tracks, 160 filed 990s in the three-year period from 2009 to 2011, and 134 reported a rise in expenditures during 2010. 

But when a group’s spending surges dramatically in election years, particularly when the group in question is known to have made large political expenditures, it raises questions. 

Over the four-year period from 2009 through 2012, nine of the 10 groups listed here will have made, at a minimum, between 71 and 93 percent of their total expenditures for those four years combined during the election years of 2010 and 2012. Viewed together, these 10 groups reported a combined total of $68.7 million in total spending during the off years of 2009 and 2011. Using their total spending from 2010 and the spending they reported to the FEC in 2012, we’ve calculated a projected minimum estimate of what we expect their overall expenditures to be when they file their 990s covering last year. That analysis shows that the combined election-year overall spending totals for these 10 groups will come in at more than $483 million, a nearly seven-fold increase over off-year spending.

Attributable political spending puts some groups over the limit.  

Dark money groups rarely report that more than 30 or 40 percent of their total expenditures went towards political activities. One way they get around reporting too much in direct political expenditures is to make large grants to like-minded dark money groups and, sometimes, coordinate the expenditures. Factoring in this recipient political spending — by comparing the size of the grant to the group’s spending as reported to the FEC, then taking the smaller number — puts nine groups over the 50 percent political spending limit. Not factoring in recipient political spending shows just one group, American Action Network, spending above the limit.

Group	Period	Total IRS Spending	Donor’s FEC Spending	Attributable Recipient Spending	Total FEC Spending	FEC Spending with Recipients
Center to Protect Patient Rights	Jan 2010-Dec 2010	$60,245,391	$0	$36,675,105	0%	61%
Crossroads GPS	June 2010-May 2011	$42,344,884	$16,564,728	$11,095,406	39%	65%
American Action Network	July 2010-June 2011	$25,692,334	$18,885,679	$200,000	74%	74%
Republican Jewish Coalition	Jan 2010-Dec 2010	$12,409,886	$1,143,465	$8,000,000	9%	74%
Environment America	July 2008-June 2009	$10,573,775	$214,848	$6,514,090	2%	64%
Green Tech Action Fund	Aug 2008-Dec 2008	$2,375,000	$0	$2,375,000	0%	100%
Freedom & Values Alliance	Jan 2010-Dec 2010	$1,070,585	$0	$1,067,000	0%	100%
Common Sense Issues Coalition	Nov 2009-Oct 2010	$201,954	$0	$195,000	0%	97%
Annual Fund	July 2011-June 2012	$103,612	$0	$100,000	0%	97%

Even with recipient political spending factored in, these estimates are still on the low end for most groups, because many have state-level political expenditures and unreported “issue advocacy” that isn’t included here.  For example, in 2012, Americans for Job Security spent more than $1 million in judicial races in Michigan, according to the Michigan Campaign Finance Network, on top of the $16 million it reported spending at the federal level in 2012.

Significance? These totals do not attribute all political spending by recipients to the donor.  We compare the size of the grant with the recipients’ spending as reported to the FEC over the same period, then take the lower figure.  The aim is to get an estimate of how much political spending was facilitated by the donor.

The IRS has not yet made it clear whether giving large grants to other organization with political activities is a valid “social welfare” function. If not, the agency could take action against the groups that do this on a large scale.
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End Open Secrets

If you read the Open Secrets piece and are not alarmed at what you read, you are lost in a web of plutocracy.