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Pro-Troop Charity Misleads Donors While Lining Political Consultants’ Pockets

by Kim Barker, ProPublica.

In February 2013, Move America Forward announced an ambitious fundraising goal. The charity, launched in part by one of the most prominent figures in the Tea Party movement, had adopted the 800 Marines in a battalion fighting in Afghanistan and wanted to send them all care packages.

“For some troops, these care packages are the only mail they will receive all year,” the group said in one email solicitation.

The charity later described the fundraising drive as a rousing success: In less than five weeks, all 800 Marines in a 1st Marine Division battalion nicknamed “Geronimo” were sent care packages and notes in Afghanistan, it claimed.

But that couldn’t have been true. The Marines of Geronimo weren’t even in Afghanistan during Move America Forward’s fund drive. Instead, they were deployed more than 3,000 miles away, in Okinawa, Japan.

Move America Forward calls itself the nation’s “largest grassroots pro-troop organization,” and has recruited a bevy of Republican luminaries, including former presidents George H.W. Bush and George W. Bush and former vice president Dick Cheney, to support its efforts.

Yet an examination of its fundraising appeals, tax records and other documents shows that Move America Forward has repeatedly misled donors and inflated its charitable accomplishments, while funneling millions of dollars in revenue to the men behind the group and their political consulting firms.

In several instances, the charity has taken images and stories from other groups and from veterans themselves without permission to use in fundraising appeals.

Last year, Move America Forward even solicited funds by claiming a partnership with Walter Reed National Military Medical Center, the largest hospital for wounded service members in the country. No such partnership existed, Defense Department officials say.

The charity’s funds and other assets also appear to have been used to subsidize three conservative political action committees, records show.

Charity watchdogs have long criticized Move America Forward for spending too much on administrative fees and having little outside oversight. For instance, it earned zero stars out of a potential four from the rating organization Charity Navigator.

But experts on campaign finance and taxation say Move America Forward’s practices may trigger more than bad ratings. Its activities could violate tax rules, which prohibit charities from engaging in partisan politics or overly benefiting the people who run them.

“They’re playing audit roulette,” said Marcus Owens, a lawyer who once ran the division on tax-exempt organizations in the Internal Revenue Service. Owens said Move America Forward reminded him of the Coalition for Freedom, a charity linked to then-senator Jesse Helms that lost its tax-exempt status with the IRS largely because of its political activities in the mid-1980s. “They’re betting the IRS won’t find them, or won’t find them in time.”

The driving force behind Move America Forward is Sal Russo, 67, the longtime political consultant who is listed on the 10-year-old charity’s tax returns as chief strategist.

Russo is better known for helping to form the Our Country Deserves Better PAC, also known as the Tea Party Express, one of the largest Tea Party groups in the country. Consultants from his Sacramento-based firm, Russo, Marsh and Associates, also set up two other PACs, the Move America Forward Freedom PAC and the Conservative Campaign Committee, to aid conservative causes and candidates.

Russo and his associates have previously drawn attention for lavishing funds raised through the committees on themselves, using this money on an Alaskan cruise and fancy hotels as well as paying themselves huge consulting fees.

Russo didn’t respond to questions from ProPublica. Danny Gonzalez, a spokesman for Move America Forward, did not answer questions either, instead providing a four-paragraph defense of the charity. “We are proud of the fact that we always appropriate our donor’s [sic] funds ethically and in the spirit of our mission to support the troops,” he said, adding that Move America Forward was currently preparing 2,000 boxes of care packages for shipping.

It’s not clear who currently oversees Move America Forward’s day-to-day operations. The former executive director, Shawn Callahan, left in 2012 and does not seem to have been replaced. Callahan also didn’t respond to questions, although last year, he defended the group to ProPublica in an email and said Move America Forward had been audited recently by the IRS. (The IRS does not comment on individual taxpayers.)

