Treasury Department Inspector General’s Report Suggests IRS is Headed to Denying Crossroads GPS Status as 501(c)(4) Tax-Exempt Organization

According to articles in the BNA Money & Politics Report and Bloomberg News, a report released on April 30, 2015 by the Treasury Department’s Inspector General suggests that the IRS is headed towards denying Crossroads GPS status as a 501(c)(4) tax-exempt “social welfare” organization.

Crossroads GPS has used its claim of eligibility for 501(c)(4) tax-status to spend tens of millions of dollars in secret contributions to influence federal elections.

According to the articles, the Inspector General’s report suggests that the IRS has sent Crossroads a denial letter, which the group may be appealing.

Crossroads GPS reportedly applied for section 501(c)(4) tax-exempt status in September 2010.

The articles quotes Steven Law, the president of Crossroads GPS, as stating that the group has not received a certification from the IRS, but that he is otherwise not prepared to talk about the status of the group’s application.

“We have believed from the beginning that Crossroads GPS, which is Karl Rove’s brainchild, is a political organization, not a social welfare group,” said Democracy 21 President Fred Wertheimer.

“In our view, Crossroads GPS was formed and has operated for the purpose of engaging in campaign activities and to hide the donors who were financing Crossroads GPS’ campaign spending. It was not organized or operated to engage in social welfare efforts,” Wertheimer said.

According to Wertheimer, “This is why Democracy 21, joined by the Campaign Legal Center,  sent a series of letters to the IRS beginning in 2010 that challenged the eligibility of Crossroads GPS for section 501(c)(4) tax-exempt status.”

Democracy 21 and the Campaign Legal Center sent letters to the IRS on October 5, 2010; July 27, 2011; September 28, 2011; December 14, 2011; March 9, 2012; April 17, 2012; May 24, 2012; July 23, 2012; September 27, 2012; December 3, 2012; January 3, 2013; and May 6, 2014.

“No one should confuse the Crossroads GPS case with other cases at the IRS that have raised questions about whether the IRS has improperly targeted conservative groups,” Wertheimer said.

Tax laws, IRS regulations, and court decisions interpreting them provide that an organization cannot engage in more than an insubstantial amount of non-social welfare activities to be eligible for tax-exempt status under section 501(c)(4). Campaign activities do not qualify as social welfare activities under IRS regulations.

“In our letters to the IRS, we documented that Crossroads GPS engages in very substantial campaign activities and therefore it is not eligible for 501(c)(4) tax-exempt status,” Wertheimer said.

“This case is not about targeting a conservative group. Crossroads GPS is clearly a political   operation. Karl Rove, who conceived Crossroads GPS, is not known for his social welfare activities, he is known for his activities as a political operative,” Wertheimer said.

The letters from Democracy 21 and the Campaign Legal Center also argued that Crossroads GPS was not entitled to section 501(c)(4) tax-exempt status under an IRS ruling that denied tax-exempt status to an organization whose activities were conducted “primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole.”

According to the letter sent on September 27, 2012 to the IRS about Crossroads GPS by Democracy 21 and the Campaign Legal Center:

This unambiguously partisan political activity clearly falls within the standard set forth by the IRS in a ruling denying section 501(c)(4) tax-exempt status to an organization that was “not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole.” Final Determination Letter, Number 201128032 (April 4, 2011

In that matter, the IRS concluded that “an organization which conducts its educational activities to benefit a political party and its candidates serves private interests. And . . . an organization that primarily serves private interests fails to qualify for exemption under section 501(c)(4).” Id. at 6 (citing American Campaign Academy). The IRS concluded in that matter:

In summary, you are not operated primarily to promote social welfare because your activities are conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole. Accordingly, you do not qualify for exemption as an organization described in section 501(c)(4) of the Code and you must file federal income tax returns.

“Crossroads GPS has misused the tax laws for almost five years to funnel secret contributions into federal elections,” Wertheimer said. “It is long past time for the IRS to deny Crossroads GPS tax-exempt status as a section 501(c)(4) “social welfare” organization and to prevent the group from engaging in any further misuse of the tax laws.”