The Center to Protect Patient Rights, a group led by GOP strategist Sean Noble, reported on its 2010 tax return that it spent no money on politics.
As the Center for Responsive Politics first reported, however, almost three-quarters of the group’s income — a total of more than $44 million — went to other social welfare groups that were politically active, such as the American Future Fund and the 60 Plus Association.
Brooks, the Republican Jewish Coalition’s executive director, said grants to other groups should “absolutely count” toward meeting a group’s primary social welfare purpose. “It’s not obscuring the source of the money because it’s fully reported and disclosed,” he said. “We happily support other organizations that share our goals and our work.”Jonathan Collegio, a spokesman for Crossroads GPS, said forming a network of like-minded groups was the only way to change policy. He said Crossroads GPS sent the Republican Jewish Coalition a contribution because it “had a great program of work.”
Some experts, however, compared the transactions to Russian nesting dolls, with each layer opening to reveal another, equally inscrutable one underneath. Even if a social welfare nonprofit had to reveal the donors behind an ad, it would be another nonprofit. There would be no way to trace the money to the original source.
For instance, the Independent Women’s Voice and Citizens for the Republic, two nonprofits that made disclosures to the FEC about political ads purchased in 2010, identified a new social welfare group, The Annual Fund, as a major contributor.
Efforts for More Transparency Fall Short
The new breed of political nonprofits may operate differently from traditional social welfare organizations, but some say they serve a vital purpose in an era of increasingly bitter political partisanship.
Dan Backer, a lawyer who represents several conservative nonprofits, pointed to theObama team’s decision to single out donors like the Koch brothers.
“You have the president of the United States attacking donors,” Backer said. “A lot of them have been named in person by the president as bad people. That’s horrifying.”
Openly taking controversial political positions can be bad for business. Some Democrats and gay-rights groups called for a boycott of Target in 2010 after the company donated $150,000 to a fund supporting a Republican candidate for governor in Minnesota who opposed gay marriage. Company officials swiftly apologized.
So far, efforts to impose limits on social welfare groups or demand more transparency from them have mostly failed.
Last summer, after coming under criticism, the IRS abandoned efforts to force five major donors to pay gift tax on contributions to social welfare nonprofits heavily involved in politics. This essentially gave the green light to donors worried about whether their donations could be taxed.
In July, responding to a court ruling, the FEC said social welfare groups would have to identify major donors to electioneering communications. But groups are already finding work-arounds, coming up with different types of ads or making sure the only donors they have to disclose are other nonprofits.
Watchdogs say they are frustrated that neither the IRS nor the FEC has been willing to enforce or even clarify the rules that exist to force transparency.
“I’m relatively pessimistic right now,” said Karl Sandstrom, a former FEC vice chairman who’s now with the Perkins Coie law firm. “We have agencies that are in some cases silent, in some cases divided and in some cases as slow as they can possibly be.”
The IRS appears to be shifting its attention toward whether 501(c)(4)s benefit a segment of society, not the public as a whole, another requirement for such groups. In the past 18 months, the IRS rejected the applications of at least four groups and revoked the tax-exempt status of one small Democratic nonprofit and its affiliates for this reason. In most of these cases, the agency concluded the groups were run “primarily for the benefit of a political party and a private group of individuals.”
Owens, the former head of the IRS nonprofit division who is now a lawyer at Caplin & Drysdale, said agents are probably examining other social welfare nonprofits using that framework, asking whether a group like Crossroads GPS benefits the community at large or a subset of politicians.
“Crossroads says its issue is free enterprise,” he said. “That’s their argument: They’re really not carrying water for the Republicans. They’re carrying water for free enterprise. It will be interesting to see if they make that argument stick. I think it’ll be tough.”
The IRS also has yet to make a decision on Crossroads GPS’ request for recognition of its tax-exempt status, which news reports say was filed in September 2010. Owens and others speculate that the IRS may be looking hard at the group.
Collegio, the spokesman for Crossroads GPS, said in an email that “without an IRS statement on the matter it is wholly irresponsible and unproductive to speculate.”
Most experts do not expect the campaign finance landscape to change much before November, leaving social welfare nonprofits and their anonymous backers ample opportunity to influence who wins.
“The candidates and office holders will know where this money came from,” said Paul S. Ryan, senior counsel for the Campaign Legal Center. “The political players who are soliciting these funds and are benefiting from the expenditure of these funds will know where the money came from. The only ones in the dark will be American voters.”
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