“I personally oversaw the audit where I worked with the IRS as they went over every penny spent with a fine-tooth comb,” Callahan wrote in March 2013. “As expected, they reported that we were in full compliance and all our expenditures were appropriate.”

Bill Durdin, the family readiness program coordinator for the 1st Marine Division, said Move America Forward recently sent care packages to at least five units in the division, but said a “thank you” letter from him that the charity included in a March 2013 email praising donors for the Geronimo pledge drive had actually been written a year or two earlier. In an email to ProPublica, Durdin described the charity’s use of his letter as “a serious case of ‘Cut & Paste[ing]’!”

Move America Forward raises much of its money with its annual fundraiser, called Troopathon, held this year at the Ronald Reagan Presidential Library and broadcast live on the Internet.

Over the years, Troopathons have featured live and taped appearances by conservative stars from entertainment, media and politics, including actor Gary Sinise, rock idol Gene Simmons of KISS, Sarah Palin, Rick Perry, Rush Limbaugh and Sean Hannity. The charity counts all the money raised in the month of the broadcast as part of Troopathon.

“I’m hoping this will be the biggest and best event that we’ve had to let our troops know that we will not forget you,” spokeswoman Debbie Lee said during an appearance over Memorial Day weekend on the Breitbart News Sunday radio show that kicked off this year’s fundraiser. “We do recognize, even though, you know, there’s been changes over there, that you’re still there fighting.

“And we’re here for you. We’ve got your back.”

***

Move America Forward says on its tax returns that its mission is to “provide and promote support (for) our brave men and women in the armed forces.”

It raised $7.8 million from 2008 to 2012, about 44 percent of it from the month of Troopathon.

Much of the rest came from responses to the emailed appeals it sends out every day or two, emotional notes packed with exclamation points and capital letters. The emails often seize on a tragedy like the Boston bombing and then ask for help sending boxes filled with items like Jelly Belly jellybeans, Swiss Miss hot chocolate and Hoo-Ahhs field towels.

In press releases and articles, the charity boasts that over its lifespan it has delivered more than 315 tons of care packages to American troops in Afghanistan and Iraq. Tracking the truth of this assertion is difficult, however. Neither the Defense Department nor the International Security Assistance Force in Afghanistan monitors who sends care packages to military personnel.

Each package for an individual servicemember is paid for with a $24.99 donation, the charity says, but it’s unclear what the $24.99 pays for. The items in each care package are donated, a former consultant who spoke on condition of anonymity said, and volunteers put them together. “Our volunteers pack each box to the brim,” the charity’s outreach coordinator Scott Raab told a radio show over Memorial Day weekend.

Other charities that send care packages to Afghanistan say they do so more cheaply. The group Operation Gratitude, for example, says it costs $15 to assemble and ship a care package. (The U.S. Postal Service charges $15.45 to mail a large box to a military base in Afghanistan.)

In soliciting funds for care packages, Move America Forward frequently uses testimonials from troops or their relatives. Some are legitimate, but in several cases, ProPublica found, the charity took photos and stories without permission and used them as its own.

One solicitation emailed on April 2, 2013, included a note from “Lacey,” Move America Forward’s contact in Afghanistan. “An update that I received the 60 (packages) you sent off on March 25 & 26th,” Lacey wrote. “We got them yesterday and already got them on our chinook today out (to) some dustoff guys who have been eating MREs for a month now.”

The note promised to send more pictures “like before,” and included a photograph of a Chinook helicopter unloading supplies.

But ProPublica traced the photograph back to a stock photo company called StockTrek Images. It was actually taken on Sept. 22, 2004, when soldiers were unloading supplies in Afghanistan for a combat resupply mission.

ProPublica traced other photographs employed in fundraising pleas by Move America Forward to media outlets such as Agence France Press, Reuters and the San Antonio Express-News, to photos posted by servicemembers on Flickr, to random photos pinned on Pinterest. Move America Forward even used the photograph of a soldier hugging a woman found on Pinterest for a Valentine’s Day pitch, digitally removing the soldier’s name, Boyer, from his cap.

