Watchdog Groups Send New Letter to IRS that Further Documents that Crossroads GPS Is Not Entitled to 501(c)(4) Status

Includes Transcripts of All Crossroads GPS Ads Run From January 1, 2012 to September 24, 2012

Democracy 21, joined by the Campaign Legal Center, sent a letter to the IRS today, attaching transcripts of all of the ads run by Crossroads GPS from January 1, 2012 to September 24, 2012, to further document their case that Crossroads GPS is a campaign operation and as such is not entitled to tax-exempt status as a section 501(c)(4) “social welfare” organization.

The letter to the IRS refuted the claim by Crossroads GPS that its ads are “issue ads,” not campaign ads, because they do not contain “express advocacy.” Under federal tax laws and IRS regulations, an ad containing express advocacy does not determine whether or not the ad constitutes campaign activity for purposes of determining eligibility for section 501(c)(4) tax status.

According to Democracy 21 President Fred Wertheimer:

There is no question that Crossroads GPS does not meet the standard for tax-exempt status as a section 501(c)(4) “social welfare” organization.

Political operative Karl Rove, a founder of the group, has publicly said that in response to “Mr. Obama’s ad blitz,” Crossroads GPS spent more than $53 million for “ads attacking Mr. Obama’s policies or boosting Mr. Romney.”  Rove’s statement confirms that Crossroads GPS ads are campaign ads directed at attacking Obama and boosting Romney. It could not be clearer that Crossroads GPS is a campaign operation that is not eligible for tax status as a section 501(c)(4) “social welfare” organization.

Rove’s Crossroads GPS is as far away from being a 501(c)(4) “social welfare” organization as the earth is from the moon.

Forty-seven of the sixty individual ads run by Crossroads GPS from January 1, 2012 to September 24, 2012, either mention Obama and Senate candidates or just mention Senate candidates. All of the ads that mention Senate candidates have been run in Senate races that have been considered “in play” and have been viewed as key races in determining who controls the Senate.

The fact that all of its ads that mention Senate candidates have been in contested Senate races considered key to who controls the Senate is further evidence that the overriding purpose of Crossroads GPS is to influence elections and that it is in reality a campaign operation. The Senate races where Crossroads GPS has run campaign ads include Montana, Virginia, North Dakota, Nevada, Missouri, Ohio, Wisconsin, New Mexico, Florida and Indiana.

The only real question now is whether the IRS will act to protect the integrity of the tax laws and the interests of the American people by rejecting the claim by Crossroads GPS that is entitled to section 501(c)(4) tax status and by imposing appropriate penalties on the group.

The watchdog groups first challenged the eligibility of Crossroads GPS for section 501(c)(4) tax status in a letter sent to the IRS nearly two years ago, on October 5, 2010.

In eight subsequent letters, the watchdog groups have continued to challenge the eligibility of Crossroads GPS for section 501(c)(4) tax status, as well as the eligibility of three other organizations – Priorities USA, American Action Network and Americans Elect. The prior letters to the IRS from the two watchdog groups are dated July 27, 2011September 28, 2011December 14, 2011March 9, 2012March 22, 2012April 17, 2012May 24, 2012 and July 23, 2012.

According to today’s letter:

We believe the facts we have presented to you in our letters make clear that each of these organizations is, to put it simply, a campaign operation—an organization whose overwhelming focus and purpose has been to elect and/or defeat candidates in the 2012 elections.  Because the primary purpose of each of these organizations is to participate or intervene in candidate elections, these organizations are not, and should not be permitted to claim status as, “social welfare” organizations under section 501(c)(4).

The letter further stated:

The purpose of this letter is to provide additional information to document that Crossroads GPS is an organization with an overriding purpose to influence candidate elections, and is accordingly not entitled to tax-exempt status as a section 501(c)(4) “social welfare” organization.  In addition, this letter raises as a second ground for denying tax-exempt status the fact that Crossroads GPS also fails to meet the applicable legal test under the “private benefit” doctrine because it serves private political interests, not public “social welfare” interests.

