Watchdogs target tax-exempt campaign money

Reuters News
Posted: Sep 28, 2011 12:04 PM
Watchdogs target tax-exempt campaign money

By Patricia Zengerle

WASHINGTON (Reuters) - U.S. campaign finance watchdogs challenged the tax-exempt status on Wednesday of four political groups raising millions of dollars in largely unregulated "outside money" to influence elections, terming claims they promote social welfare "nonsense."

Democracy 21 and the Campaign Legal Center sent a letter to tax authorities calling for a prompt investigation of the Republican-leaning Crossroads GPS and American Action Network; the Democratic group Priorities USA; and a centrist group, Americans Elect.

The watchdogs based their request on the terms of the U.S. tax code. The Internal Revenue Service exempts non-profits -- called 501(c)(4) organizations -- from income taxes because they promote social welfare.

"The idea that these organizations are social welfare groups is nonsense," Fred Wertheimer, president of Democracy 21, said in a statement. "The overriding purpose of these groups is to participate in and influence elections, which makes them ineligible for tax-exempt status."

He said the groups seek to be considered 501(c)(4) organizations to keep the donors financing their campaign expenditures secret.

American Crossroads, conceived in part by Republican operative Karl Rove, is perhaps the most ambitious of the groups with plans to spend $240 million to defeat Democratic President Barack Obama in 2012.

Priorities USA was formed by two former Obama White House aides partly as the answer to groups like Crossroads.

An American Crossroads spokesman dismissed the complaint.

"This is the fourth frivolous complaint in 12 months from a highly ideological group that wants to sic the IRS on its opponents," spokesman Jonathan Collegio said in an email.

Representatives from the other groups did not have immediate comment.

Fundraising and spending by outside groups not officially linked to any party or campaign has mushroomed in U.S. elections since the U.S. Supreme Court's 2010 "Citizens United" ruling that ended most restrictions on donations by corporations and unions.

Experts said they expect $6 billion or more to be spent on the 2012 local and national elections in the United States.

(Additional reporting by Kim Dixon; editing by Eric Beech)