In February 2013, Move America Forward sent an email including a photograph of two grinning soldiers holding packages of Double Stuffed Oreos. “The easiest way to get chocolate that will not melt to our troops in Afghanistan is with the Oreo cookies in our care packages,” the charity wrote below the photo.

But the Oreo cookies in the photograph were actually sent by Operation Oreo, a project of Alpharetta Methodist Church in Georgia.

In a fundraising email sent earlier this year, the charity included a photograph of a smiling soldier holding up a care package, his uniform nametag smudged out.

But Move America Forward had taken the picture, which originally featured four other soldiers alongside the one in the email, from the website of the Wisconsin Department of Military Affairs. The soldiers were in Iraq, and not, as Move America’s email suggested, in Afghanistan. And the package the soldier held was not from Move America Forward.

“The care packages in the photo are from the American Legion and the VFW posts in Watertown, WI,” Maj. Paul Rickert of the Wisconsin Department of Military Affairs said in an email.

Move America Forward has also used images from the websites of AdoptAPlatoon and Operation Gratitude, two charities that send care packages regularly to troops, to solicit donations.

Carolyn Blashek, the founder of Operation Gratitude, confirmed to ProPublica that two photographs used in fundraising emails by Move America Forward actually depicted soldiers with packages sent by Operation Gratitude. Blashek emailed ProPublica originals of one of the photographs, as well as others of the same soldiers, to prove it.

“I’m livid, I’m so livid,” she said. “I’m shocked…It’s so beyond wrong.”

Ida Hagg, AdoptAPlatoon’s executive director, said she instantly recognized a photograph in which soldiers held up placards spelling out “Thank You,” because it was sent to AdoptAPlatoon. AdoptAPlatoon asked the soldiers’ permission to use the photograph on its website, Hagg said.

“I’m a little taken aback,” Hagg said after seeing the Move America Forward email using that photograph. “Oh my gosh. …That is definitely our photo, absolutely our photo.”

Hagg added that it was possible that the same soldiers also sent the same photograph to Move America Forward.

In at least one case, Move America Forward took the story of a Marine overcoming shattering war injuries and used it without permission in fundraising efforts.

“You’re Never Going to Believe What This Double Amputee Marine Did!” announced the subject line of an email sent Dec. 11. The message outlined the heroics of Larry Draughn, a former Marine who lost his legs in a roadside bomb in Afghanistan but managed to help rescue stranded motorists during a snowstorm in Ohio.

“Troops like Larry serve as a perfect reminder of the kind of sacrifice and selflessness displayed by thousands of our soldiers, marines, airmen and sailors still serving in Afghanistan and other places around the globe, fighting to keep us safe and free!” the email said. “This Christmas remember those troops still serving overseas and send them a care package full of love and support — as well as a few delicious treats!”

Draughn told ProPublica he had never heard of the charity, which did not contact him before using his story.

“I’m gonna call and ream their butts,” he said. “I never gave them permission to use my name that way.”

After Draughn called, he said, the charity apologized and promised to send him a free gift. More than two months later, the gift still hasn’t arrived.

Gonzalez did not respond to questions asking about the charity’s use of veterans’ stories without their permission and why photographs from other charities and the military were used in its fundraising appeals.

In 2013, Move America Forward put out a press release announcing a partnership with Walter Reed to send special wounded warrior care packages to service members recovering in the hospital. About the same time, the charity announced a similar partnership with Veterans Affairs hospitals.

In an email that April, under the heading of “Move America Forward Walter Reed,” the charity urged: “We need your help! We aren’t receiving enough support for our wounded troops!”

