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Lawsuit Challenges IRS to Crack Down on Dark Money Groups Like Rove’s Crossroads GPS

The lawsuit would force the IRS to tighten its standards.

(Image: Dark money via Shutterstock)

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If campaign finance reformers have their way, the Internal Revenue Service (IRS) would use existing federal law to rein in the “dark money” nonprofit groups that exploit legal loopholes to spend millions on influencing elections without revealing their donors.

Last week, a coalition of reform groups filed a lawsuit challenging the IRS’s regulation of the tax-exempt “social welfare” nonprofit groups that helped make the 2012 elections the most expensive in history.

The IRS is unlikely to crack down on such nonprofits without legal pressure because the agency is still reeling from a scandal that erupted in May after some of its employees were found targeting tax-exempt Tea Party and conservative groups for special consideration based on their names and political interests. It was later revealed that the IRS targeted liberal groups as well.

Citizens United Opens the Floodgates

After the Supreme Court’s 2010 ruling in Citizens United v. Federal Election Commission gave corporations the green light to spend unlimited amounts of money to influence elections, political operatives formed dozens of “social welfare” nonprofits – which also are considered corporations – to funnel money into the campaign playing field without revealing their donors.

Such a group is called a 501(c)4 in reference to the IRS code it falls under. The group must be primarily engaged “promoting in some way the common good and general welfare of the people” to receive tax-exempt 501(c)4 status, but political nonprofits spent more than $300 million to influence the 2012 elections alone,[] and some appear to do little besides running attack ads and funneling money into campaigns and political action committees.

Since the scandal, the IRS has granted tax-exempt status to four Tea Party groups that have run political ads attacking “Obamacare,” according to the Center for Responsive Politics (CRP).

Conservatives Outspend Liberals

Crossroads GPS, a nonprofit launched by the powerful Republican operative Karl Rove, is the cream of the dark money crop. The group pumped nearly $71 million into the 2012 elections. The Koch brothers’ Americans for Prosperity came in a distant second with $36 million of spending.

In October 2012 alone, Crossroads GPS spent $41 million on negative attack ads. The CRP reports that the group delivered this “social welfare” to the American public with a staff of only eight employees. The group’s nonprofit status allows it to conceal its mega-rich donors, who contributed chunks of cash ranging from $1 million to $10 million during the last election season.

Conservatives aren’t the only ones playing the “social welfare” game. Liberal groups, such as the pro-Obama Priorities USA, also pumped millions into the last election cycle, and a few have engaged in shady “shape-shifting” practices to bounce money between groups that pop up and then disappear.

But conservative nonprofits outspent liberal ones by nearly eight times in the 2012 elections and by a ratio of 34-1 since 2010, according to the CRP.

“The dirty secret here is I don’t think the majority of these organizations are even complying with the requirement for social welfare,” said Scott Nelson, attorney for Democracy 21, one of the groups behind the lawsuit challenging the IRS regulations.

The lawsuit would force the IRS to tighten its standards for 501(c)4 registration and clarify the definition of what “social welfare” activity means for nonprofits. Nelson said groups that want to focus their efforts on influencing campaigns could still register as nonprofits under a different code that carries the requirement of revealing donor sources. That way, mega-rich donors and large corporations would not be able to use nonprofits to funnel secret money toward influencing voters.

Nelson said that liberal groups such as the League of Conservation Voters should be held to the same “social welfare” standards as conservative groups.

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