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New Tax Return Shows Karl Rove’s Group Spent Even More On Politics Than It Said

The $26.4 million grant from Rove’s dark money giant, Crossroads GPS, to Americans for Tax Reform was supposed to be spent on social welfare and education. Instead, records show, at least $11.2 million of that grant money went to politics.

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(Getty Images)

On its 2012 tax return, GOP strategist Karl Rove’s dark money behemoth Crossroads GPS justified its status as a tax-exempt social welfare group in part by citing its grants of $35 million to other similarly aligned nonprofits. (Here’s the tax return itself, which we detailed last week.)

The return, signed under penalty of perjury, specified that the grants would be used for social welfare purposes, “and not for political expenditures, consistent with the organization’s tax-exempt mission.”

But that’s not what happened.

New tax documents, made public last Tuesday, indicate that at least $11.2 million of the grant money given to the group Americans for Tax Reform was spent on political activities expressly advocating for or against candidates. This means Crossroads spent at least $85.7 million on political activities in 2012, not the $74.5 million reported to the Internal Revenue Service. That’s about 45 percent of its total expenditures.  

The transaction also provides a window into one way social welfare nonprofits work around the tax code’s dictate that their primary purpose cannot be influencing elections.  Grants sent from one nonprofit to another may be earmarked for social welfare purposes, but sometimes end up being used to slam or praise candidates running for office.

“They have a bad grantee here,” said Marcus Owens, the former head of the IRS’ Exempt Organizations division, who looked at the documents at ProPublica’s request. “My question would be, ‘What has Crossroads done to recover that money?’ That’s what the IRS would expect.”

Crossroads spokesman Jonathan Collegio did not respond to questions from ProPublica about Americans for Tax Reform’s use of the grant or whether Crossroads would ask for it to be refunded.

Instead, Collegio wondered whether Americans for Tax Reform could have used resources carried over from 2011 to fund the 2012 election spending, rather than money from Crossroads. “Were resources carried over from 2011?”  he asked in an email to ProPublica.

But after consulting with tax experts, ProPublica determined Americans for Tax Reform couldn’t have used resources from 2011 for the political spending.

“That’s called bullshit with a serving of horseshit on the side,” Owens said.

Americans for Tax Reform reported a total of $10.3 million in assets in the beginning of 2012. Of those assets, $8.2 million was only available on paper, an amount due from a related charity, the Americans for Tax Reform Foundation. The rest –$2.1 million – was a combination of equipment, leasehold improvements, cash holdings, net accounts receivable, prepaid expenses and deferred charges. None of those amounts changed significantly by the end of 2012. In other words, the only known source for the money Americans for Tax Reform spent on politics was donations from Crossroads and others.  

Collegio didn’t respond to an email from ProPublica last Wednesday outlining how some of the Crossroads’ grant had to have been spent on election activities.

John Kartch, the spokesman for Americans for Tax Reform, also didn’t respond to ProPublica questions about the use of the Crossroads grant for politics.

Social welfare nonprofits, also known as dark money groups because they don’t have to report their donors, are allowed to spend money on politics as long as their primary purpose is social welfare. The groups often count so-called issue ads that stop short of advocating for or against a candidate and grants toward that social welfare mission. Since the Supreme Court’s 2010 Citizens United decision allowed corporations and unions to spend directly on election ads, these nonprofits have turned into the vehicle of choice for anonymous spending, dumping more than $254 million into the 2012 elections.

Of the 150 or so social welfare nonprofits that reported spending to the Federal Election Commission during the 2012 election cycle, Crossroads was king, the biggest anonymous spender by far. Americans for Tax Reform came in fourth, with $15.8 million.

On its 2012 tax return, made public last week, Crossroads said it gave its biggest grant, $26.4 million, to Americans for Tax Reform for “social welfare.”

In the last part of 2012, Americans for Tax Reform told the FEC it spent repeatedly on ads and mailers, $15.8 million altogether on so-called “independent expenditures,” mostly in the month before the election, opposing Democrats and supporting Republicans running for Congress. (Independent expenditures tell people they should vote for or against a certain candidate.) Most of that money, more than $10.7 million, was for media buys, to purchase air time on TV and radio for various ads. More than $1.6 million went to designing, producing and sending mailers. Most of the rest of the money went to ad production and phone banks. (Here are some examples of those ads.)

Americans for Tax Reform told the IRS in its tax return, obtained and made public by the watchdog group Citizens for Responsibility and Ethics in Washington (CREW), that it raised and spent about $31 million in 2012. Since the group got $26.4 million from Crossroads, only $4.6 million of its revenue came from other donors. At least $11.2 million of Crossroads money had to go toward the political ads reported to the FEC.

That means Americans for Tax Reform spent about 51 percent of its money on political ads reported to the FEC in 2012.

But the group also told the IRS on its tax return, signed under penalty of perjury, that it spent only $9.8 million on direct and indirect campaign activity in 2012, defining that spending as “engaged solely in the making of independent expenditures supporting and opposing candidates for federal office.”

Last Tuesday, CREW filed a complaint with the IRS and the tax division of the Department of Justice against Americans for Tax Reform and its president, Grover Norquist, alleging they deliberately provided false information to the IRS in the tax filing.

