IRS asked to investigate tax status of group with ties to political strategist Karl Rove

IRS asked to examine big-spending GOP-allied group

WASHINGTON — Two organizations that advocate for tougher campaign finance rules are asking the Internal Revenue Service to investigate the tax-exempt status of a Republican-allied group that has been airing millions of dollars in political advertising.

The group, Crossroads Grassroots Policy Strategies, is incorporated as a nonprofit, tax-exempt organization under IRS rules that permit it to conceal the identity of its donors. It and a related group have spent nearly $14 million on ads attacking Democratic or supporting Republican Senate candidates in eight states.

The Campaign Legal Center and Democracy 21 filed a complaint with the IRS Tuesday, asking the agency to determine whether Crossroads GPS is violating tax laws by voicing criticism of candidates for office.

“If we are correct, then tax laws are being abused to hide donors,” Democracy 21 President Fred Wertheimer said in an interview.

The complaint comes on the same day that Crossroads GPS and its affiliate, American Crossroads, announced a new wave of more than $4 million in spending for advertising in key Senate races. The biggest spending is by Crossroads GPS.

Crossroads GPS was created at the direction of top Republican strategists Karl Rove and Ed Gillespie and together with an affiliated group, American Crossroads, has raised $32 million this year. American Crossroads, created as a political organization under a separate section of the tax code, has to disclose its donors. But Crossroads GPS does not. Together they have run ads targeting Democrats or supporting Republicans in Senate contests in Florida, Illinois, Kentucky, Missouri, Pennsylvania, Washington state, Colorado and Nevada.

American Crossroads, organized as a political organization, discloses its donors and is not part of the complaint filed with the IRS.

“This is a baseless complaint, filed by a partisan group that files baseless complaints for its living. Liberal groups spent more than $400 million in undisclosed campaign money in 2008 alone, with nary a peep of protest from any of these groups,” said Crossroads spokesman Jonathan Collegio.

Wertheimer notes that after the 2004 campaign, Democracy 21 and the Campaign Legal Center called for the investigations of two pro-Democratic groups, America Coming Together and the Media Fund. The FEC reached an agreement with the groups that found they had spent more than $150 million in violation of FEC rules.

The IRS has also come under increasing pressure from Democrats to act against conservative or GOP-allied groups, placing the tax agency in an awkward position of being dragged into a political fight.

Last week, the chairman of the Senate Finance Committee, Democrat Max Baucus of Montana, called on the IRS to investigate all tax-exempt groups involved in political activity. In recent weeks, President Barack Obama and top White House aides have also denounced the rise of conservative nonprofit groups that have been airing ads against Democrats in House and Senate battlegrounds.

In August, the Democratic Congressional Campaign Committee asked the IRS look into Americans for Prosperity Foundation, founded by billionaire conservative David Koch.

“It’s obvious they have had a planned attack from the highest levels of the White House,” said Cleta Mitchell, a campaign finance lawyer who has represented a number of conservative groups. “You have Democrats in office seeking to use the IRS to punish their political enemies.”

Every election cycle uncovers a new trend or loophole that is exploited by either party in hopes of gaining an electoral advantage. This year has seen a rise in conservative and Republican-oriented outside groups that have formed as “nonprofit social action organizations” under a section of the tax code. The tax code gives such organizations the right to conduct political activity as long as it is not the primary mission of the group. According to the IRS, what constitutes political activity is determined by the “facts and circumstances” of each case.

Democracy 21 and the Campaign Legal Center have long called for tougher rules on campaign money and have filed complaints against groups allied with both parties. The Campaign Legal Center’s president and general counsel is Trevor Potter, the top lawyer for Republican Sen. John McCain’s presidential campaign.

In his letter to the IRS demanding an inquiry of tax-exempt groups, Baucus asked: “Is the tax code being used to eliminate transparency in the funding of our elections — elections that are the constitutional bedrock of our democracy?”