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Defying the Odds

Defying the Odds
New book about the 2016 election.

Wednesday, April 17, 2013

IRS, FEC, and 501(c)(4)

In its first year, Crossroads GPS -- a sister group to the super PAC American Crossroads -- reported to the FEC that it spent $16.7 million on ads directly and indirectly advocating for or against candidates. (Even 501(c)(4) groups, while not required to reveal much to the FEC, must disclose when they run certain kinds of ads and how much they spend on them -- and they must do so promptly.) It later told the IRS, in its first tax form 990 filed with the agency, that it spent $15.9 million on politics. Both figures understate the reality of what GPS spent in the political arena by millions. In either case, they are well under half of GPS' reported overall spending of $42.3 million (including salaries, overhead and so on) that year.
Likewise, other members of the Crossroads-CPPR network were careful to abide by the 49 percent rule, at least in a technical sense. The 60 Plus Association reported to the FEC that it spent $7.1 million in 2010; that's just under half of its total IRS-reported expenditures of $15.5 million. Former New York Gov. George Pataki's Revere America filed expenditure reports with the FEC that came to $2.3 million, safely below half of the $6.3 million it spent that year.

Crossroads GPS' 2010 spending may well have helped the GOP take control of the House. And the group came out with guns blazing in 2012. In that election cycle, it told the FEC it spent more than $71 million -- almost as much as the entire GPS-CPPR network had spent, combined, in 2010. Crossroads likely won't send the IRS its form 990 for 2012, in which it will reveal its total expenditures last year, until autumn of 2013 (stay tuned for Step 4 of our series for more on the lag time), but logic dictates the group will need to show a $130 million increase over its 2010 overall expenditures in order to stay under the 49.9 percent threshold for political spending in 2012 -- by any measure, a staggering increase.

Crossroads GPS is one kind of shadow money group. But other kinds of politically active groups operate under the 501(c)(4) designation. They're little more than glorified mailboxes.

Foremost among them is the Center to Protect Patient Rights, which OpenSecrets Blog first uncovered last year. From 2009, when it was founded, until the end of 2011, CPPR raised $101 million. More than $70 million of that went out the door to other shadow money groups. CPPR has no activities of its own: It doesn't run ads for or against candidates; it doesn't conduct research; it doesn't spearhead public education campaigns. It appears to be little more than a conduit funneling money to other shadow money groups that spend the money. During the 2010 cycle, CPPR made $47.9 million in grants to groups that told the FEC they spent $37.2 million on political ads.
One might expect that whatever qualifies as reportable spending for the FEC would also count as political spending for the IRS. As it turns out, though, “politics” is in the eye of the beholder. The FEC defines it one way, the IRS another -- and that difference can work in a group’s favor.

Take American Action Network, a 501(c)(4) run by former Republican Sen. Norm Coleman, started the month after Citizens United was decided. AAN told the FEC it spent nearly $20 million on political ads in 2010 -- yet reported to the IRS that it had spent only about $5 million on politics. Since the group that year reported spending a total of $25 million in all, the larger amount most likely would have caused the organization to fail the “primary purpose” test that’s meant to keep a 501(c)(4)’s political spending to less than half of its overall expenditures.
Luckily for AAN (though lawyers probably had more to do with it than luck), most of the spending it reported to the FEC was for “issue ads” -- ads that don’t tell viewers to vote for or against anyone, but often close with a line that goes something like, “Call Bruce Voight and tell him to stop torturing chipmunks.” Groups must report what they spend on issue ads to the FEC only when the ads run close to an election, which AAN’s did -- thus the high number.
But in its 2010 form 990 for the IRS -- not sent to the agency until May 2012 -- much of the money AAN spent on ads had undergone a makeover. Now, the funds had been used for grassroots “lobbying.” The form hints how the group redefined some of its activities. The first version of the document revealed that it made a $500,000 grant to Crossroads GPS’s sister group, super PAC American Crossroads. AAN later amended the report to delete the grant, saying it had been “inadvertently reported.” In the same amended report, the groupincreased the amount it reported for “lobbying” by $500,000. Later, it came out that the grant was actually a payment to Crossroads Media, the political admaker that counts both American Crossroads and Crossroads GPS as clients and was cofounded by formerAmericans for Job Security President Michael Dubke.