Lawbreakers In The 2010 Elections May Go Unpunished By The FEC, IRS For Years
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With an unprecedented amount of spending and a surge of new independent expenditure organizations thanks to the Supreme Court's Citizens United ruling, there will also likely be an incredibly high number of complaints filed with the Federal Election Commission (FEC) and the Internal Revenue Service (IRS), which are responsible for enforcing election and tax laws. But these complaints won't have any effect on the 2010 midterm elections. In fact, according to campaign finance experts, it's unlikely that they will ever go anywhere, and even if they do, lawbreakers could go unpunished for years.
Already, independent political groups are facing complaints. Recently, a coalition of the U.S. Chamber Watch, Citizens for Responsibility and Ethics in Washington, Corporate Ethics International and Main Street Alliance filed a complaint with the IRS alleging multimillion-dollar tax fraud by the U.S. Chamber of Commerce.
Watchdog organizations Public Citizen and Protect Our Elections last week filed a complaint with the FEC against Crossroads GPS, led by former Bush advisers Karl Rove and Ed Gillespie. Crossroads is also facing a complaint from Democracy 21 and the Campaign Legal Center to the IRS, alleging that the group "is operating in violation of its tax status because it has a primary purpose of participating in political campaigns in support of, or in opposition to, candidates for public office."
THE IRS: A SLOW REGULATORY AGENCY
"This will take years," admitted Democracy 21 President Fred Wertheimer about the group's complaint against Crossroads. "Our request to the IRS was to resolve this and deal with it so that we know the results in time for any findings of violations to be known for the 2012 elections because we want to know [how to] prevent this practice from happening in the 2012 elections. ... If we're successful, we feel that the IRS will hold Crossroads GPS accountable for not complying with the tax laws, and it will also make very clear to others that they can't do this."
Despite the long period of time the process will take, the campaign finance experts with whom The Huffington Post spoke were confident that if a group breaks the law, it will eventually be punished.
"The IRS enforces or administers the Internal Revenue Code, and its charge is to ascertain whether individuals and organizations are paying the appropriate amount of tax," explained Marcus Owens, a Washington attorney and former director of the IRS tax-exempt division. "And what that means in the context of a tax-exempt organization is whether they are doing the sorts of activities [to] support continued tax-exempt status."
Part of the problem with the IRS timeline is that it's a tax-collecting mechanism, with complete disregard to the election cycle. Many of these groups getting involved this election season -- such as Crossroads GPS and the American Action Network -- are classified as 501(c)(4)s under the tax code, meaning they are non-profits allowed to engage in political advocacy and do not have to disclose their donors publicly. They don't have to file any returns with the IRS until May 15, 2011 at the earliest and possibly as late as Nov. 15, 2011.
Any action against a law-breaking group could take one to three years. "The reason for that is the IRS won't be able to begin an audit until either a tax return is filed...or the date for filing has passed by, and no return has been received," said Owens. "So it won't be until some time in 2011, when the IRS has the authority to begin to move forward. And an audit takes time, particularly if it's contested; in other words, if a taxpayer doesn't simply roll over. Then there's an appeals process between the IRS that could be employed as well. So the actual audit itself could take a number of months up to nearly a year, depending on the agent's workload and the contentiousness with which the audit is disputed. The appeals process can add another year or two years to that process. So it could be a year to many years before final decision is made that a given organization did or did not quality for 501(c)(4) status."
Ultimately, if a group is found to have violated the law, it would no longer be exempt from certain federal taxes and have to make up the difference to the IRS.
THE FEC: A TOOTHLESS TIGER
The real problem, according to campaign finance experts, is with the FEC, a toothless tiger made up of six members that usually deadlocks on the important decisions, which all require four votes to move forward. The FEC and the IRS do not coordinate in any way in their enforcement. So if, for example, the IRS finds Crossroads in violation of tax law, it may still be found by the FEC to not have violated the Federal Elections Campaign Act.
