Common Cause seeks IRS review of Koch Brothers takeover attempt at Cato

Letter questions whether Cato can retain its tax-exempt status without changing its unusual structure

Amid attempts by industrialists Charles and David Koch to take control of the Cato Institute, a long-established think tank advocating libertarian ideas, Common Cause called Friday for an Internal Revenue Service investigation of Koch efforts to use Cato’s corporate structure and tax exempt status to serve their own political and economic interests.

“We may disagree on many public policy questions, but Cato has an admirable history of independent thought and advocacy,” said Bob Edgar, Common Cause’s president and CEO. “Cato should have a corporate structure that protects its independence; if it lacks such a structure and can be turned into a partisan political organization, it should not be permitted to enjoy the benefits of a tax exemption.”

In a letter to the IRS, Common Cause noted that Marcus Owens, a former top IRS official and expert on tax exemptions, has suggested that Cato’s current structure contains a “fatal flaw” that “raises questions about whether it meets the requirements for a nonprofit under federal tax law.” Because Cato’s charter apparently allows the board to agree to sell control of the organization to the highest bidder, it is “completely at odds with the requirements for [a nonprofit],” Owens contends.

The Koch brothers filed a lawsuit last week seeking to take control of Cato. Charles Koch is one of Cato’s founders and he and his brother own two of four “shareholder” seats on its board. The Kochs, who’ve reportedly organized efforts to raise $100 million or more to defeat President Obama in November, are seeking a third seat, which was vacated last year by the death of one of the other founders.

“This is an effort by the Kochs to turn the Cato Institute into some sort of auxiliary for the GOP,” Edward H. Crane, who is president of Cato, told the Washington Post this week. “What (Charles Koch) is doing now is detrimental to Cato, it’s detrimental to Koch Industries, it’s detrimental to the libertarian movement.”

“Of course the Kochs have every right to express their political ideas and support or oppose any candidates they choose,” Edgar said, “But using a tax-exempt group to pursue partisan or economic gain cheats American taxpayers and violates federal law.”

“This dispute dramatically illustrates the growing threat to our democracy caused by powerful corporations and billionaires misusing nonprofit groups to influence our elections and elected representatives, and drown out the voices of American voters,” Edgar said.