Secret Donor Gave Anti-Obama Group $10 Million, Watchdogs Demand IRS Crackdown

The name Crossroads Grassroots Political Strategies is misleading: much of the Karl Rove-affiliated group’s funding comes from megarich donors, not a grassroots political movement, and campaign finance reformers say the group is deliberately using its nonprofit status to hide the names of its donors from the public as the election season heats up.

Two watchdog groups asked the Internal Revenue Service (IRS) this week to investigate Crossroads GPS and other groups on both sides of the political spectrum after Crossroads GPS tax filings revealed the organization has received dozens of multimillion-dollar checks from unknown donors to pay for ads attacking President Obama and Democratic policies.

Since June 2010 and the end of 2011, Crossroads GPS has received 22 donations ranging from $1 to $5 million and two single donations of $10 million, according to tax filings.

One of the $10 million donations, given by an unknown donor last year, made up the largest chunk of the group’s 2011 income of $28.4 million.

The lines for names and addresses of donors in the group’s tax filings were simply left blank. Crossroads GPS is not required to report them due to its nonprofit status. The group has raised nearly $77 million since its inception in 2010.

Unlike its sister group, the super PAC American Crossroads, Crossroads GPS claims 501(c)(4) nonprofit status. The IRS considers such groups to be social welfare organizations that cannot make political activity their primary purpose. Such groups can, however, run what are referred to as “issue ads,” such as a recent television ad attacking Obama’s energy policies. Crossroads GPS spent $1.7 million to run the ad in six states. Crossroads GPS has also funneled millions of dollars to conservative organizations, and along with American Crossroads, the groups have pledged to spend $300 million to defeat President Obama.

Crossroads GPS and similar groups exploit a legal loophole with issue ads. The groups cannot legally advocate for the election or defeat of a candidate, so issue ads simply attack a candidate’s views or policies. The Crossroads GPS ad criticizing Obama’s energy policy, for example, asks viewers to, “tell Obama to … work to pass better energy policies,” but does mention voting against him.

In a letter to the IRS, Democracy 21 and the Campaign Legal Center wrote that Crossroads GPS is, “engaging in substantial spending to influence elections” and is therefore not eligible for its tax-exempt 501(c)(4) status.

“It is essential that the IRS act to stop the farce that Crossroads GPS is a ‘social welfare’ organization,” said Democracy 21 President Fred Wertheimer. “Karl Rove and Crossroads GPS are thumbing their nose at the American people. They are injecting secret, million dollar and multi-million dollar contributions into federal elections in direct conflict with the basic right of citizens to know the donors financing campaign expenditures to influence their votes.”

Crossroads GPS’s application for its status as a nonprofit social welfare organization is still pending with the IRS, and if it is found in violations of the tax rules, the group could face fines, according to the Campaign Legal Center.

The Campaign Legal Center and Democracy 21 also asked the IRS to crack down on the pro-Obama group Priorities USA, the pro-GOP group American Action Network and Americans Elect, a group that has gained ballot access in states across the country to run candidates for president. All of these groups enjoy tax-exempt, 501(c)(4) status.

A spokesperson for Crossroads GPS deferred questions to the spokesperson for rival group Priorities USA, which supports President Obama’s re-election but also files as a tax-exempt social welfare organization.

Super PACs and their 501(c)(4) counterparts came into existence as political operatives for both parties sought to exploit the Supreme Court’s now infamous 2010 Citizens United vs. Federal Election Commission (FEC) ruling, which allowed corporations and outside organizations to spend unlimited amounts of money supporting or opposing political candidates.