Basically, what happens when an organization files a complaint with the FEC is that the six commissioners vote on whether there is "reason to believe" that federal law has been broken. If four of them vote in the affirmative, the FEC then begins a full-fledged investigation, which could take years. The commissioners take a second vote, usually a year or two down the road, on whether there is "probable cause" that a law was violated. If four commissioners again vote in favor, they then break the news to the alleged violator and ask it to pay a fine. It then goes to a settlement, or "conciliation," agreement. But if the group or individual insists it didn't break the law and refuses to go through the settlement, the FEC must vote one more time to authorize the agency's lawyers to file a civil action suing the alleged violator in federal court.
For example, in 2004, campaign finance organizations filed complaints alleging violations of federal laws by the notorious 527s (e.g. the Swift Boat Veterans for Truth). It took the FEC more than two years to resolve these complaints.
Paul S. Ryan, FEC program director and associate legal counsel at the nonpartisan Campaign Legal Center, which was one of the groups involved in the action, said that in December 2006 -- more than two years after the election -- the FEC began announcing a series of roughly 10 or so settlement agreements with 527 groups, which continued through 2007.
"The fines that were agreed to be paid by these groups, in my view, were too little, too late," said Ryan. "They amounted to in the neighborhood of 1-2 percent of the amount of money that was illegally raised and spent by the groups in the '04 election. So we're talking about 527 groups in '04 that are illegally spending hundreds of millions of dollars, while their fines were much much much smaller."
This complicated process is compounded by the fact that with the current make-up of the FEC, the commissioners often deadlock 3-3 on important votes. Ryan explained that although there are three Republican commissioners and three Democratic commissioners, their split is ideological, not partisan.
"I think the three Republican commissioners would be just as quick to refuse to act or do dismiss a complaint against a Democratic group as it would against a Republican group," he said. "They're not refusing to enforce the law because it's Republicans on the hook. They're refusing to enforce the law because they don't like the laws and think the laws are unconstitutional, regardless of whether you're talking about Democratic or Republican groups."
Wertheimer called the FEC a "disaster zone." "Under normal conditions, it would take years for the FEC to deal with the complaint, but right now, the three Republican commissioners on the six-member commission are blocking enforcement of the laws," he added. "So as long as they're on the commission, we don't expect to have the campaign finance laws enforced, and that's a very dangerous circumstance to be in."
President Obama could change the make-up of the FEC, and the fact that he hasn't is a source of irritation to the campaign finance reform community, although some experts said that they believe he is interested in reform but busy dealing with other priorities at this point.
The terms of three commissioners -- Republican Donald McGahn and Democrats Ellen Weintraub and Steven Walther (who occasionally sides with the Republican members on big votes) -- have expired. But they are allowed to remain commissioners until the President and Congress approve their replacements.
In May 2009, Obama did nominate SEIU attorney John Sullivan to the FEC, a move that garnered mixed reviews. However, Sens. John McCain (R-Ariz.) and Russ Feingold (D-Wis.) put a hold on Sullivan because Obama failed to name replacements for the other two openings. "The FEC is currently mired in anti-enforcement gridlock; the president must nominate new commissioners with a demonstrated commitment to the existence and enforcement of the campaign finance laws," they wrote in a statement.
But in order to replace McGahn, Obama needs the cooperation of Senate Minority Leader Mitch McConnell (R-Ky.). While the nominations come from Obama, traditionally the president defers to the Senate leaders to choose the picks. Sullivan withdrew his name from consideration in August 2010.
Some of the campaign reform groups behind the complaints told The Huffington Post that they are hoping Obama will take notice of them and reform this broken FEC process.
"We're asking Obama to break that tradition and exert direct control and influence over who gets appointed and not accept Mitch McConnell's advice on this, but appoint someone who's actually a reasonable person instead," said Craig Holman, legislative representative for Public Citizen, who added that with the failure of the DISCLOSE Act, the need for FEC reform is more pressing than ever.
The Huffington Post reached out to the FEC, but the agency did not make a commissioner available for comment.
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First Posted: 10/18/10 09:01 AM ET Updated: 05/25/11 07:05 PM ET