The letter continued:

The evidence we have presented to the IRS shows that Crossroads GPS is being operated “for the substantial nonexempt purpose of benefiting the private interests of Republican Party entities and candidates.”  See American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).  Under these circumstances, Crossroads GPS is not entitled to section 501(c)(4) tax-exempt status under the “private benefit” doctrine because it is an organization created and operated to serve private political interests, not public “social welfare” purposes.

Crossroads GPS and its sister Super PAC organization, American Crossroads, were established in the summer of 2010, and were conceived and founded by Karl Rove and Ed Gillespie.  Crossroads GPS was created shortly after American Crossroads in order for donors to be able to provide funds anonymously to influence federal elections.

Karl Rove is the leading Republican Party political operative in the country. Rove was the chief political adviser to President George W. Bush for his eight years in office.

Ed Gillespie was named a counselor to the Romney campaign in April 2012 and serves as a senior adviser for the Romney presidential campaign. Gillespie is a former Chairman of the Republican National Committee and served as a counselor to President George W. Bush in 2007 and 2008.  In 2010, Gillespie was named chairman of the Republican State Leadership Committee, which helps elect state attorneys general, lieutenant governors, secretaries of state and house and senate candidates across the country

The evidence clearly indicates that Crossroads GPS (along with American Crossroads) was founded by Rove and Gillespie to carry out their private political interests in electing Republicans and defeating Democrats, and not to engage in public “social welfare” activities.  The organization’s operations have furthered these private political interests.

Today’s letter to the IRS cites a statement by Karl Rove that confirms the ads run by Crossroads GPs are ads to intervene and participate in the elections – the IRS standard for whether ads are campaign ads. According to the letter:

Karl Rove recently confirmed publicly that Crossroads GPS is a political operation and that its activities are intended to elect Republicans and defeat Democrats.  In an op-ed article published in The Wall Street Journal (August 1, 2012) (emphasis added), Rove said:

Roughly $111 million of Mr. Obama’s ad blitz was paid for by his campaign; outside groups chipped in just over $20 million.  The Romney campaign spent only $42 million over the same period in response, with $107.4 million more in ads attacking Mr. Obama’s policies or boosting Mr. Romney coming from outside groups (with Crossroads GPS, a group I helped found, providing over half).

Rove thus stated that in response to an “ad blitz” by President Obama’s reelection campaign and supportive Democratic outside groups, Crossroads GPS spent more than $53 million on ads “attacking Mr. Obama’s policies or boosting Mr. Romney.”  This blunt statement by Rove unmasks the fact that Crossroads GPS is a campaign operation and makes clear that the ads run by Crossroads GPS about Obama and Romney are campaign ads.

The letter further stated:

Almost all of the ads run by Crossroads GPS, furthermore, have been run in presidential battleground states and/or states involving contested Senate races.  In a number of cases, the Crossroads GPS ads mention both President Obama and a Senate candidate in states that are both a presidential battleground state and a state with a contested Senate race.

Thus, for example, 47 of the 60 ads mention Obama and a Senate candidate, or just the Senate candidate. They include: eight ads that mention Virginia Democratic Senate candidate Tim Kaine, seven ads that mention Montana Democratic Senator Jon Tester, seven ads that mention Nevada Democratic Senate candidate, Representative Shelley Berkley, six ads that mention North Dakota Senate candidate Heidi Heitkamp, six ads that mention Ohio Democratic Senator Sherrod Brown, five ads that mention Missouri Democratic Senator Claire McCaskill, three ads that mention Wisconsin Senate Democratic candidate, Representative Tammy Baldwin, two ads that mentions Indiana Democratic Senate candidate, Joe Donnelly, two ads that mention New Mexico Democratic Senate candidate, Representative Martin Heinrich and one ad that mentions Florida Democratic Senator Bill Nelson.

