Did Karl Rove Lie To The IRS To Gain Tax-Exempt Status For Crossroads GPS?

Did Rove knowingly “misstate” how Crossroads would spend their millions?; courtesy of @  Mother Jones

Did Rove knowingly “misstate” how Crossroads would spend their millions?; courtesy of @ Mother Jones

We know Karl Rove is reeling from his recent – and very expensive – losses after the election in November. It’s got to be brutal realizing not even $70 million can buy an election these days (what’s the economy coming to??). Add on top of that being kicked off Fox News and it seems his “2012 has been a very bad year.” And just as he’s days from a (not-so) clean getaway, 2012 seems ready to add to his list of miseries just before the calendar page flips…the IRS might just be paying him a call.

Rove’s Crossroads GPS group, the dark money organization that deep-pocketed the failed effort to deny Barack Obama a second term, utilized the Supreme Court’s Citizen’s United ruling to brand itself as a “politically active social welfare nonprofit,” thereby declaring itself eligible for tax-exempt status. However, when a group makes that declaration, there are stringent and very specific requirements, one of which is that their primary function must be towards “enhancing social welfare.” And while the group did make the point that they’d be spending “some” money to influence elections…

“…any such activity will be limited in amount, and will not constitute the organization’s primary purpose.” (Source)

Really? Does that sound like any Karl Rove group you know?

It didn’t to ProPublica either. An organization described as “an independent, non-profit newsroom that produces investigative journalism in the public interest,” ProPublica decided to investigate the Crossroads application. After submitting a public-records request with the IRS, they obtained the tax exemption application from Crossroads GPS filed in September of 2010, and posted it on their site (after redacting all financial information from the application form).

The filing offers an illuminating view into how Rove’s group attempted to position themselves to suit the tax-exempt criteria:

Crossroads’ breakdown of planned activities said it would focus half its efforts on “public education,” 30 percent on “activity to influence legislation and policymaking” and 20 percent on “research,” including sponsoring “in-depth policy research on significant issues.”

This seems at odds with much of what the group has done since filing the application, experts said. Within two months of filing its application, Crossroads spent about $15.5 million on ads telling people to vote against Democrats or for Republicans in the 2010 midterm elections.

“That statement of proposed activities does not seem to align with what they actually did, which was to raise and spend hundreds of millions to influence candidate elections,” said Paul S. Ryan, senior counsel for the Campaign Legal Center, who reviewed the group’s application at ProPublica’s request.

When ProPublica contacted Crossroads GPS for a comment on the significant disparity between what their application stated as their purpose versus what their purpose really was, no specific answers were forthcoming. In fact, the group’s spokesperson seemed more concerned about how ProPublica got the filed application than what the application had to say:

A query to the IRS about the status of Crossroad’s tax exempt application was answered with an email that indicated there was no record of approval at this time, supporting the notion that the process had not been completed. However, the IRS spokesperson also seemed surprised that ProPublica even had the pending application:

“It has come to our attention that you are in receipt of application materials of organizations that have not been recognized by the IRS as tax-exempt,” wrote the spokeswoman, Michelle Eldridge. She cited a law saying that publishing unauthorized returns or return information was a felony punishable by a fine of up to $5,000 and imprisonment of up to five years, or both. The IRS would not comment further on the Crossroads application. (Source)

Having received the application from the IRS, it would seem the old adage, “the head doesn’t know what the tail is doing” is at play here. ProPublica’s general manager responded to the IRS warning:

“ProPublica believes that the information we are publishing is not barred by the statute cited by the IRS, and it is clear to us that there is a strong First Amendment interest in its publication,” said Richard Tofel, ProPublica’s general manager.

There can be debate about who should or should not qualify for tax-exempt status, who can or should reveal donor names, or just what nonprofit groups are obligated to do with their money but, regardless of the fine print, the big print reality in this situation is clear: A well-funded political lobby group cloaked themselves in the mantle of “nonprofit, tax-exempt” to avoid paying taxes and to remove an obligation to reveal the names of their donors. And if the way they spend their money is knowingly at odds with what they stated, quite simply, they have lied on that application.

It’s impossible to know precisely how Crossroads has directed its efforts, but the breakdown of expenses on its tax returns from June 2010 to December 2011 gives some indications.

During those 19 months, Crossroads spent a total of $64.7 million, of which $1.4 million — or just 2 percent — was identified as being spent on research. That compares with the 20 percent of effort Crossroads said it would devote to research in its application. (Source)

Red flags can be raised to the IRS on matters such as these but records show the beleaguered agency rarely pursues criminal charges against nonprofits for misleading statements on their applications; instead, they tend to “deny recognition or revoke a group’s tax-exempt status.”

Given that the Crossroads application is still pending after two years, it would seem at least some consideration is being paid to the matter. Clearly the agency does not want to be seen as dismissive of blatant non-compliance; in fact, a “Work Plan letter” from the Exempt Organizations department of the IRS, posted earlier for the 2012 fiscal year, made the point – notably in a section titled, “Compliance…Political Activity”:

In FY 2012, EO (Exempt Organizations) will combine what it has learned from past projects on political activities with new information gleaned from the redesigned [form] to focus its examination resources on serious allegations of impermissible political intervention.” [Emphasis added.]

Bottom line: it appears Karl Rove and Crossroads GPS knowingly “misstated” their purpose as a “tax-exempt” organization. At the very least, the way they spent their money is at extreme odds with the way they said they’d spend their money. When the little guy on Main Street can get audited, fined – even jailed – for lying, cheating or stealing from the IRS, it seems only fair that Karl and his cronies should get the same consideration.

We’ll be waiting to hear that their tax-exempt status was denied…or that they’ve received the “dreaded letter” from the auditing department of the IRS. Seems either – or both – ought to be coming soon.

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