Watchdog Groups Again Call on IRS to Deny Tax-Exempt Status to Karl Rove’s Crossroads GPS

Cite $70 Million in 2012 Campaign Expenditures as Prima Facie Evidence Group is Campaign Operation, not “Social Welfare” Group

In a letter sent today to the IRS, Democracy 21, joined by the Campaign Legal Center, again called on the agency to deny Karl Rove’s Crossroads GPS tax-exempt status as a section 501(c)(4) social welfare organization.

According to the letter from the watchdog groups:

According to the Center for Responsive Politics (CRP), Crossroads GPS spent $70 million on independent expenditures to elect Republican candidates or defeat Democratic candidates in the 2012 elections.  This is an extraordinary amount of money to be spent on influencing elections by a group which claims it is a “social welfare” organization.

Indeed, Crossroads GPS and its affiliated Super PAC, American Crossroads, together spent a total of $175 million on independent expenditures and electioneering communications to influence the 2012 elections—far more than any other outside spender, according to CRP.

The letter from the watchdog groups continues:

[W]e submit that the $70 million spent by Crossroads GPS just on campaign ads reported to the FEC in 2012 is prima facie evidence that the organization does have a “primary purpose” to engage in campaign activities. The statement made by Crossroads GPS two years ago on its application for tax-exempt status that its campaign activities will be “limited in amount, and will not constitute the organization’s primary purpose” are simply not credible, in light of the actual practices of the organization and the tens of millions of dollars Crossroads GPS spent on campaign ads since then.
As we have stated in previous letters, the misuse of “social welfare” organizations as vehicles for campaign spending results in direct and serious harm to the American people because it hides from public scrutiny the identity of the donors funding the campaign spending.

According to Democracy 21 President Fred Wertheimer:

The apparent failure of the IRS to grant tax-exempt status to Crossroads GPS, more than two years after Crossroads applied for status as a 501(c)(4) “social welfare” organization, provides some hope that the agency will do the right thing and reject the Crossroads GPS application.
It appears clear that Crossroads GPS exists for the overriding purpose of influencing elections. Crossroads GPS founder Karl Rove is a political operative, not a “social welfare” activist. Crossroads GPS spent tens of millions of dollars on TV ads to elect and defeat candidates and is nothing more than a campaign operation posing as a “social welfare” organization.
The IRS must not allow Crossroads GPS to get away with its charade of claiming to be a “social welfare” organization so it can hide the donors financing its campaign activities from the American people. Crossroads GPS must be held accountable for abusing the nation’s tax laws to inject tens of millions of dollars in “dark money” into federal races.

According to the letter sent today:

ProPublica, a news organization, recently received and publicly disseminated the Form 1024, “Application for Recognition of Exemption under Section 501(a), filed by Crossroads GPS on September 3, 2010, seeking recognition as a “social welfare” organization under section 501(c)(4) of the Internal Revenue Code.  So far as we are aware, the IRS has yet to grant the application.

In its application, Crossroads GPS states that 50 percent of its activities will be devoted to “public education,” 30 percent will be devoted to “influenc[ing] legislation and policymaking,” and 20 percent will be devoted to “research.”  Application at 2.  Thus, when asked to provide a “detailed narrative description of all the activities of the organization – past, present and planned,” Crossroads GPS fails to mention any activities devoted to influencing federal elections, and instead describes 100 percent of its activities as involving efforts other than electioneering.
Inconsistently, in response to a different question on the application, Crossroads GPS states that it plans to spend funds “to distribute independent political communications,” but such activity “will be limited in amount, and will not constitute the organization’s primary purpose.”  Id. at 4.
We have written to you on a number of occasions in the past two years regarding the enormous sums of money spent by Crossroads GPS to influence the 2010 and 2012 federal elections. In those letters, we have challenged the organization’s eligibility for section 501(c)(4) tax-exempt status.

According to the letter:

 The $70 million in campaign expenditures attributed to Crossroads GPS consists overwhelmingly of ads reported to the Federal Election Commission as “independent expenditures,” i.e., ads that contain “express advocacy.”

As we have discussed at length in our prior correspondence with you, the IRS uses a different test to define activity that constitutes intervention or participation in elections, and additional ads by Crossroads GPS that may not be subject to reporting to the FEC may nonetheless fall well within the test used by the IRS to determine what constitutes campaign spending by a tax-exempt group.
In continuing any ongoing review of the application submitted by Crossroads GPS for status as a section 501(c)(4) organization, we believe it is essential that you not accept at face value either the obviously self-serving statement on its application that Crossroad GPS’s campaign spending will not constitute its “primary purpose” or any self-serving claims by the organization that communications were “issue ads.”
The IRS should closely scrutinize the spending that Crossroads GPS engaged in during the 2012 campaign. This includes both the spending that was reported to the FEC as “independent expenditures” because it included “express advocacy,” and any other spending on communications that may well have constituted intervention or participation in campaigns under IRS rules, even if the ads did not contain “express advocacy.”

In particular, we strongly urge you not to accept at face value any claim by Crossroads GPS that any or all of its ads that mention federal candidates and did not contain express advocacy were “public education ads” or “issue ads.”   These ads, and the context in which they were run, must be reviewed by the IRS to determine whether in fact any or all of the ads constituted ads to intervene or participate in elections, within the IRS definition of that standard.  E.g., Revenue Ruling 2004-6, 2004-1 C.B. 328.

In our letter to you of September 27, 2012, we submitted transcripts of the ads run by Crossroads GPS from January 1, 2012 through September 24, 2012. We urged the IRS to review each of these ads, and to apply the agency’s standards to determine whether the ads constituted intervention or participation in campaigns. We again urge you to conduct such a review.

The letter concludes:

It is the responsibility and obligation of the IRS to stop this kind of abuse of the tax laws.  It is imperative that the IRS closely and critically review the assertions made by Crossroads GPS in its application for tax-exempt status, and in its tax returns, in light of its massive, campaign spending in the 2012 federal elections.

Crossroads GPS served as little more than a campaign operation in 2012.  Crossroads GPS has no business being treated as a “social welfare” organization and the IRS should deny its application for tax-exempt status as a section 501(c)(4) organization.

Attachments: (1 total)