WASHINGTON -- Crossroads Grassroots Policy Strategies, the political ad-buying organization cofounded by Republican strategist Karl Rove in 2010, has officially submitted its first tax forms with the Internal Revenue Service, and as expected, the group is formally requesting that the IRS treat it as a nonprofit operating under section 501(c)(4) of the tax code.
But that's a tricky proposition for a group that spends the vast majority of its money on ads decrying one political candidate or another.
The hitch is that the tax code says 501(c)(4) groups "must be operated exclusively to promote social welfare" -- the promotion of which "does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office."
Rove depends on Crossroad GPS getting that 501(c)(4) status for one reason. Avowedly political groups, like Crossroads GPS’ sister organization, the American Crossroads Super PAC, have to disclose their donors; 501(c)(4) groups don't (although that could be changing).
The group insists that most of the ads the organization produces comprise "issue advocacy" rather than political campaign activity. It argues that since less than 50 percent of its budget goes to what it terms “direct” political spending, the group qualifies as being "primarily" a social welfare group.
The big question the IRS will have to address, therefore, is whether the ads that Crossroads GPS and similar groups call "issue advocacy" ads are, in fact, "on behalf or in opposition to any candidate for public office."
That would include ads like one attacking Democratic Virginia Senate candidate Tim Kaine for being “Obama’s partisan cheerleader,” or one savaging Sen. Ben Nelson (D-Neb.), who at the time was running for reelection, for having “sold out to Obama,” or one attacking progressive Massachusetts Senate candidate Elizabeth Warren for, of all things, siding with big banks.
The Federal Election Commission’s hair-splitting rules allow Crossroads GPS to make the argument that these sorts of ads aren’t exactly the same as campaign ads. According to the FEC rules, in fact, advertisements from outside groups are only considered reportable as "independent expenditures" if they are "expressly advocating the election or defeat of a clearly identified candidate." For the FEC, that involves literally using one of the magic words such as "elect" or "vote against" in their ad.
Over the years, political groups have interpreted that to mean that as long as they avoid those particular words, they can pretty much get away with anything -- at least as far as the FEC is concerned.
So Crossroads GPS will end a blistering attack ad on a Democratic federal candidate in a swing state not with an encouragement to vote them out of office -- which would be reportable -- but with an incitement of some sort, for example, calling the candidate to complain about their position on an issue.
That little dodge lets them fly under the FEC’s radar. But the IRS, rather than drawing or adhering to the FEC's distinctions, is supposed to use what's called a "facts and circumstances" test to determine if someone is breaking the rules. In this case, that means using common sense.
More than 50 percent of Crossroads GPS' budget goes toward these ads. On its 2010 tax form, the group reported using $15.5 million for "direct" political spending and $8.2 million for "grassroots issue advocacy" -- out of $42 million total.
To bolster its "social welfare" creds, it also donated more than $15 million to politically active charitable groups, ostensibly earmarked for non-political purposes.
On its 2011 tax form, it reported spending $18.9 million on issue advocacy and $1.6 million on direct political activity -- out of $22 million total.
American Crossroads and Crossroads GPS spokesman Jonathan Collegio would not explain to The Huffington Post the origin of those numbers. "Crossroads carefully analyzes each of its ads to determine their status, and categorizes them accordingly," he responded in an email.
Therefore, it's reasonable to discern that any ad not reported to the FEC was considered by the group to be "issue advocacy."
The acknowledged political activity adds up to 26 percent of its total budget in both years. The “advocacy” ads total 42 percent. So if the IRS concludes that the advocacy ads are really political campaign ads, then Crossroads GPS would not qualify for (c)(4) status. And that's even if the under-50-percent standard for political spending is being used; some reformers argue that anything more than 5 or 10 percent should be disqualifying for a (c)(4).
If a group acts like a (c)(4) -- for instance, by not disclosing its donors -- but then gets its status denied or revoked, tax experts say the consequences can be severe, including fines of up to 70 percent of the money they raised and spent in secret. The groups might even have to make donors' names public after all.
Reform groups have been pressuring the IRS to enforce its rules for months -- and recently hailed some faint signs that the IRS might be preparing to take action related to bogus (c)(4)s.
But the biggest thing in Rove's and the organization's favor, is that these policies are not likely to be resoIved before the 2012 election -- a race in which Crossroads GPS and its sister group have said they intend to spend $300 million to elect Republicans.
Video above produced by Sara Kenigsberg.
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