ProPublica and others have documented how such groups often minimize their political spending to the IRS. Although the IRS has been hesitant to establish any so-called “bright lines” for campaign activity, campaign finance and tax lawyers say independent expenditures reported to the FEC definitely qualify as political spending under the tax code.

Crossroads GPS itself counted all of its independent expenditures reported to the FEC in both 2010 and 2012 as part of its political spending reported to the IRS.

“Clearly, ads that tell people who to vote for or against are campaign intervention,” said a Congressional Research Service report on IRS rules on political ads prepared for Congress in August 2012. Last summer, the IRS told social welfare nonprofits that wanted to expedite their approval that political expenditures included administrative and overhead costs, and any expenditure on printed, electronic or oral statements supporting or opposing the election or nomination of any candidate for public office.

Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance, reviewed the Americans for Tax Reform documents at the request of ProPublica and said it was possible that the group was allocating overhead or other costs differently in its tax return than in its FEC filings.

“I do not see how any reasonable allocation differences could result in such a large disparity, however,” Mayer said.

Owens, the former IRS official, said it was possible that some of the media buy money reported to the FEC was later refunded by the TV stations. But even that money wouldn’t account for such a large gap, he said. Owens speculated that Americans for Tax Reform might have determined that some of its ads wouldn’t qualify for reporting to the IRS.

 “There’s just no way that could withstand scrutiny under the laws that exist,” Owens said. “What you have is two documents from the same group, one for the FEC and one for the IRS, both submitted under penalty of perjury. At least one is incorrect.”

Still, on Tuesday, Kartch insisted the $9.8 million figure on Americans for Tax Reform’s tax form, known as a 990, was correct, while ignoring requests from ProPublica to explain how it was derived.

“The correct number to use here is the $9.8 million figure as reported on our 2012 990, not the number you cite from an FEC report,” Kartch wrote. “ATR meets or exceeds the requirements of the FEC and the IRS according to their standards.”

He also scoffed at the CREW complaint, saying, “This attack is political and CREW knows it is nonsense.”

It’s not clear how the IRS might respond to the apparent misuse of the Crossroads grant or to the fact that Americans for Tax Reform seems to have underreported its political spending.

Complaints to the IRS about the tax-exempt status of Crossroads and other political social welfare nonprofits have been made since 2010, but they are still pending. So is an earlier CREW complaint against Americans for Tax Reform for its spending in 2010. A scandal that erupted in May over the IRS targeting the applications of Tea Party and other conservative social welfare nonprofits may have also made the IRS more likely to take a hands-off approach to the groups, experts say.

“They’re going to keep their heads down,” Owens said.

Update: The Center for Responsive Politics also wrote about Americans for Tax Reform using the Crossroads GPS grant for politics on Nov. 18.

Is it really “working around” the tax code when it’s in direct violation of those codes and perjury?

More and more, I feel like journalists are buying into the idea that large organizations and the rich or powerful shouldn’t be held to the same legal standards as the rest of us.  We talk about “tax loopholes,” as if there’s some supercomputer applying permutations of details to optimize tax payment, rather than explicit carve-outs like pulling the money out of the country (and out of the economy).  Financial firms buying insurance on things they don’t own with someone else’s money is a “complex financial instrument,” rather than insurance fraud.  We talk about “working around” tax law, as if lying under oath should just be ignored.

While I appreciate the investigation, isn’t it time we started treating these situations as if…oh, what’s the phrase…“all men are created equal”?  This is what they meant, after all, not that we all have an equal chance to be great concert pianists.

Lawyers are paid to find loopholes and are ’ conservative ’ with the truth . ( They tell the picture , not the ’ whole ’ picture ) .

Can’t wait for ProPublica’s reports on union political funding as well as the support provided by George Soros

There goes the IRS suppressing conservative charities again.

@Pak152, thanks for your points. We focus on covering dark money groups, or the groups that dump hundreds of millions of anonymous money into political campaigns. Unions, while very involved in politics, spend union dues on political advertising—in other words, everyone knows where that money comes from. As to your point on George Soros, I’m not sure if you’re talking about liberal dark money groups or his super PAC support—if you’re talking about dark money groups, then we don’t know what Soros is giving, if anything, as that information is not public.

and this is supposed to be surprising? rove is as crooked as any serpent on planet earth and more so than most and as far as telling truth impossible to near disastrous for the republican party they’d throw the whole party in jail can u imagine the luxuries they would have for themsaelves

Debbie Graybosch

Nov. 25, 2013, 4:28 p.m.

Seriously…these are the same people who are mandating that the IRS review citizens who request subsidies for health insurance but have no qualms about misrepresenting MILLIONS in political ads as social welfare .....if it wasn’t so dangerous to the flow of a free democracy I might laugh, but I can’t. The Supreme Court ruling on Citizens United has guaranteed the plutocratic oath is upheld….the rich can buy elections because they own and control the media outlets and the news/ads that get aired. And they have the righteous indignation to hold hearings about the IRS review of these “shelter nonprofits”...typical.

Gerry di Pierno

Nov. 25, 2013, 4:39 p.m.

