IRS Denies Non-Profit Status To Three Political Groups

By Dan Froomkin

Huffington Post 
First Posted: 7/19/11 09:46 AM ET Updated: 7/19/11 11:02 AM ET

WASHINGTON -- The IRS has denied non-profit status to three unnamed political organizations, setting off speculation about their identities -- and about whether other groups could be next.

The IRS rulings, first reported by the Election Law Blog, deny 501(c)(4) nonprofit status to three undisclosed organizations on the grounds that their activities are "conducted primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole."

The move has the potential to slow the rise of overtly political organizations that claim non-profit status as "social welfare groups." Due to a controversial loophole in federal campaign finance rules, the names of donors to those organizations do not have to be disclosed publicly.

The three rulings (here, here and here) are redacted to remove identifying information, but the three groups were apparently involved in training members of a specific political party.

"[Y]our purpose in conducting this activity is to provide education solely to individuals affiliated with a certain political party who want to enter politics," reads one IRS letter. "Indeed, you measure your success in terms of the number of your graduates who have won elective office representing the [redacted] or are actively engaged as campaign managers and advocates for [redacted] campaigns."

The groups were formed separately -- on Aug. 7, 2006, Aug. 16, 2006, and Dec. 21, 2007 -- but otherwise appear very similar. Each required detailed applications, charged application fees and tuition and provided scholarships for their training programs. In the ruling, the IRS pointed out that one group's training date coincided with the unnamed political party's state convention.

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This kind of nonprofit designation is typically not much more than a formality, but IRS guidelines for 501(c)(4) status state that social welfare groups "must operate primarily to further the common good and general welfare of the people of the community" -- which "does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office."

Beginning with the 2010 election cycle, after the Supreme Court's Citizens United decision cleared the way for unlimited corporate donations to political organizations, some operatives saw the potential for using 501(c)(4)s status as a way not only to accept unlimited money, but to do so secretly.

Campaign finance reformer advocates -- and members of Congress -- have asked the IRS to deny or revoke non-profit status for such groups.

This past fall, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Sen.Dick Durbin (D-Ill.) sent letters to the IRS requesting investigations of some 501(c)(4) groups.

Experts consulted by The Huffington Post have said that a group denied its 501(c)(4) status would suddenly owe the government a lot of money, either in taxes on donations received or in the form of a hefty fine for violating disclosure rules.

The Karl Rove-affiliated group Crossroads Grassroots Political Strategies, for example, used its nonprofit status to raise $43 million from undisclosed donors in 2010, and that money made the group a hugely influential player in the midterm elections. Were its 501(c)(4) status revoked, Crossroads would be subject to those tax liabilities and potential fines for nondisclosure.

The recent letters from the IRS, which were sent out April 4 but only released to the public on Friday, instruct the three groups to file their federal income tax returns or a request for an extension within 30 days.

Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to his RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.