-By Dan Froomkin
July 27, 2011- WASHINGTON — The Internal Revenue Service should crack down on organizations that are soliciting anonymous tax-free donations for blatantly political purposes, two good-government groups demanded Wednesday.
Political organizations like Karl Rove-affiliated Crossroads Grassroots Political Strategies (GPS) have embraced 501(c)(4) tax status as a way to secretly funnel unlimited contributions from big donors into colossal political-advertising buys — unleashing a flood of secret campaign money the likes of which haven't been seen since Watergate.
Unlike section 527 of the tax code, which was explicitly created for political advocacy groups, section 501(c)(4) doesn't require groups to disclose their donors. But that designation was intended for what are known as "social welfare" groups.
In a petition for a rulemaking filed with the IRS Wednesday morning, Democracy 21 and the Campaign Legal Center ask the IRS to revise its regulations regarding eligibility for 501(c)(4) status on the grounds that current IRS enforcement allows far more political activity by a social welfare groups than the actual law intended.
Furthermore, they say, many of the overtly political groups currently claiming 501(c)(4) status don't come remotely close to meeting even the existing standards — Crossroads GPS being a prime example.
"If you look at the facts and circumstances here, you can't reach any conclusion other than that the overriding purpose of this organization is to influence elections," said Fred Wertheimer, president of Democracy 21 and dean of D.C.'s campaign reform community.
"They're in the business of electing Republicans and defeating Democrats," he added.
American Crossroads GPS has not yet been granted its 501(c)(4) status by the IRS, but it was one of several mostly conservative, often interrelated organizations that started reaping unlimited clandestine funds after the Supreme Court's decision in Citizens United vs. Federal Election Commission blew away caps on campaign donations established post-Watergate.
The group was so successful that it inspired copycats on the other side of the political spectrum, most notably Priorities USA, a Democratic group launched in the spring by former aides of President Barack Obama.
"Groups like Crossroads and Priorities, in our mind, are violating the existing regulations," Wertheimer told HuffPost.
IRS guidelines say social welfare groups "must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements)." That explicitly "does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office," although a group "may engage in some political activities, so long as that is not its primary activity." Another IRS advisory states that 501(c)(4) groups "may engage in only limited political campaign activity."
The petition requests the commission to issue clear new regulations establishing precisely what type and level of campaign activity is allowable. And it cites language in the statute and in court rulings indicating that only groups operating "exclusively" as social welfare organizations qualify for the exemption.
"That means you can't do more than an insubstantial amount of campaign activity and retain your 501(c)(4) tax status," Wertheimer said.
The petition states: "In order to provide a clear definition of what constitutes an insubstantial amount of campaign activity, the IRS regulations should include a bright-line standard that specifies a cap on the amount that a section 501(c)(4) organization can spend on campaign activities."