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IRS Could Deny Crossroads GPS Tax-Exempt Status

by Alex Gauthier, published

In a letter drafted by Executive Director of the Campaign Legal Center, J. Gerald Herbert, and President of Democracy 21, Fred Wertheimer, the two cited an investigation led by ProPublica, meaning the IRS could deny Crossroads GPS tax-exempt status as a 501 (c) 4 social welfare organization.

Although it has not yet been approved as such, Crossroads GPS is not required to disclose its donors. The application has been under review since 2010. The typical approval period for non-profit recognition by the IRS is between two and twelve months, making Crossroads GPS’s two year limbo somewhat peculiar.

The letter argues that spending reports from this election cycle are usable as prima facie evidence to deny Crossroads GPS's application for non-profit status (prima facie evidence is typically strong evidence cited to incite a ruling or open a case):

“According to the Center for Responsive Politics (CRP), Crossroads GPS spent $70 million on independent expenditures to elect Republican candidates or defeat Democratic candidates in the 2012 elections. This is an extraordinary amount of money to be spent on influencing elections by a group which claims it is a “social welfare” organization... In any event, we submit that the $70 million spent by Crossroads GPS just on campaign ads reported to the FEC in 2012 is prima facie evidence that the organization does have a “primary purpose” to engage in campaign activities.”

If a majority of the group’s expenditures and thus its primary purpose is found to be campaign related, it is likely the Super PAC affiliate will be denied tax-categorization as a ‘social welfare’ organization. As such, Crossroads GPS would be required to disclose all of its donors.

In its application to the IRS, Crossroads GPS claimed it would dedicate only 30 percent of its activity to influencing legislation and policy making, whereas 50 percent would be dedicated to public communication regarding issues specifically -- classified as public education -- and 20 percent would be for research.

‘Issue’ ads, like the one above, cannot expressly advocate for a specific candidate or party in order to be considered public education.

Crossroads GPS has also released ads that don’t meet the ‘issues only’ qualifications, such as their ad titled, "Mitt and David." Whether or not the amalgam of Crossroads’ campaign spending conflicts with their stated purpose is only reviewable by the IRS; at least until tax returns for 2012 are disclosed in November.

When ProPublica published their investigation last month, Crossroads GPS spokesman, Jonathan Collegio, charged that the information had been obtained illegally. Consequently, the IRS warned of a $5,000 fine and prison time for publishing unauthorized materials.

Even if the IRS finds Crossroads GPS to be in agreement with the current tax code and approves their application, the questions raised by the Campaign Legal Center and Democracy 21 highlight the murky legal water politically active non-profits operate in.

Should litigation materialize on either side, the case for clarity in a post-Citizens United world is growing.


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