The tax man who could change the 2012 campaign

June 26, 2012

1. The IRS bureaucrat who could upend the campaign finance money flow:

Here’s an idea for a story about an obscure government bureaucrat whose decisions could have a major impact on the 2012 elections and on the entire issue of campaign finance reform going forward.

As this article in Roll Call, the Washington weekly, reports, there is increasing controversy surrounding super PAC-like groups that fashion themselves as coming under the Internal Revenue Service’s 501(c)(4) classification as a “social welfare organization.” Under IRS rules, 501(c)(4)’s are not only tax-exempt but also don’t have to disclose their donors. This means that they can spend unlimited sums on political advertising – including corporate contributions, following the Citizens United decision – but unlike super PACs, they can do so while keeping the sources of the money completely secret.

That’s why many of the big super PACS, such as Karl Rove’s American Crossroads – which are simply non-profits that engage fully and unabashedly in political activity but must disclose donors – operate companion 501(c)(4)’s that can take undisclosed donations. In the case of Rove’s super PAC,  the companion 501(c)(4) is called Crossroads GPS.

The sole catch is that under the IRS rules, a 501(c)(4) can only spend money on political activities so long as that is not its “primary activity.”

Ads paid for by a 501(c)(4) can advocate political positions. Thus, there have been Crossroads GPS TV ads that declare, “Tell Obama: Stop the spending. Support the New Majority Agenda,” and “Senator Claire McCaskill was a key Obama adviser in passing his failed $1.18 trillion stimulus.” But these ads cannot directly urge that someone be elected or not elected. And, again, even this slightly tailored political advocacy cannot be the group’s “primary activity,” which is supposed to be “social welfare.” In fact, the IRS regulations specifically state that “the promotion of social welfare does not include the direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.”

As the New York Times reported last week, Robert Bauer, a lawyer for the Obama campaign and the Democratic National Committee, has filed a complaint with the Federal Election Commission disputing Crossroads GPS’s claim to be a “social welfare” organization. “There has never been any doubt,” asserts Bauer’s complaint, “about its true purpose: to elect candidates of its choice to the Presidency and the Congress.”

Bauer told the FEC that under a recent federal court ruling, the commission was now empowered to determine the “true purpose” of the 501(c)(4) on a case-by-case basis. However, Bauer wrote, the Rove group seemed determined to “run out the clock,” hoping that its donors would be shielded well beyond Election Day because the FEC is so notoriously slow in making any decisions. “The Commission should act without delay,” Bauer urged, “to ensure that, before heading to the polls, voters are operating with full information about the political interests behind what they have seen on the airwaves.”

Given the FEC’s perennial paralysis, Bauer’s plea is unlikely to work. However, there’s another agency – the IRS – that could act to investigate whether groups like Crossroads GPS and similar 501(c)(4)’s from both parties are more involved in politics than social welfare. Losing a 501(c)(4) designation would force Crossroads GPS to disclose its donors.

Whatever else you think about the IRS as an impenetrable bureaucracy, when it comes to decisions like these designations for tax-exempt groups, it has proved to be far less political than the perpetually deadlocked FEC, whose six members are split between the two political parties.

Ever heard of Steven T. Miller? He’s the IRS deputy commissioner for services and enforcement, and he supervises the Tax Exempt and Government Entities Division, run, according to the IRS website, by Acting Commissioner Joseph H. Grant.

I interviewed Miller in 2002 for a book I wrote about the aftermath of the September 11 attacks, because I was interested in the tax-exempt status of some of the charities accused of misusing money donated to help 9/11 victims. I recall Miller saying that he was not accustomed to talking to the press, which was obvious by how uncomfortable he seemed. I also recall him making no bones about his office’s power to revoke various IRS tax-exempt designations.

A Google search turns up some references to speeches Miller has given to audiences of tax professionals or lawyers, as well as rulings he has authored, but it doesn’t show any articles focusing on him, let alone on Grant, the person with presumably direct authority over 501(c)(4) status decisions.

So who are Miller and Grant? Has anyone complained to them about Crossroads GPS or any other super PAC-associated 501(c)(4)’s? Do they need a formal complaint to investigate? How quickly could they act if it’s clear to them that these are not really “social welfare organizations”? Can they conduct audits before the groups’ annual tax returns are due?

Would an appeal to the courts of any IRS decision to revoke 501(c)(4) status and order donor disclosure under FEC rules guarantee the same delay that Bauer claims Rove’s group is playing for at the FEC? Or could the government get a quick injunction ordering the disclosure, on the grounds that it is highly likely to win its case and that a delay of disclosure beyond the election would cause irreparable harm (the usual standard for getting such injunctions)?

What are the likely political implications of Miller and his staff acting, or not acting? The post-Nixon-era IRS has had a clean reputation for not politicizing its work. Could Miller and Grant act one way or the other without interference from Obama political appointees, and would the public accept that they are doing so purely on the merits? Or are people like Rove counting on exactly that kind of backlash?

With that in mind, what are Miller’s and Grant’s political backgrounds and leanings, if any? (When I met Miller he was working in the George W. Bush administration.)

This is anything but a tangential story. A report last week on the website of the Center for Responsive Politics found that in the 2010 election cycle these groups raised more than $100 million for this kind of activity – and that was two years before the current and obviously more critical and expensive election cycle. (Publicly available tax records for these groups are typically a year or two old and must be searched manually.) It’s entirely possible that these groups will actually outspend the super PACS in many of the 2012 contests, with all the money coming from unknown sources.

2. What’s wrong with D.C. baseball fans?

The Washington Nationals are leading the tough National League East, and with Stephen Strasburg and Bryce Harper they boast two of the most exciting young players in baseball. So how come their attendance in a good-sized market is so relatively meager? They’re averaging just 29,482 fans per game, which is 14th out of 30 Major League teams. In fact, fans across the country seem more interested in the Nationals than the folks at home: The team’s attendance averages 33,463 on the road.

So what’s the matter with D.C. baseball fans or with their team’s promotional efforts?

PHOTO: Former White House Deputy Chief of Staff Karl Rove (L) and former Press Secretary Dana Perino chat after the unveiling of the official White House portraits of former U.S. President George W. Bush and former first lady Laura Bush in the East Room of the White House in Washington May 31, 2012. REUTERS/Larry Downing

One comment

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The Federal Government does not enforce the law, under either wing of the One Party. It bends and twists the law to suit its own purposes and the purposes of its masters. It will never introduce honesty to a system that has for 50 years increased the level of dissembling each and every year.

Only people who are perceived as traitors to their (upper) class or people who are in the bottom 90% by income are punished by the Federal system. We all know this.

Posted by usagadfly | Report as abusive