Watchdog Groups Attack IRS Decision to Overrule Proposed Staff Denial of Crossroads GPS’ “Social Welfare” Tax Status

 

In a letter sent today to the Internal Revenue Service Commissioner, Democracy 21 joined by the Campaign Legal Center criticized the IRS’ decision made without explanation to grant recognition to Crossroads GPS as a “social welfare” organization under section 501(c)(4) of the Internal Revenue Code.

The IRS Exempt Organizations staff decided in 2013 to deny social welfare status to Crossroads GPS because the staff found that the group spent 54 percent of its total expenditures on campaign activities in an earlier year. This amount of campaign-related spending exceeded the 49 percent rule that Commissioner Koskinen has stated sets the limit of campaign activities that a section 501(c)(4) organization is permitted to undertake.

According to the letter:

Without explanation, an IRS appeals officer reversed the staff ruling and has granted recognition to Crossroads GPS as an exempt social welfare organization. This decision, made without any explanation after the Exempt Organization staff had concluded that Crossroads GPS should not receive section 501(c)(4) tax status, is inexplicable and indefensible. It represents a fundamental failure by the IRS to rationally and properly administer the tax laws.

According to Democracy 21 President Fred Wertheimer:

It is irresponsible for the IRS to overturn a denial of tax-exempt status for Crossroads GPS by its Exempt Organizations staff without any explanation for this action.

It makes no sense for the IRS to grant without explanation tax-exempt status to Crossroads GPS as a social welfare group when the IRS staff found that Crossroads spent more money on campaign activities than IRS Commissioner Koskinen has said is permissible for a social-welfare group.

The IRS owes the American people a prompt explanation of precisely what happened here. The IRS needs to take steps immediately to make publicly clear that social welfare groups are limited in the amount of money they can spend on campaign activities and are not free to run wild and violate the tax laws with impunity.

The letter noted that, “Since its founding in 2010, Crossroads GPS itself has reported to the Federal Election Commission spending more than $100 million on campaign activities. But it has not disclosed the sources of the funds it has used for this spending.”

The letter continued:

Federal tax law does not require section 501(c)(4) social welfare organizations to publicly disclose their donors—unlike political organizations under section 527, which do have such disclosure obligations. The IRS recognition of Crossroads GPS as a social welfare organization means that the group can continue to hide from public scrutiny the identity of the donors who are financing their expenditures to influence federal campaigns.

More broadly, the grant of social welfare tax status to Crossroads GPS signals to the public that the IRS has abandoned any meaningful effort to enforce the provisions of the tax code that limit the amount of campaign activities that can be engaged in by social welfare groups.

As The Washington Post said in a recent editorial (February 19, 2016), the agency’s decision on Crossroads GPS sends the message that the IRS “has thrown in the towel” with regard to policing the misuse of social welfare organizations as vehicles for laundering undisclosed dark money into federal elections.

The IRS decision is very likely to have ramifications that will be severely detrimental to the interests of the American people.

According to the letter:

The use of social welfare organizations to spend undisclosed money in federal elections is now likely to proliferate in light of the agency’s unexplained decision to acquiesce to Crossroads GPS’s claim that it is entitled to tax status as a social welfare organization, notwithstanding its extensive campaign activities. The IRS’s abdication of its responsibility to enforce the law will be responsible for further erosion of the right of citizens to know the identity of the big donors providing money to influence their votes, thereby undermining a bedrock principle of our democracy.

The letter stated:

Given the high public stakes involved—whether purported social welfare organizations can misuse the tax laws to inject hundreds of millions of dollars of secret contributions into federal elections—the agency has an obligation to the American people to do its job responsibly.

This has not occurred in the Crossroads GPS case.  The agency owes the public an explanation for its otherwise inexplicable decision to treat Crossroads GPS as a social welfare organization, summarily reversing without explanation a staff opinion to the contrary.

Step by step over the years, the IRS has progressively eroded the congressional mandate that social welfare organizations must be operated “exclusively” for social welfare purposes, which do not include any activities to influence elections.

The letter concluded:

With this latest ruling, the IRS appears to have abandoned this statutory requirement altogether.  This has resulted in the IRS issuing what amounts to a blanket invitation to section 501(c)(4) groups to violate the tax laws with impunity, and thereby acquiescing to the unfettered spending of secret money in federal elections by social welfare organizations.

The country deserves better from the IRS.