Karl Rove’s Crossroads GPS is claiming that this ad attacking Elizabeth Warren, and similar ads aimed at other Democratic candidates, is issue advocacy rather than spending in opposition to the Democrats the ads name. And the future of Crossroads GPS may hang on whether the IRS decides to accept that claim.
In order to keep its donors secret, Crossroads GPS needs to qualify as a 501(c)(4) organization. In order to qualify as a 501(c)(4), it needs to spend its money not on electoral politics but on promoting social welfare. The question is whether the IRS will accept Crossroads GPS’s claims and categorize the many ads attacking various Democratic candidates on which the group has spent millions of dollars as issue advocacy. By Federal Elections Commission standards, that’s correct—the FEC only categorizes something as an elections expenditure if it directly tells people to vote for or against a candidate. The IRS, though, is supposed to adhere to a different standard, one that might see such ads as election spending.
The [group's] acknowledged political activity adds up to 26 percent of its total budget in both years. The “advocacy” ads total 42 percent. So if the IRS concludes that the advocacy ads are really political campaign ads, then Crossroads GPS would not qualify for (c)(4) status. And that’s even if the under-50-percent standard for political spending is being used; some reformers argue that anything more than 5 or 10 percent — should be disqualifying for a (c)(4).
If a group acts like a (c)(4) — for instance, by not disclosing its donors — but then gets its status denied or revoked, tax experts say the consequences can be severe, including fines of up to 70 percent of the money they raised and spent in secret. The groups might even have to make donors’ names public after all.
The FEC definition obviously defies common sense, as so many of these things do. The question is whether the IRS will chart a new course, one that forces at least a little more transparency into political spending.