ProPublica

Dark Money Group Told IRS It Wouldn’t Be Political—Then Spent $1 Million on Campaign Ads

Justin Elliott

October 4, 2012

A dark money nonprofit group that has run more than $1 million in ads in the Ohio race for U.S. Senate told the IRS last year it did not plan to spend any money to influence elections when it applied for recognition of its tax-exempt status.

ProPublica first reported on the group, the Government Integrity Fund, after information from television station political ad files became available online (see our Free the Files project), showing extensive spending by the Fund.

 

The group’s filings with the IRS  illustrate how “social welfare” nonprofits, also known as 501(c)(4)s, are playing an aggressive role in this election, pouring tens of millions of dollars into races around the country, while taking advantage of the donor anonymity their tax status provides. The Fund applied for IRS recognition last December and received the IRS’ approvalless than two months later.

Question 15 on the application asks, “Has the organization spent or does it plan to spend any money attempting to influence the selection, nomination, election, or appointment of any person to any Federal, state, or local public office or to an office in a political organization?”

Much hinges on this: Under the tax code, social welfare nonprofits may not have political campaign activity as their primary purpose, though exactly what that means is a subject of much debate.

Fund chairman Tom Norris, who signed the Fund’s application, checked the “No” box on Question 15.

In a statement to ProPublica, the Fund said that “legally, the concept of ‘influencing elections’ has been narrowly defined” and that “throughout its existence, [the Fund] has regularly consulted with experienced tax counsel to ensure it is in full compliance with the federal tax laws.” (See the full statement.) Norris, a Columbus lobbyist, did not respond to calls.

Ads paid for by the Fund, which ran through the summer, praised Republican Josh Mandel and attacked Democratic Sen. Sherrod Brown. One spot features Mandel telling a veterans group, “I think this campaign is all about the past versus the future.” A voiceover chimes in: “Josh Mandel served our country with two tours in Iraq. Now he’s fighting for taxpayers, fighting for our future.”

There are several reasons groups may prefer answering “No” to Question 15. Those answering “Yes” are instructed to explain in detail and list the amounts to be spent, which can lead to scrutiny that slows down the IRS approval process, tax experts say.

“Checking yes is a yellow flag for the IRS, which likely would cause the IRS to refer the application to an agent for consideration and follow-up questions,” said Lloyd Hitoshi Mayer, an expert in nonprofit tax law at the University of Notre Dame law school. “There could be donors saying, ‘I’m not comfortable giving to you until I know you are a 501(c)(4) and my identity is protected. So I want that IRS [approval] letter.’”

The Fund’s IRS application did provide other clues about its intentions. In one section of the form, the Fund said its budget for 2011 was $78,000. It then projected a budget of $6.7 million for 2012, an election year, before going back down to $50,000 for 2013, a nonelection year.

Mayer said the IRS typically wouldn’t scrutinize a group’s spending until it files a tax return — and in the case of the Fund, the return covering 2012 could be filed as late as November 2013. If the IRS found that the Fund was improperly taking advantage of its status as a social welfare group, it could impose a fine and make the group operate as a political organization that does have to report donors.

The group’s application for IRS recognition was signed under penalty of perjury, but Mayer said it was rare for the agency to pursue charges against an applicant for lying.

The IRS did not respond to a request for comment.

The Fund’s application for tax-exempt status also sheds a bit more light on who is running the group. It names four men as board members, including Norris. Another of the board members, Jeffrey L. Dean, referred questions to Jonathan Petrea, who was campaign manager and district director for Mandel when he ran for the state legislature.

Petrea told ProPublica he had no official role in the Fund, but helped Norris find potential board members.

“I was just doing a guy a favor by putting him in touch with people who might be interested,” Petrea said.

Norris and the Mandel campaign did not respond to questions about Petrea’s relationship to the Fund or the candidate.

Petrea was also previously Ohio grassroots director for Americans for Prosperity, a conservative 501(c)(4) backed by the Koch brothers, and has recently done work for Energy Citizens, a group advocating oil and gas development.

The Fund’s ads have been off the air since Sept. 6, according to the Brown campaign. (After that date, certain types of ad spending had to be reported to the Federal Election Commission.)

The group’s attorney, William Todd, said he doesn’t know about its plans “for future education efforts.”