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‘Social welfare’ funders sidestep rules of super PACs

- The Washington Times - Monday, August 20, 2012

Super PACs are so 2011.

The political groups that injected millions of dollars into political races over the past two years may already be giving way to the rise of a new class of politically oriented nonprofits, organizations that have most of the same powers as super PACs, and one major advantage: They don't have to meet the same strict requirements for disclosing where their money comes from.

Organized under the tax code, these so-called "social welfare" groups are able to keep their finances secret because of their ostensibly nonpolitical purposes. But the flurry of political ads that the groups are running raises the question about how much is too much — and whether anything will be done about it if these groups overstep their boundaries.

As nonprofits, they are supposed to be policed by the Internal Revenue Service, which now finds itself in a tug of war. Advocates of campaign finance reform say the agency has been comatose as political spending has skyrocketed, but Republican senators have warned the IRS that it would be political persecution to target some of the nonprofits for investigation.

"The IRS staying outside the political realm is critical for public confidence in your agency," Sen. Orrin G. Hatch of Utah and nearly a dozen other Republican senators said in a warning letter to the agency this month.

That the money is shifting is clear.

In January, super PACs reported spending $51 million on overt political advocacy, while the nonprofits that critics are calling "dark money" groups spent just $68,000. But so far this month, the new group of social welfare nonprofits have spent $18 million, or more than 50 percent of the $31 million that super PACs have spent.

Political action committees are governed by the Federal Election Commission, whereas the nonprofits, which are organized under Section 501(c) of the tax code, need to notify the FEC of advertising expenditures only when their ads directly call for the election or defeat of a candidate — a criterion that many highly political ads manage to skirt by speaking about hot-button political issues without dwelling on candidates' names.

Seeking to maximize their options, many political groups created both super PACs and nonprofit "social welfare" organizations.

Most of the nonprofits were established specifically to be active in the 2012 election, but some, including one formed by the U.S. Chamber of Commerce, are longtime nonprofits that suddenly have become highly politically active, using powers bestowed on them by the 2010 Supreme Court decision in the Citizens United case. The national business lobby has spent $7.9 million in the past two months, mostly opposing Democratic Senate candidates such as incumbent Bill Nelson in Florida and Tim Kaine in Virginia.

Money shift

The shift in money is evident in a Republican group led by operatives including former George W. Bush senior strategist Karl Rove, a group that includes both a super PAC, American Crossroads, and a social-welfare nonprofit, Crossroads GPS. Despite being the supposedly less political arm, the nonprofit has bought far more political television ads than its super PAC cousin in recent weeks, according to a review by The Washington Times of broadcasting records.

Americans for Prosperity, a social-welfare nonprofit backed by the conservative billionaire industrialist Koch brothers that does not even have an affiliated super PAC, has made more presidential-themed ad buys in recent weeks than any outside group that does acknowledge being primarily political, The Times survey found. It has spent $14 million so far this month on ads that feature President Obama saying he could be a "one-term" president.

"What you're finding now is super PACs, while you hear a lot about them, are not going to be the vehicles of choice. More money flowed through 501(c)s than through super PACs, because super PAC donors are disclosed," Rep. Chris Van Hollen, a Maryland Democrat who has closely tracked campaign finance, said in June, referring to the section of the tax code by which the groups are known.

Going negative

Nearly all advertising by new class of funding groups is negative, records show, and has heavily favored Republicans, with $14.5 million spent opposing Mr. Obama and $3.5 million opposing presumed Republican presidential nominee Mitt Romney, plus about $500,000 on pro-Obama ads.

The question is when a nonprofit has crossed the line on advocacy and political activism.

"The statute says a social-welfare group must be engaged exclusively in social-welfare issues. Courts have since said a group shouldn't lose its tax status so long as its otherwise impermissible activity is only 'insubstantial.' Then the IRS published a guidance saying candidate-specific activity is fine as long as it's not its 'primary purpose,'" said Paul S. Ryan, a lawyer at the Campaign Legal Center (CLC).

"There's a big difference between insubstantial and primary activity," he said.

After the CLC inquired, the IRS sent a letter last month saying it would "consider proposed changes" to its rules.

But that in turn provoked the warning letter from Mr. Hatch and fellow Republicans.

"These petitions have less to do with concerns about the sanctity of the tax code and more about setting the tone for the upcoming presidential election," the senators wrote.

Mr. Ryan said any fines the IRS levied would come well after the election — perhaps after the social-welfare group in question had already dissolved — and would represent a relatively small amount of money.

But some tea party groups trying to form as similar nonprofits said they had received requests for more information from the IRS.

The conservative American Center for Law and Justice announced it was aiding 26 groups that received letters, but eight of the groups have since been granted tax-exempt status and seven others have had the request letters retracted, said spokesman Gene Kapp.

Several liberal nonprofits also have spent millions of dollars in recent months, including Planned Parenthood Action Fund, at $3.3 million, mostly opposing Mr. Romney, and the League of Conservation Voters, at $2.7 million, on a handful of congressional races.

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