But the Department of Defense, which oversees Walter Reed and the VA hospital system, doesn’t endorse — or partner with — charitable organizations. If a charity wants to be listed as a community resource on the Defense Department-managed website, OurMilitary.mil, it has to meet certain criteria, including being nonpartisan and being favorably vetted by at least two charity evaluators, such as Charity Navigator.

“You’ll note that Move America Forward is not listed on the site,” said Lt. Col. Cathy Wilkinson, a Defense Department spokeswoman.

After ProPublica contacted Walter Reed, the hospital asked Move America Forward to take down the press release announcing the partnership from its website. It did. (Here is a copy of the original announcement.)

Gonzalez did not respond to a question about the charity’s claims regarding Walter Reed and the VA system.

Walter Reed confirmed that Move America Forward did mail about 200 packages there in March 2013. “It was a one-time thing,” said Sandy Dean, Walter Reed’s spokeswoman.

Meagan Lutz, a spokeswoman for VA hospitals, said the VA system hadn’t officially worked with Move America Forward. “I’m hearing all negatives — we haven’t worked with this organization and many haven’t heard of it,” Lutz said.

Still, Move America Forward sent at least 16 emails in April and May 2013 seeking donations, often referring to its alleged partnerships.

At the end of 2013, the charity claimed in an email to have sent “thousands of bags full of necessary items to troops at military hospitals.” Move America Forward still advertises Wounded Warrior Care Packs for VA hospitals and Walter Reed, filled with things like grippy hospital socks, a dental kit, snacks, a notebook, a pen and playing cards.

***

Charities like Move America Forward, which accept tax-deductible donations, are not allowed to engage in partisan politics like other nonprofits, such as trade associations and social-welfare groups. Charities are also not allowed to pay excessive fees or wages to staffers or consultants, according to federal tax rules.

But an examination of Move America Forward’s tax returns shows that it is deeply intertwined with Russo’s political enterprises and businesses, paying millions of dollars to him and his consulting firm.

According to its five most recent tax returns, Move America Forward paid out more than $2.3 million to Russo or Russo, Marsh and Associates for services including “program management and advertising.” That’s about 30 percent of the charity’s overall expenditures over that time.

“It was just so shady,” said Kelly S. Eustis, a former consultant for the Tea Party Express, also known as Our Country Deserves Better. “With PACs, I know it’s dirty money — it’s politics. But this is a charity that’s supposed to be helping the troops.”

Some of that money might have passed through Russo’s firm, paying for TV ads that the charity has claimed to run praising the troops. No major broadcaster in a top 10 TV market has reported an ad buy by Move America Forward since the Federal Communications Commission required such records be put online in 2012, however. Gonzalez, the Move America Forward spokesman, did not respond to a question asking whether the charity had run any TV ads on network affiliates in major markets since 2007.

Move America Forward also routes charitable donations through companies started in part by Russo and Callahan, the charity’s former executive director.

In May, one button on the charity’s website sent donors to the website of a company that processes credit-card donations called DonationSafe, founded by Callahan. Move Forward America doesn’t reveal how much it pays DonationSafe to process donations, but the company has received substantial fees for similar work for Russo-affiliated PACs. The Conservative Campaign Committee, then known as the Campaign to Defeat Barack Obama, paid DonationSafe almost $267,000 for credit card processing in the 2012 election cycle, when the PAC brought in $3.9 million.

Callahan, who has also worked for Russo, Marsh, and consulted for the Tea Party Express, did not reply to ProPublica questions about processing work related to Move America Forward.

Another donation button on Move America Forward’s website allows donors to send money for individual care packages or packages for an entire battalion. When a ProPublica reporter donated $24.99 to send a single package in May, her credit card bill showed the money went to a limited liability company called The Campaign Store. So did another donation made to the Troopathon event.

Russo is the president of The Campaign Store, which described its business as “retail political products” in a 2007 filing with the California Secretary of State.

In its 2004 application for tax-exempt status, filed under penalty of perjury, Move America Forward told the IRS that it would not directly or indirectly share facilities, equipment, mailing lists or other assets with any political organization.

