September 28, 2010: Senator Asks IRS to Investigate Tax-Exempt ‘Nonprofit’ Political Organizations for Possible Tax Law Violations

Senate Finance Committee Chairman Max Baucus (D-MT) asks the IRS to investigate a number of private organizations organized under the nonprofit, tax-exempt 501(c)4 and (c)6 status to ensure that they are not violating tax law. Such groups can engage in political activity, such as funding television ads for or against candidates for office, as long as their primary purpose is not politically motivated. Baucus writes in his letter to the IRS that he believes many of these groups, most of whom support Republican candidates and/or attack Democratic candidates, are almost exclusively focused on politics. The tax laws organizations such as Crossroads GPS and Americans for Job Security (AJS) operate under allow them to keep information about their donors secret while simultaneously running advertisements in elections. Baucus asks the IRS to examine whether the groups’ “political activities reach a primary purpose level” and “whether they are acting as conduits for major donors advancing their own private interests regarding legislation or political campaigns, or are providing major donors with excess benefits.” He continues, “Possible violation of tax laws should be identified as you conduct this study,” and adds that the committee plans to “open its own investigation and/or to take appropriate legislative action.” In his letter he notes that an “Alaska Public Office Commission investigation revealed that AJS, organized as an entity to promote social welfare under 501(c)(6), fought development in Alaska at the behest of a ‘local financier who paid for most of the referendum campaign.’ The Commission report said that ‘Americans for Job Security has no other purpose other than to cover money trails all over the country.’ The article also noted that ‘membership dues and assessments… plunged to zero before rising to $12.2 million for the presidential race.’” He also provides information about another, unnamed 501(c)4 group, which “transform[ed] itself into a nonprofit under 501(c)(4) of the tax code, ensuring that they would not have to ‘publicly disclose any information about its donors,’” and engaging primarily in political activity. He asks, “Is the tax code being used to eliminate transparency in the funding of our elections—elections that are the constitutional bedrock of our democracy?” He also writes that the IRS should be concerned “whether the tax benefits of nonprofits are being used to advance private interests.” He concludes by writing that the committee will open its own investigation into the matter. [Politico, 9/29/2010]