Conservative, Progressive doesn’t matter. Perjury is perjury simple as that and they should be prosecuted as the law provides otherwise the law is meaningless!

Crossroads GPS is Republican based political breeding ground run by members of GWB cronies (GW Bush included) that speak of issues the last administration failed to adopt or practice. They trash Obama’s administration but again failed to deliver their preachings during eight years of lies, mismanagement, no bid contracts to Cheney’s Halliburton and left a total disaster for the next administration to clean up. Karl Rove was the brains and puppet master behind GWB rise to power and also one of the dirtiest political promoters to ever have served the White House.

I used to think we just needed to get money out of politics (as if it’s that simple).  Now I am starting to think we need to completely overhaul the political system.  How do “we the people” get back the power to make decisions?

I doesn’t seem to matter who is in office, corporations and money are corrupting everything and everyone.  Even the Supreme Court as seen by citizens united.

This is starting to get scary, real scary.  And I don’t want my children to find out the consequences to this Corporate Communism we are incubating.

In the quest for power, anything goes.

Ethics is no longer a component of any political process.

Aaron, there’s actually a relatively straightforward solution.  If lots of we disenfranchised vote for people who don’t accept big money, that election would be the first nail in the coffin.

The problem is that people want an immediate win (which involves buy-in from the people who benefit most from the status quo) or that they’re irrationally afraid of fracturing the vote.

But here’s the thing:  When there’s an election when all the money in the world couldn’t buy, say, fifteen percent of the vote, it’ll scare the heck out of the major parties and their contributors.  Think about it in corporate terms.  If you spend a ton of money on a product and someone grabs significant marketshare for a tiny fraction of the cost, you change your operations.

I still have the same question for the “but what about Democrats” crowd, though.  There is an organization that is committing perjury and is legally allowed to launder money to manipulate elections.  Who cares who’s doing it?  Because of anonymity, the Venezuelan government, Vladimir Putin, or the Zetas can be contributing money to elect any candidate.  Are you really OK with that, just because that money might be going to your favorite candidate?

Bonus question:  Given Obama’s giveaways to banks, insurance companies, and the war machine, are you really so sure that George Soros isn’t on your side…?

My point is that all the major candidates are playing the same repulsive, anti-American game.  They issue propaganda as campaign ads.  They own and rig the debates.  They promise whatever their base wants and govern exactly the same way.  And the result is a stagnant economy and soldiers dying for no reason.  Maybe choosing one brand over another like they’re football teams is the wrong way of going about this…

It is investigative reporting such as this that makes me glad that I contributed to your organization.

Neil C Denver

Nov. 26, 2013, 4:07 p.m.

Section 1.501(c)(4)-1(a)(2)(i) of the Internal Revenue Service Income Tax Regulations states that an organization will be considered to be
operated exclusively for social welfare purposes if it is primarily engaged in
promoting in some way the common good and general welfare of the people of the community, i.e. primarily for the purpose of bringing about civic betterments and social improvements.

To me, that includes tax reform, something that Obama’s Council on Jobs and Competition and Obama’s Commission on Fiscal Responsibility and Reform recommended as their top priorities. 

Obama’s bipartisan Commission on Fiscal Responsibility and Reform wanted to eliminate tax loopholes, something that the wealthy use to avoid paying taxes.  The real question that should be raised is “why” did this calculating President totally ignore the recommendations these two highly talented bipartisan groups, particularly since he was the one who initiated their very being?

“Because of anonymity, the Venezuelan government, Vladimir Putin, or the Zetas can be contributing money to elect any candidate.” John

yes, there’s no need to go to war or hijack planes to attack the US when our laws will allow you secretly fund an agenda to convince Americans to help you divide and dismantle it instead.

clarence swinney

Nov. 29, 2013, 10:58 a.m.

NUKED THE FILIBUSTER
President Obama begged, pleaded but it was Republican filibusters of Judicial and Executive -branch nominees which created the Nuke.  The last straw was when the Republican leadership
announced, publicly, their intention to filibuster all of Obama’s nominees to the DC Circuit
court simply because they didn’t want a Democratic president able to fill any more vacancies.
Since WWII, there have been 168 Filibusters. 82 were on Obama nominees in five years.
We will be served better without 168 from both parties out of Congress.

Dina J. Padilla

Nov. 29, 2013, 3:39 p.m.

It is so incomprehensible and reprehensible for this country that regular citizens cannot even get redress in any court room but because the Supreme Court in it’s profound bias, who only allowed political non profits (this is not what non profits are supposed to do and now only continue to undermine our whole country, by sending the message to raise as much as they can to further undermine voting rights among other things in this country making the U.S. operate hypocritically, now that these non profits with the highest court of our land, has created a banana republic where money can buy you anything but a democracy for all. Karl rove and his ilk to me, are nothing but the U.S.A.‘s biggest betrayers against our country and it’s people. He is as much of a patriot as any 3rd world leader dictator.

This article is part of an ongoing investigation:
Buying Your Vote

Buying Your Vote: Dark Money and Big Data

ProPublica is following the money and exploring campaign issues in the 2012 election you won't read about elsewhere.

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