Yet Move America Forward shares its Sacramento office suite with at least two of the three PACs set up by Russo, Marsh, as well as The Campaign Store, DonationSafe and Frontline Strategies, a political consultant firm where Callahan is a partner.

According to the charity’s 2012 tax return, Move America Forward paid about $82,000 in rent that year. The PACs reported paying no rent for the same period, according to filings with the FEC. The office’s property manager confirmed to ProPublica that the rent for the office is now about $83,000 a year, plus fees for use of the common area, indicating that in 2012, the charity likely covered the rent for all of the suite’s occupants.

“That office rental arrangement is clearly inappropriate,” said Bruce Hopkins, a nonprofit lawyer in Kansas City, adding that the charity was subsidizing the PACs. “I can tell you right now, the IRS would be all over that.”

In his email in March 2013, Callahan said Frontline Strategies paid Russo, Marsh and Associates to sublease office space. Neither Russo nor Gonzalez responded to questions about the rent agreement.

There’s also evidence that Move America Forward has subsidized the PACs by allowing them to use its mailing list, a valuable asset that the IRS says charities are not supposed to just give away.

Eustis, the former Tea Party Express consultant, said Russo and others “basically used the Move America Forward email list to start online fundraising,” back in 2008, when the charity list had about 50,000 names and the Tea Party Express was just starting. “It’s definitely intermingled,” he said.

A ProPublica reporter’s father created an email address and signed up for the charity’s mailing list on Nov. 21, using the address for nothing else.

At first, a few emails arrived from Move America Forward. Then, on March 20, an email arrived from one of the PACs, the Conservative Campaign Committee, with the subject line, “Sarah Palin Motivating Conservatives to Vote in 2014,” asking donors to give money for a “fantastic new TV ad in key swing states.” On March 21, an email came from the Tea Party Express.

There’s no indication in regulatory or tax filings that Russo’s PACs bought or rented Move America Forward’s mailing list. The IRS would find almost any possible explanation for how the PACs are using the charity’s mailing list without paying for it problematic, nonprofit experts said.

“It’s certainly a warning sign,” said John Pomeranz, a Washington lawyer specializing in election activity by tax-exempt groups. “Charities must not give any resources to PACs. They can sell or rent those lists for fair market value. But if there’s not fair market value paid, there’s a problem.”

The line between Move America Forward and the Move America Forward Freedom PAC is even more blurry. The PAC’s website describes it as “a Political Action Committee organized and brought to you by Move America Forward.”

Move America Forward’s YouTube page features a campaign commercial from its sister Freedom PAC. The charity’s Facebook page links to the ad as well, and has asked people to donate to the PAC, saying “Please Help!” just days before the 2012 election.

“If the charity says, ‘Go visit our PAC and give it money’ — that’s a problem,” said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance. “Any type of support from the charity to the PAC is problematic. If you want to be a charity, if you want to be tax-exempt, you cannot be involved in political campaigns, you cannot support or oppose candidates for office. And Congress says so.”

Even as nonprofit experts, officials from other charities, and former insiders have raised questions about Move America Forward, this year’s Troopathon appears to have gone off without a hitch on June 25.

Former presidential candidate Herman Cain, Texas Sen. Ted Cruz and many others sent pre-taped endorsements that were shown at the seven-hour fundraiser.

Flanked by American flags, co-host Melanie Morgan, Move America Forward’s co-founder and board chairwoman, begged viewers to donate money. She said the charity wanted to send care packages to every servicemember in Afghanistan and Iraq, adding that the charity tried to keep its costs “very low” to maximize the resources going to service members. Dwindling resources in Afghanistan had left some troops hungry, making Move America Forward’s work more urgent than ever, she said.

“These care packages that we’re putting together are not just a luxury item anymore,” Morgan told one guest. “In some cases, they’re necessities.”

