New York extends inquiry into tax-exempt political groups

Reuters News
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Posted: Aug 09, 2012 6:44 PM
New York extends inquiry into tax-exempt political groups

By Karen Freifeld and Alina Selyukh

(Reuters) - New York Attorney General Eric Schneiderman is expanding his inquiry into the finances of tax-exempt political groups that are wielding hefty power in the 2012 election by spending millions of dollars raised from undisclosed donors.

Schneiderman is requesting tax returns and other financial documents from roughly two dozen prominent non-profit groups, both conservative- and liberal-leaning, said a source familiar with the inquiries.

The groups include four influential Republican organizations: Crossroads GPS, run by former George W. Bush aide Karl Rove; Americans for Tax Reform Foundation, run by a powerful anti-tax Republican Grover Norquist; American Action Network, chaired by former Senator Norm Coleman; and American Future Fund, founded by Iowa-based strategist Nick Ryan.

Earlier this year Ryan ran the "Super PAC" backing Republican presidential candidate Rick Santorum who has since withdrawn from the race.

Letters also went out to four liberal groups: Priorities USA Action, founded by two former aides to President Barack Obama; American Bridge 21st Century Foundation, which focuses on opposition research; Patriot Majority USA, run by veteran Democratic consultant Craig Varoga; and America Votes group founded by several prominent Democratic operatives.

The probe reflects the increasing scrutiny that authorities are giving such tax-exempt groups, which qualify under U.S. tax code as "social welfare" non-profit organizations. That status allows them to rake in millions of dollars while keeping their donors secret as long a most of their money buys "issue advocacy ads" that do not directly support or oppose a political candidate.

Unlike regular political ads, such "advocacy" ads cannot use a candidate's name or likeness and are supposed to be used to educate the public on broad issues or positions.

The amount spent by these groups as well as some of the ads that have pushed "issue advocacy" boundaries has piqued interest in the well-guarded identities of the group's donors.

UNLIMITED FUNDS

Many non-profits have affiliated "Super PACs," or political action committees, which also can raise unlimited funds and have no limits on how much of their cash buys political advertising but have to disclose all donors.

When a U.S. Supreme Court ruling in 2010 paved the way for Super PACs, campaign finance observers and watchdogs predicted an influx of corporate cash into politics thanks to the Super PACs' bottomless coffers.

But Super PACs have to file monthly disclosures, presumably discouraging corporations from giving to them and prompting many of them to direct more cash toward the more secretive non-profits.

Schneiderman's inquiries are aimed at revealing more about the free-spending non-profits in a campaign year marked by especially negative ads and predictions that Super PACs and non-profits could spend hundreds of millions of dollars in a record-setting spree.

If his office does not receive the requested information, the attorney general has the authority to subpoena the documents.

The inquiries are based on a New York state law that requires charities that raise money or do business in the state to file annual reports with the attorney general's charities bureau and provide an Internal Revenue Service form if they solicit $25,000 or more in contributions.

In late June, Schneiderman issued a subpoena over the finances of the Chamber of Commerce, a vast and powerful business lobby whose donors are kept under tight wraps. A person familiar with the situation at the time said Schneiderman was investigating whether a non-profit affiliate sent money to the chamber for use in political activity.

"As the chief regulator of charities and non-profits in the State of New York, I am committed to restoring accountability and transparency by shining a light on the new role that these organizations are now playing in our political process," Schneiderman said in a statement this month.

His office declined to comment on Thursday regarding the inquiry, first reported by The New York Times.

(Reporting by Karen Freifeld in New York and Alina Selyukh in Washington.; Editing by David Lindsey and Christopher Wilson)