IRS Ruling on Crossroads GPS Tax Exemption Reflects Wildly Out of Balance Political System

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  • Scott Swenson, Dale Eisman
Statement by Stephen Spaulding, Common Cause Legal Director and Senior Policy Counsel

By Karl Rove’s admission, Crossroads GPS works to elect people to office. The IRS’s decision to give this overtly political operation “social welfare” nonprofit status allows it to keep major campaign spenders anonymous, hiding information that voters need as they evaluate political candidates and their messages.

This decision will only add to the public’s frustration with a political system that is wildly out of balance and titled to serve the interests of wealthy donors. The IRS and Treasury Departments should write bright line rules to clarify what constitutes political activity under the tax laws and clearly state that social welfare groups aren’t supposed to be hiding donors to elect or defeat candidates. The omnibus spending bill that Congress passed last year included a rider to block meaningful action on these rules for this fiscal year. This policy rider – along with all ideological policy riders in spending bills – and should be removed.


Background: In July, Spaulding testified that: 

But there is no example of this phenomenon more flagrant than Crossroads GPS, a purported 501(c)(4) social welfare organization founded in 2010 by Karl Rove, which has spent significant amounts of money influencing campaigns. It is the sister organization of American Crossroads, a Super PAC registered with the Federal Election Commission. As such, American Crossroads discloses its donors. Crossroads GPS, however, does not.

During the 2010 election, Crossroads GPS spent approximately $20.8 million on federal campaign activities, more than half of what it spent in total that cycle. This led the Federal Election Commission General Counsel to conclude that Crossroads GPS’ major purpose in 2010 was federal campaign activity, even though a gridlocked FEC ultimately split 3-3 on whether to pursue an enforcement action.

Crossroads GPS then spent at least $71 million on political expenditures in the 2012 elections, making it the top secret money spender during that cycle. Aside from the presidential race, a significant amount of Crossroads GPS’ election-related spending – over $30 million –  targeted Senate candidates in some of the 2012 presidential battleground states, including Virginia, Nevada, Ohio, Wisconsin, and Indiana.

Who funded all of its attack ads? Only Crossroads GPS officials, the IRS, the funders themselves, and perhaps the politicians who benefitted from the spending can answer that. In its 2012 Form 990, filed with the IRS, Crossroads GPS reported one single anonymous donation of $22.5 million; another for $18 million; another for $10 million; and many other seven-figure contributions. Americans deserve to know who was making investments of this magnitude in political races and their eventual outcome.

Mr. Rove himself boasted about how much Crossroads GPS spent boosting President Obama’s opponent, Gov. Mitt Romney. In an op-ed published in the Wall Street Journal during the 2012 campaign, Mr. Rove said that the Romney campaign had spent less than outside groups, “with $107.4 million more in ads attacking Mr. Obama’s policies or boosting Mr. Romney coming from outside groups (with Crossroads GPS, a group I helped found, providing over half).”

Its founders created Crossroads GPS to serve as the secret money corollary to American Crossroads. In post-election remarks at the Annenberg Public Policy Center in 2010, the political director of American Crossroads – Crossroads GPS’ sister Super PAC organization – put it bluntly. “[D]isclosure was very important for us, which is why the 527 [American Crossroads] was created. But some donors didn’t want to be disclosed, and therefore, a (c)(4) [Crossroads GPS] was created. … Whether they [donors] would have – whether they would have given ultimately or not, I don’t know. I know they [donors] were more comfortable giving to a (c)(4). And so we created one.”

Still, the IRS has done little to hold Crossroads GPS accountable, despite reams of evidence that its overriding purpose appears to be to provide anonymity to donors eager to spend unlimited amounts of money supporting and attacking candidates for public office.