By the end of the broadcast, the charity announced Troopathon had raised almost $300,000. Among the donors was Gary Sinise, who spent an hour on stage asking for contributions and gave $5,000 while on the set. (Through his publicist, Sinise declined to respond to questions from ProPublica about Move America Forward.)

“I think we’d have a catastrophe on our hands quite frankly if some of the great military nonprofits weren’t out there right now,” he said at Troopathon. At the end of his appearance, he thanked Morgan and touched her arm. “You’re doing great,” he said.

Image via ProPublica

The IRS Moves To Limit Dark Money — But Enforcement Still A Question

by Kim Barker, ProPublica.

The IRS and Treasury Department announced proposed guidelines clarifying the definition of political activities for social welfare nonprofits Tuesday afternoon, a move that could restrict the spending of the dark money groups that dumped more than $254 million of anonymous money into the 2012 elections. Read the guidelines here.

However, the guidelines, which finally define what constitutes “candidate-related political activity,” aren’t a done deal. They will take some time for public comment and debate, and more time to finalize. (The IRS asks that all comments and requests for a public hearing be submitted by Feb. 27.) Experts also cautioned that the real test of oversight on the political spending by nonprofits will be how these regulations are enforced, something that the IRS has been so far reticent to do.

The proposed regulations “are only as good as the extent of compliance with them, which history would indicate requires a realistic threat of enforcement and significant sanctions on the groups involved and probably the individuals running those groups,” said Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance.

Social welfare nonprofits are allowed to spend money on election ads without reporting their donors, as long as they can prove that social welfare — and not politics —  is their primary purpose. But the IRS guidelines for political spending have been vague. They state that the agency will apply a “facts and circumstances” test to each ad, meaning that if an ad walks and talks like a political ad, it’s a political ad.

ProPublica and others have written extensively about how many social welfare nonprofits have exploited loopholes in Federal Election Commission and IRS rules since the Supreme Court’s 2010 Citizens United ruling opened the door to unlimited election spending by corporations and nonprofits.

Some of the groups spend more than political action committees. GOP strategist Karl Rove’s group Crossroads GPS, for example, told the IRS it spent more than $74.5 million on election activities in 2012, more than any other dark money group and all but two SuperPACs, which are allowed to raise and spend unlimited amounts of money from reported donors.

The proposed regulations could dramatically change how the nonprofits spend money. The proposal defines political activity as including any expenditures reported to the FEC and any grants to other tax-exempt organizations that do candidate-related political activity. (We wrote yesterday about one such grant from Rove’s group.) Political activity would also include voter-registration drives and “get out the vote” drives  — even for nonpartisan groups. It would also include holding events featuring candidates within two months of a general election.

“This proposed guidance is a first critical step toward creating clear-cut definitions of political activity by tax-exempt social welfare organizations,” said Mark Mazur, Treasury’s assistant secretary for tax policy, in a statement. “We are committed to getting this right before issuing final guidance that may affect a broad group of organizations. It will take time to work through the regulatory process and carefully consider all public feedback as we strive to ensure that the standards for tax-exemption are clear and can be applied consistently.”

Until now, many groups have counted some ads reported to the FEC — those that stop short of telling people how to vote — toward their education mission. Some groups have also counted direct political spending reported to the FEC as part of their social welfare mission. Most nonprofits have counted grants to politically active social welfare nonprofits as part of their social welfare mission.

The regulations represent the first time the IRS has pushed back against political activity by these groups since revealing that the agency targeted the applications of conservative groups for extra review in May, kicking off a political firestorm. (Conservative groups accounted for about 85 percent of the spending by social welfare nonprofits in 2012.)

The proposed regulations appear similar to ones used by the IRS last summer for groups that wanted to expedite approval of their applications. However, the new regulations don’t propose a limit on spending, unlike last summer’s rules, which said no more than 40 percent of a group’s expenditures could be made on political activities.

