Was the IRS Bullied Into Giving Karl Rove’s Group Tax-Exempt Status?

For more than two years, the loud dispute over whether the Internal Revenue Service targeted conservative nonprofits included references to the pending application for tax-exempt status by the campaign group Crossroads GPS, founded by Kark Rove, a senior adviser to former President George W. Bush and longtime Republican strategist.

This week, the tax press came alive with word that the IRS had ruled in favor of the conservative group, a spinoff of the American Crossroads super PAC, declaring it a social welfare group that can raise funds without disclosing donors’ names. (The IRS doesn’t release such ruling letters, but the Center for Responsive Politics broke the story.)

The decision, after more than a five-year wait, gives “an air of legitimacy to the more than $330 million that Crossroads GPS has raised and spent over the years, most of it on election-related ads and candidate support,” the center wrote. “More than any other group claiming to be a social welfare nonprofit, Crossroads has become a symbol of the current malleability of campaign finance rules. Run by some of the most seasoned political operatives in the country, it has almost no grassroots support—financially or in terms of volunteers—and is represented by some of the finest campaign finance lawyers in the country.”

By law the group is required to release the letter, which it did on request by Government Executive.

“We have always taken compliance very seriously, so we’re not surprised by the final result, said  Crossroads president and CEO Steven Law: “What we were surprised by was how long it took and how people outside the IRS improperly tried to influence and politicize the process, not just against us but against many other law-abiding advocacy groups. For us this was justice delayed, not justice denied. But it most certainly was justice expensive.”

Advocates for tighter regulation of campaign spending called the ruling a sign that the IRS has been cowed by its conservative critics on Capitol Hill.

The decision “is a complete abdication of the agency’s duty to enforce the tax laws,” said Democracy 21 President Fred Wertheimer. “By no stretch of the imagination can Crossroads GPS be considered a “social welfare” organization. It is a political operation—the brainchild of political operative Karl Rove as a means to provide secrecy for donors who want to influence elections. Since 2010, Crossroads GPS has spent tens of millions of dollars on campaign ads to elect Republicans to Congress. . . . A credulous and passive IRS should never have accepted that claim. “

The nonprofit Campaign Legal Center said the IRS had been “bullied.” General Counsel Lawrence Noble called the move “outrageous.”

“It was bad enough when the agency buckled to congressional pressure and postponed, until after this election cycle, a rulemaking to clarify the amount of political activity 501(c)(4)s are permitted to undertake while claiming federal tax-exempt status,” Lawrence said. “But giving Crossroads GPS its stamp of approval is further evidence that the IRS no longer has the will to enforce the law. There is little question this will cause a major jump in the use of this privileged tax status to evade disclosure of political spending on a massive scale.”

That didn’t sit well with Rep. Jim Jordan, R-Ohio., one of the IRS’s harshest critics during the targeting controversy. “After years of the Obama administration’s IRS using intimidation tactics and trying to suppress the free speech rights of ordinary Americans, it is absurd that liberals are accusing Republicans of bullying,” he told Government Executive in an email. “The facts remain, the IRS targeted the First Amendment rights of ordinary Americans, and IRS Commissioner John Koskinen continues to cover up for his organization’s past behavior. This is what outrages Americans of all political stripes, and is why so many don’t trust their government.”

Marcus Owens, a former head of the IRS Exempt Organizations division and now a partner at Loeb and Loeb, said “It is difficult to see how the IRS arrived at an answer favorable to Crossroads GPS” given the group’s “clear affiliation with a related super PAC, the background of its political operatives, and indeed, its message seemed entirely focused on the Republican Party.”

Owens, however, did not see it as a sign the IRS was bullied. He cited similarities to a 2008 case involving the Democratic Leadership Council, which was ruled to have benefited privately from contributions and affiliation with the Democratic Party. He suspects the original recommendation for Crossroads GPS at the level of the Exempt Organizations Division was to deny the group social welfare status.

“As the media has reported, the IRS concern was focused on whether political activity was permitted by groups under 501(c)4 status. This gets into gray areas, such as whether a media buy or an advertisement constitutes campaigning,” he said.

But at the higher appeals level, Owens continued, the issue was probably the broader question of whether Crossroads GPS was obtaining a private benefit from donations, as in the 2008 case. “Given the ambiguities in the English language, it’s tough to divide the political from the nonpolitical. So I can see why the appeals people concluded that there were hazards to litigation.”