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Reform Groups Ask IRS to Investigate Crossroads GPS

Two campaign finance reform groups have again asked the Internal Revenue Service to investigate whether nonprofits that spend millions on political campaigns are eligible for their tax-exempt status.

In a six-page letter to the IRS, the Campaign Legal Center and Democracy 21 said the primary purpose of 501(c)(4) organizations such as American Action Network, Americans Elect and Crossroads GPS is not social welfare but to influence elections.

The Campaign Legal Center and Democracy 21 urged the agency to review and then revoke the groups’ current tax status if they largely exist to influence elections. The reform groups had previously asked the agency to look into the issue in September, but today’s request included more details about the nonprofits’ political activities and expenditures.

“These groups are claiming section 501(c)(4) tax status in order to keep secret from the American people the donors financing their expenditures to influence federal elections,” Campaign Legal Center Executive Director J. Gerald Hebert and Democracy 21 President Fred Wertheimer wrote. “We are deeply concerned about the failure of the IRS to take any public steps to show that the agency is prepared to enforce the tax laws applicable to section 501(c)(4) tax-exempt groups.”

Nonprofit “social welfare” organizations such as those detailed in today’s letter have become a popular mechanism to channel political expenditures since a January 2010 Supreme Court decision rolled back limits on corporate and union political spending. The 501(c)(4) groups are attractive fundraising vehicles because unlike their charitable 501(c)(3) counterparts, which are barred from political activity, and traditional 527 political organizations, which have enhanced disclosure requirements, they can shield donor identities and still participate in campaign activity, so long as it’s not their primary purpose.

They are poised to raise and spend millions of dollars during the next election cycle, often working in tandem with super political action committees, which can also raise unlimited money but must disclose donors.

But groups such as the Campaign Legal Center and Democracy 21 say these groups are increasingly running afoul of tax law and that their nonprofit status should be revoked because the primary purpose of a 501(c)(4) group cannot be political activity.

The American Action Network, which describes itself as an “action tank that will create, encourage and promote center-right policies,” reported spending $30 million in 2010, $26 million of which was on “independent expenditures” and “electioneering communications,” according to news reports cited in the letter.

Americans Elect, a newly formed group that aims to harness technology to create the first “nonpartisan presidential nomination” process, is poised to spend $22 million during the upcoming campaign season, according to media reports cited by the two reform groups.

“Just as third party candidates decided the 2000 presidential race, a third party candidate representing Americans Elect could decide the outcome of the 2012 presidential election,” Hebert and Wertheimer wrote. “If that were to happen and the IRS has failed to take action here, the agency would be responsible for allowing secret money and a secretly financed organization to decide who is elected to be our next president.”

Crossroads GPS and its affiliated Karl Rove-guided super PAC American Crossroads will spend a combined $240 million during the 2012 presidential and Congressional elections, according to cited reports.

“The IRS has an obligation to the American people to properly enforce the tax laws and thereby protect the integrity of our elections,” the letter said. “We reiterate our request that the IRS move promptly to address whether the organizations detailed in our September 28th letter are improperly claiming tax-exempt status under section 501(c)(4)” of the tax code.

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