If adopted, the rules would also make social welfare nonprofits operate much differently from unions and trade associations, nonprofits that are also allowed to spend money on political activity. If that happens, it’s likely trade associations like the U.S. Chamber of Commerce will become the vehicle of choice for anonymous money in politics, experts said.

Photo via Wikimedia Commons

New Tax Return Shows Karl Rove’s Group Spent Even More On Politics Than It Said

by Kim Barker, ProPublica.

On its 2012 tax return, GOP strategist Karl Rove’s dark money behemoth Crossroads GPS justified its status as a tax-exempt social welfare group in part by citing its grants of $35 million to other similarly aligned nonprofits. (Here’s the tax return itself, which we detailed last week.)

The return, signed under penalty of perjury, specified that the grants would be used for social welfare purposes, “and not for political expenditures, consistent with the organization’s tax-exempt mission.”

But that’s not what happened.

New tax documents, made public last Tuesday, indicate that at least $11.2 million of the grant money given to the group Americans for Tax Reform was spent on political activities expressly advocating for or against candidates. This means Crossroads spent at least $85.7 million on political activities in 2012, not the $74.5 million reported to the Internal Revenue Service. That’s about 45 percent of its total expenditures.

The transaction also provides a window into one way social welfare nonprofits work around the tax code’s dictate that their primary purpose cannot be influencing elections. Grants sent from one nonprofit to another may be earmarked for social welfare purposes, but sometimes end up being used to slam or praise candidates running for office.

“They have a bad grantee here,” said Marcus Owens, the former head of the IRS’ Exempt Organizations division, who looked at the documents at ProPublica’s request. “My question would be, ‘What has Crossroads done to recover that money?’ That’s what the IRS would expect.”

Crossroads spokesman Jonathan Collegio did not respond to questions from ProPublica about Americans for Tax Reform’s use of the grant or whether Crossroads would ask for it to be refunded.

Instead, Collegio wondered whether Americans for Tax Reform could have used resources carried over from 2011 to fund the 2012 election spending, rather than money from Crossroads. “Were resources carried over from 2011?”  he asked in an email to ProPublica.

But after consulting with tax experts, ProPublica determined Americans for Tax Reform couldn’t have used resources from 2011 for the political spending.

“That’s called bullshit with a serving of horseshit on the side,” Owens said.

Americans for Tax Reform reported a total of $10.3 million in assets in the beginning of 2012. Of those assets, $8.2 million was only available on paper, an amount due from a related charity, the Americans for Tax Reform Foundation. The rest — $2.1 million — was a combination of equipment, leasehold improvements, cash holdings, net accounts receivable, prepaid expenses and deferred charges. None of those amounts changed significantly by the end of 2012. In other words, the only known source for the money Americans for Tax Reform spent on politics was donations from Crossroads and others.

Collegio didn’t respond to an email from ProPublica last Wednesday outlining how some of the Crossroads’ grant had to have been spent on election activities.

John Kartch, the spokesman for Americans for Tax Reform, also didn’t respond to ProPublica questions about the use of the Crossroads grant for politics.

Social welfare nonprofits, also known as dark money groups because they don’t have to report their donors, are allowed to spend money on politics as long as their primary purpose is social welfare. The groups often count so-called issue ads that stop short of advocating for or against a candidate and grants toward that social welfare mission. Since the Supreme Court’s 2010 Citizens United decision allowed corporations and unions to spend directly on election ads, these nonprofits have turned into the vehicle of choice for anonymous spending, dumping more than $254 million into the 2012 elections.

Of the 150 or so social welfare nonprofits that reported spending to the Federal Election Commission during the 2012 election cycle, Crossroads was king, the biggest anonymous spender by far. Americans for Tax Reform came in fourth, with $15.8 million.

On its 2012 tax return, made public last week, Crossroads said it gave its biggest grant, $26.4 million, to Americans for Tax Reform for “social welfare.”

