Will 501(c) Groups Remain a “Very Safe Place to Play?”

Undisclosed campaign cash and a "regulatory netherworld"

It’s been a newsy week for American Crossroads, the big-spending 527 group, and Crossroads GPS, its big-spending 501(c)(4) off-shoot. (The former is required to disclose its donors, the latter is not).

There’s this, per Politico’s Kenneth P. Vogel:

A massive $4.2 million ad buy announced Tuesday by American Crossroads and Crossroads GPS erases any doubts that the groups, conceived by veteran GOP operatives Karl Rove and Ed Gillespie, have the cash to be major players in next month’s election.

And with nearly 75 percent of the buy paid for by undisclosed donors, the expenditure highlights a trend that has shaped the midterm campaigns and could have far-reaching consequences in American politics: the shift to anonymous political activity.

And, this, per the New York Times (and also mentioned by Vogel):

Two campaign finance watchdog organizations released a letter to the Internal Revenue Service today, requesting that it investigate whether a nonprofit advocacy group tied to Karl Rove was violating federal tax laws with its involvement in this year’s midterm elections.

The group, Crossroads Grassroots Policy Strategies, is set up as a 501(c)(4) nonprofit, which means that, by law, its “primary purpose” is not supposed to be political. Yet it has been the biggest third-party player on television in Senate races across the country over the last two months, according to data from the Campaign Media Analysis Group, which tracks political advertising.

In addition to Politico and the Times, one can read about these developments in the Washington Post, the AP, hear about it on NPR, CNN and MSNBC. No mention that I could find on Fox News. The Wall Street Journal reports it thusly:

One of the nation’s largest labor unions announced a $15 million television and radio buy to help mostly Democratic candidates.

The campaign by the National Education Association — part of its overall $40-million effort this fall — is among the largest independent advertising expenditures so far in the 2010 election, dwarfing a big ad buy announced Tuesday by top Republican outside groups.

American Crossroads and Crossroads GPS, two affiliated GOP groups, announced a $4 million ad blitz on Tuesday, sparking a complaint to the IRS. The two groups have received a ton of media attention and have been blasted by Democrats for getting involved in elections. Together, they have spent $14 million this election season.

The Crossroads groups have received, relatively, a “ton of media coverage,” perhaps because they’re spending a ton and no one knows a ton—or, anything, really, in the case of Crossroads GPS—about where that money is coming from (and the Rove name, too, calls attention). The Journal gets to this:

Of course, there’s a big difference between the GOP groups and the NEA: The teachers union must publicly disclose sources of its funding for politicking while most of the donations to American Crossroads and Crossroads GPS can be kept secret.

And this secrecy is, of course, a draw. The appeal for donors of remaining anonymous was addressed, in Vogel’s Politico piece, by “someone involved in” American Crossroads and Crossroads GPS who wished to remain anonymous while “discussing internal deliberations:”

In some ways, it makes us a very safe place to play, because questions about transparency and disclosure are settled on the front end.

How “safe?” These groups exist, as the the New York Times put it recently, in a “regulatory netherworld” somewhere between the IRS and the FEC.

The burden of monitoring such groups falls in large part on the I.R.S. But lawyers, campaign finance watchdogs and former I.R.S. officials say the agency has had little incentive to police the groups because the revenue-collecting potential is small, and because its main function is not to oversee the integrity of elections.

The I.R.S. division with oversight of tax-exempt organizations “is understaffed, underfunded and operating under a tax system designed to collect taxes, not as a regulatory mechanism,” said Marcus S. Owens, a lawyer who once led that unit and now works for Caplin & Drysdale, a law firm popular with liberals seeking to set up nonprofit groups.

In fact, the I.R.S. is unlikely to know that some of these groups exist until well after the election because they are not required to seek the agency’s approval until they file their first tax forms — more than a year after they begin activity.

The IRS is now aware that Crossroads GPS “exists,” if the the agency reads its mail. (In addition to the watchdog groups’ letter this week, Sen. Max Baucus, D-Mont., last week called on the IRS to look into 501(c)s engaged in political activities.)

And yesterday, Republican senators Orrin Hatch of Utah and Jon Kyl of Arizona, “See[ing] a Political Motive in IRS Audits,” sent their own letter to the IRS noting that IRS investigations are “intended to be separated from the political process.” (Is it a Fox News story now?)

Stay tuned.

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Liz Cox Barrett is a writer at CJR.