What's important? Tax exemption...

Rove’s ‘new’ group isn’t new, and that could be the point

by Robert Maguire

Karl Rove and his colleagues at the dark money behemoth Crossroads GPS have a “new” 501(c)(4), and according to reports, they’re going to use it in much the same way they have used GPS itself — as a conduit for anonymous, political money in the 2016 elections.

But the group, One Nation, isn’t “new,” and that’s probably the point.

Virginia state incorporation records show that the operatives who run Crossroads simply took over an existing 501(c)(4), and they likely did so because the group had the one thing that has been elusive to Crossroads since its founding in 2010: An approved application for tax exemption from the IRS.

Grasping that fact is central to understanding why Crossroads would need to form a new 501(c)(4) to do what it — the largest of all politically active nonprofits — has done for nearly five years. Obtaining the more durable shield of IRS recognition likely has as much to do with this move by Crossroads as its reported aim of keeping the Crossroads brand relevant in a crowded field of GOP groups trying to influence the 2016 elections.

Over the last two weeks, media outlets have talked up One Nation as the “new nonprofit group” that will be spending millions on television and radio ads aimed at softening up voters in three states where Senate Republicans are vulnerable. This “new” group will work in tandem with a super PAC called Senate Leadership Fund to help the GOP hold its majority in the Senate. Essentially, Crossroads is taking a page out the playbook developed by Harry Reid and the Democratic operatives behind liberal dark money group Patriot Majority USA and its sister super PAC Senate Majority PAC.

But One Nation is as “new” as a 2010 Camry with $2 million in the trunk, a fresh coat of paint and a different driver behind the wheel. That’s because One Nation was, until recently, Alliance for America’s Future, a five-year-old 501(c)(4) social welfare organization formed by the GOP consultants that made up the “BK” in BKM Strategies — Barry Bennett and Kara Ahern, respectively. Mary Cheney was the “M” in the firm, and the Alliance for America’s Future had other ties to the Cheney network. But the group hasn’t made independent expenditures since the 2010 cycle, when it spent more than $700,000; it also spent heavily that cycle for ads promoting Nevada GOP gubernatorial candidate Brian Sandoval.

While Crossroads GPS has been waiting for the IRS to approve its application for exempt status since Miley Cyrus was Hannah Montana, Alliance for America’s Future — which is represented by the same law firm and applied for an exemption the same month as GPS — was given the IRS seal of approval within weeks, in July 2010. Now, by taking the reins at Alliance for America’s Future, the folks at Crossroads are at the controls of a group that comes pre-packaged with an IRS exemption. And there’s already a link between the organizations: Crossroads helped fund the Republican Governors Public Policy Committee in 2010, a year when the governors’ group provided more than half the money spent by the Alliance for America’s Future — which Nevada courts found out when they forced AAF to disclose three years later.

Marcus Owens, a nonprofit tax lawyer at Loeb & Loeb and former head of the IRS Tax Exempt Division, agrees that the exemption could play a role in the decision by Crossroads operatives to take over the Alliance — particularly given the level of uncertainty that surrounds the Crossroads application for exemption.

“Having an already exempt fallback organization makes sense as a way to continue activities,” Owens said.

Lloyd Hitoshi Mayer, professor of nonprofit tax law at Notre Dame, calls the move “a well-known strategy in such situations,” going back at least to the Christian Coalition’s decision in 1999 to shift its operations to its Texas chapter, which already had exempt status, and rename it the Christian Coalition of America.

With One Nation under its wing, Crossroads GPS could engage in a similar shift. If it is denied status by the IRS — or if it decides to withdraw its application altogether — its operations can move seamlessly under the umbrella of another 501(c)(4) that already has the IRS’s seal of approval and whose legal gymnastics are already choreographed by the same law firm.

Owens and Mayer stressed that such a move doesn’t mean that the Crossroads operatives are free to engage in politics when they’re at the helm of One Nation; it just shifts oversight to the much less watchful eye of the agency’s auditors. “Such a shift doesn’t escape the possibility of IRS scrutiny,” Owens told OpenSecrets Blog, “but it moves the matter from the application context to the audit context, where the IRS capabilities are spread much more thinly.”

Thin indeed: a 2014 report by the Center for Public Integrity cited statistics showing that the IRS only audited 7 out of every 1,000 yearly returns in 2013. Compare that to the application process, which requires each 501(c) application to be approved or denied by an actual person, and it becomes clear why circumventing that process is such a boon to the operatives who run Crossroads.

The icing on the cake is that this move gives Crossroads a way to slide out from under its languishing application without being forced to pay the corporate income taxes it would have to pay if it received a denial from the IRS — a liability that already got smaller when the statute of limitations on its earliest activities ran out in April. Crossroads could withdraw its application and terminate, potentially without the repercussions of negative determination by the IRS.

This wouldn’t be a risk-free strategy on Crossroad’s part. As Owens points out, this kind of move from an active organization “has historically been an audit trigger.” Mayer says that “in theory the IRS could retroactively attempt to force the organization into 527 status for earlier years and require disclosure of contributors to the organization during those years,” but he doesn’t know of an instance where that has happened.

But while such a scenario poses uncertain risks for Crossroads GPS, those risks are not transferred to One Nation, because it is a separate organization, not technically affiliated with Crossroads.

alliance for America's futureRepresentatives of Crossroads GPS and One Nation did not return calls and messages from OpenSecrets Blog asking them to comment, but the idea that Crossroads might use AAF as a new, approved Crossroads isn’t so far-fetched. AAF is no stranger to dark money politics, it has close ties to consultants and the GOP establishment, and it comes with a network of IRS-recognized 501(c)(4)s that can serve either as surrogates, or as pools of money One Nation can use to churn funds around to inflate its social welfare spending.

The $2 million that the renamed One Nation has already reportedly spent in 2015 is more than the organization has spent in any of the last three full years on all of its activities, which suggests the group may have already become a recipient of the kind of mega-donor money that Crossroads specializes in.

Then there’s the network that surrounds AAF, organizations operated from the same address and by the same people; like AAF, they’ve mostly been dormant over the last few years. It offers the reconstituted Crossroads the kind of security that is prized by the snarl of nonprofits affiliated with the Koch donor network. The Koch network is comprised of more than a dozen 501(c)(4)s and 501(c)(6) groups, any of which could act as a conduit for money or a political spender if the need arises.

Crossroads appears to be poised, then, to make a clean break from its application for exempt status, and — if donors will support it — spend big through “new” nonprofits in 2016.