IRS: Watchdog Groups Again Call on IRS to Deny Crossroads GPS Tax-Exempt Status as 501(c)(4) Group

CLC Staff
May 6, 2014
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In a letter sent today to the Internal Revenue Service the Campaign Legal Center joined Democracy 21 to again urge the IRS to deny the application filed by Crossroads GPS for tax exempt status as a section 501(c)(4) “social welfare” organization.

According to the letter from the watchdog groups:

Crossroads GPS submitted an application for tax exemption under section 501(c)(4) of the Internal Revenue Code (IRC) in September 2010. To the best of our knowledge, Crossroads GPS has been operating as a “social welfare” organization for more than three and a half years without being granted section 501(c)(4) tax-status by the IRS.

We believe the record is clear, as we have stated in numerous letters to the IRS, that Crossroads GPS, which was founded by Republican operative Karl Rove, is a campaign operation formed to hide the donors who are financing the campaign expenditures the group makes.

Today, J. Gerald Hebert, Campaign Legal Center Executive Director commented on this latest letter to the IRS:

The FEC's General Counsel has reviewed the activities of Crossroads GPS and issued a report that there “is reason to believe that Crossroads GPS had as its major purpose the nomination or election of federal candidates.” Though the FEC deadlocked 3 to 3 and thus failed to approve the General Counsel's recommendation, the General Counsel's report confirms our position that Crossroads GPS is a political group, not a ‘social welfare’ organization. It is absurd that the IRS has failed to act in this matter. Its failure to act hurts the American taxpayers and tears at the fabric of our democracy. The agency should fulfill its statutory responsibility and deny section 501(c)(4) tax exempt status to Crossroads GPS.

The letter from the watchdog groups forwarded to the IRS a report issued by the General Counsel of the Federal Election Commission that, according to the groups, “concluded, consistent with what we have argued in our letters to the IRS, that Crossroads GPS has a major purpose to influence federal elections.”

The letter noted:

The General Counsel’s report was prepared following review of a complaint filed with the FEC alleging that Crossroads GPS had violated the campaign finance laws by failing to register and report as a “political committee” under the Federal Election Campaign Act, as well as review of information submitted by Crossroads GPS to the FEC in response to the complaint, and reports of political spending filed by Crossroads GPS with the FEC.

According to the letter, the General Counsel examined the campaign-related spending by Crossroads GPS in the 2010 election and concluded:

In short, taking into account all of its spending in 2010, Crossroads GPS appears to have spent approximately $20.8 million on the type of communications that the Commission considers to be federal campaign activity—approximately $15.4 million on express advocacy communications and $5.4 million on non-express advocacy communications that criticize or oppose a clearly identified federal candidate. This total of $20.8 million represents approximately 53 percent of the $39.1 million Crossroads GPS reported spending during 2010. Therefore, Crossroads GPS’s spending by itself shows that the group’s major purpose during 2010 was federal campaign activity (i.e., the nomination or election of a federal candidate.)

Report at 26-27 (emphasis added).

The letter from the watchdog groups noted that the FEC “by a divided 3-3 vote on December 3, 2013, did not adopt the General Counsel’s recommendation to find reason to believe Crossroads GPS had violated the law. Under FEC precedents, a tie vote means the FEC itself takes no formal position, one way or the other, on the report.”

The letter continued:

Notwithstanding the FEC’s tie vote on the issue of whether to pursue an enforcement action, the IRS should take cognizance of the factual analysis of the FEC’s General Counsel, and of his conclusion that Crossroads GPS has a major purpose to engage in campaign activity. The General Counsel’s conclusion is amply supported by the analysis set forth in his report, and confirms the position we have taken, and the documentation we have provided, in our previous letters to the IRS about Crossroads GPS.

The letter from the watchdog groups stated:

Beginning in October 2010, Democracy 21 and the Campaign Legal Center have written to the IRS on ten occasions, urging the IRS to deny tax exemption under section 501(c)(4) to Crossroads GPS because the organization is primarily engaged in campaign activities. As such, it is not a “social welfare” organization and does not qualify for tax exemption under section 501(c)(4). We urge the IRS to take expeditious action to deny the application filed by the organization.

Our letters to the IRS on this subject are dated October 5, 2010December 14, 2011September 28, 2011September 27, 2012July 23, 2012May 24, 2012April 17, 2012March 22, 2012March 9, 2012, and January 2, 2013. In those letters, we thoroughly document the extent of the campaign activity that Crossroads GPS has engaged in and presented the legal case as to why Crossroads GPS fails to qualify as a “social welfare” organization.

Our prior letters also raised similar complaints about Priorities USA, a pro-Obama group, Americans Elect, a group that supported independents, and American Action Network, a group supporting Republicans. We continue to urge the IRS to take enforcement actions against these organizations as well by denying their section 501(c)(4) tax-status.

The letter concluded:

The IRS has permitted Crossroads GPS to operate through two elections, and now well into a third election, as a campaign operation masquerading as a “social welfare” organization. Since Crossroads GPS is one of the major “dark money” operations in the country, the failure by the IRS to act has denied the public basic campaign finance information that they have a right to know.

The IRS should deny section 501(c)(4) exempt status to Crossroads GPS, which is being used to funnel huge amounts of secret money into federal elections, and end its phony claim of being a “social welfare” organization.

To read the full letter, click here.

To read the FEC General Counsel’s recommendation (November 21, 2012), click here.