WASHINGTON -- During a debate Sunday on ABC's "This Week" over the Internal Revenue Service's targeting of conservative groups, Huffington Post founder Arianna Huffington said that Crossroads GPS, a so-called social welfare nonprofit, is actually "all about politics." Defending his group's tax-exempt status, Karl Rove responded, "The laws and rules that the IRS has promulgated for decades were followed very closely by GPS."
Underlying that disagreement is the definition of political activity -- in fact, two definitions. The IRS rules -- the ones that matter for purposes of tax-exempt status -- lay out a more expansive, and more subjective, range of relevant political activity. To downplay their own campaign efforts, groups like Crossroads GPS like to point publicly to only that political activity that falls under the Federal Election Commission's narrower, more circumscribed definition.
"The question is what definition are they using to determine whether their activity is political intervention," said Donald Tobin, a tax law expert at the Ohio State University Moritz College of Law.
Crossroads GPS is one of a host of groups that organized as social welfare nonprofits after a series of Supreme Court rulings, most prominently the 2010 Citizens United decision, opened the door to unlimited corporate and union spending on politics. Watchdogs have criticized these groups for taking advantage of the tax code, which allows nonprofits organized under section 501(c)(4) to hide the names of their donors, and have labeled their spending "dark money."
Social welfare nonprofits are not supposed to be "primarily" focused on politics, but rather on their social welfare purpose, which they may advance by urging the public to action and by lobbying the government.
Jonathan Collegio, spokesman for Crossroads GPS, said by email, "Just as environmental groups and labor groups advocate for policies that promote their social welfare missions, Crossroads GPS advocates for free market and limited government policies that promotes its social welfare mission.
Recently, however, 501(c)(4) nonprofits have interpreted "primarily" to mean that so long as they don't spend at least 50 percent of their budget on political activity, they are operating within IRS rules and can assert tax-exempt status to keep their donors secret.
They also like to highlight just their FEC-defined campaign spending. Under the bright-line rules laid out by the elections agency, Crossroads GPS engaged in only $71 million in political campaign spending during the 2012 electoral cycle.
The FEC has straightforward rules detailing what spending needs to be reported as political campaign activity. Any spending on express advocacy -- explicitly calling for the election or defeat of a candidate -- that costs more than $10,000 must be reported, and any spending on ads within 60 days of a general election (or 30 days of a primary election, caucus or convention) that mentions a candidate must be reported. Ads and other communications that are outside the 90-day window and that mention candidates only in the context of urging voters to contact them about a particular issue need not be reported.
The IRS, however, takes a broader view of political activity and could very well consider much of the $89 million that Crossroads GPS spent during the 2012 campaign on "issue" ads -- which targeted the political views of President Barack Obama and Democratic Senate candidates in the most hotly contested races, but did not explicitly call for their defeat -- to be political spending. The agency relies on a "facts and circumstances" test that allows its employees to look at a group's various activities and determine whether each one could reasonably constitute intervention in a political campaign.
"The whole point of using a facts-and-circumstances test, instead of a bright-line test, is you're not supposed to check your common sense at the door," Tobin said.
Some of the ads run by Crossroads GPS as part of its $89 million in issue ads could certainly be judged to be political campaign intervention. For instance, some of the group's ads raised past issues that were not under executive or legislative branch consideration but did serve to malign current candidates -- like an ad that attacked then-Senate candidate Tim Kaine (D-Va.) for supporting stimulus funding for ant research in Africa when he headed the Democratic National Committee.
Other Crossroads GPS ads took on "issues" in a way that served no apparent purpose except to turn people against a candidate. Take a pair of contradictory spots that Crossroads ran against then-Senate candidate Elizabeth Warren (D-Mass.). One ad attacked her for being too close to banks that were bailed out when she headed a congressional panel overseeing the bailout, and another ad attacked her for providing the intellectual foundation for Occupy Wall Street.
"That's a classic," Tobin said about the Warren ads. Tobin explained that ads like these might pass the FEC's test for political activity, but that they should be viewed by the IRS as political intervention.
Tobin said that an IRS agent would have to examine all of these communications to determine if they could be reasonably judged as lobbying for the group's primary social welfare purpose.
In determining how much political activity a group actually engaged in, the IRS could also look at the contributions that Crossroads GPS made to other social welfare nonprofits to see whether those contributions were used to fund political activity or to offset spending on political activity. Crossroads GPS, for example, made a $4 million contribution to Americans for Tax Reform in 2010, a time when that group first reported express advocacy spending to the FEC.
In the past, the IRS had revoked tax-exempt status from the Democratic Leadership Council because its leadership was made up of Democratic political operatives (a court ultimately reversed that decision) and Emerge America because the group trained only Democratic women for office, which amounted to a private benefit for one political party and not for the broader public. Neither of these cases involved the spending of one dime on the kind of political activity reported to the FEC.
Crossroads GPS is still waiting for its application for tax-exempt status, submitted in 2010, to be approved, although it already claims the status. (The law does not require organizations to file first for tax-exempt status.) Rove's group recently contended, without providing any specific evidence, that it may have been targeted by the IRS' Cincinnati office when that office swept up a large number of conservative groups for more intensive questioning and review.
If its application is ultimately denied, Crossroads GPS would have to file as a 527 political organization and disclose all of its donors. Because it has claimed tax-exempt status in the past, it could also face massive fines, as much as 30 to 75 percent of all the money it has raised.