The Senate races in Montana, Virginia, North Dakota, Nevada, Missouri, Ohio, Wisconsin, New Mexico, Florida and Indiana—the states where the Crossroads GPS ads mentioning Senate candidates have run—are all races that have been considered “in play” during the 2012 elections and have been viewed as key races in determining whether the Republicans can take control of the Senate in 2013.

The transcripts of the ads have been obtained by us from YouTube where Crossroads GPS posts its ads.  We do not know how often each of these ads has run, but the IRS can and should obtain that information as part of reviewing the activities of Crossroads GPS to determine whether the group is eligible for section 501(c)(4) tax status.

Today’s letter to the IRS spelled out that “express advocacy” is not required for an ad to be a campaign ad under IRS rules regarding eligibility for section 501(c)(4). The letter stated:

Furthermore, it is a flat misstatement of the law to claim that ads are “issue” ads, and not campaign ads, simply because the ads do not contain “express advocacy.”  The IRS has made clear in rulings that “express advocacy” is not required for a group’s spending to count as intervention or participation in a campaign for purposes of assessing a group’s eligibility for exempt status under section 501(c)(4).  A recent report by the Congressional Research Service summarized the law as it applies to 501(c)(4) organizations:

Clearly, any advertisement that expressly endorses or opposes a candidate is campaign activity.  It is also clear that there is no rule that campaign intervention occurs only when an organization expressly advocates for or against a candidate.

Instead, the IRS has set forth in two Revenue Rulings the “facts and circumstances” that the agency takes into consideration in determining whether an ad constitutes intervention or participation in a campaign, even if the ad does not contain “express advocacy.”

According to the letter:

Under established IRS rulings, and with regard to the requirement that the group be primarily engaged in “social welfare activities,” the agency needs to examine the body of ads run by Crossroads GPS this year, to apply the standards laid out in the pertinent IRS Revenue Rulings, and to determine whether the ads run by Crossroads GPS constitute intervention or participation in candidate elections.  Once the IRS has determined the extent to which Crossroads GPS has engaged in spending for ads to intervene or participate in candidate elections, the agency can then determine whether such campaign activities constitute its “primary purpose,” in violation of the permissible standard for “social welfare” organizations.

In order to assist the IRS in its task of determining the extent of non-social welfare activities being engaged in by Crossroads GPS, we have enclosed a transcript of each ad that has been aired by Crossroads GPS from January 1, 2012 through September 24, 2012.  We believe that a review of these ads, and the circumstances related to where and when they have been run, will demonstrate that under the applicable IRS standards, these ads constitute intervention and participation in candidate elections.

The letter concluded:

We urge the IRS to review each of the attached ads, and to apply the agency’s standards to determine whether the ads constitute candidate campaign intervention.  If you find, as we believe you must, that all, or the overwhelming majority, of these ads are campaign ads, then the inescapable conclusion is that the primary purpose of Crossroads GPS is to participate or intervene in the 2012 elections.  As such, its claim to status as a “social welfare” organization under section 501(c)(4) is not in compliance with the tax laws.  Similarly, the IRS should find that the “private benefit” doctrine disqualifies Crossroads GPS for tax-exempt status under section 501(c)(4).

The IRS should act expeditiously in examining these ads, in denying Crossroads GPS tax-exempt status and in imposing appropriate penalties on the organization.  The IRS should also act expeditiously in addressing the information we have presented in our prior letters with regard to Priorities USA, American Action Network and Americans Elect, and similarly should deny tax exempt status to those groups and impose appropriate penalties.

Crossroads GPS is engaged in a massive scheme to serve as a black box conduit to mask the sources of tens of millions of dollars flowing into the 2012 elections.  We believe that Crossroads GPS is blatantly abusing the non-profit tax laws to do so.

It is the responsibility of the IRS to stop this abuse.  We urge you to do so promptly.

 

Click here for a full text of the letter.

Click here for a transcript of all Crossroads GPS ads from January 1 – September 24, 2012.