In the last part of 2012, Americans for Tax Reform told the FEC it spent repeatedly on ads and mailers, $15.8 million altogether on so-called “independent expenditures,” mostly in the month before the election, opposing Democrats and supporting Republicans running for Congress. (Independent expenditures tell people they should vote for or against a certain candidate.) Most of that money, more than $10.7 million, was for media buys, to purchase air time on TV and radio for various ads. More than $1.6 million went to designing, producing and sending mailers. Most of the rest of the money went to ad production and phone banks. (Here are some examples of those ads.)

Americans for Tax Reform told the IRS in its tax return, obtained and made public by the watchdog group Citizens for Responsibility and Ethics in Washington (CREW), that it raised and spent about $31 million in 2012. Since the group got $26.4 million from Crossroads, only $4.6 million of its revenue came from other donors. At least $11.2 million of Crossroads money had to go toward the political ads reported to the FEC.

That means Americans for Tax Reform spent about 51 percent of its money on political ads reported to the FEC in 2012.

But the group also told the IRS on its tax return, signed under penalty of perjury, that it spent only $9.8 million on direct and indirect campaign activity in 2012, defining that spending as “engaged solely in the making of independent expenditures supporting and opposing candidates for federal office.”

Last Tuesday, CREW filed a complaint with the IRS and the tax division of the Department of Justice against Americans for Tax Reform and its president, Grover Norquist, alleging they deliberately provided false information to the IRS in the tax filing.

ProPublica and others have documented how such groups often minimize their political spending to the IRS. Although the IRS has been hesitant to establish any so-called “bright lines” for campaign activity, campaign finance and tax lawyers say independent expenditures reported to the FEC definitely qualify as political spending under the tax code.

Crossroads GPS itself counted all of its independent expenditures reported to the FEC in both 2010 and 2012 as part of its political spending reported to the IRS.

“Clearly, ads that tell people who to vote for or against are campaign intervention,” said a Congressional Research Service report on IRS rules on political ads prepared for Congress in August 2012. Last summer, the IRS told social welfare nonprofits that wanted to expedite their approval that political expenditures included administrative and overhead costs, and any expenditure on printed, electronic or oral statements supporting or opposing the election or nomination of any candidate for public office.

Lloyd Hitoshi Mayer, a law professor and associate dean at the University of Notre Dame who specializes in nonprofits and campaign finance, reviewed the Americans for Tax Reform documents at the request of ProPublica and said it was possible that the group was allocating overhead or other costs differently in its tax return than in its FEC filings.

“I do not see how any reasonable allocation differences could result in such a large disparity, however,” Mayer said.

Owens, the former IRS official, said it was possible that some of the media buy money reported to the FEC was later refunded by the TV stations. But even that money wouldn’t account for such a large gap, he said. Owens speculated that Americans for Tax Reform might have determined that some of its ads wouldn’t qualify for reporting to the IRS.

“There’s just no way that could withstand scrutiny under the laws that exist,” Owens said. “What you have is two documents from the same group, one for the FEC and one for the IRS, both submitted under penalty of perjury. At least one is incorrect.”

Still, on Tuesday, Kartch insisted the $9.8 million figure on Americans for Tax Reform’s tax form, known as a 990, was correct, while ignoring requests from ProPublica to explain how it was derived.

“The correct number to use here is the $9.8 million figure as reported on our 2012 990, not the number you cite from an FEC report,” Kartch wrote. “ATR meets or exceeds the requirements of the FEC and the IRS according to their standards.”

He also scoffed at the CREW complaint, saying, “This attack is political and CREW knows it is nonsense.”

It’s not clear how the IRS might respond to the apparent misuse of the Crossroads grant or to the fact that Americans for Tax Reform seems to have underreported its political spending.

Complaints to the IRS about the tax-exempt status of Crossroads and other political social welfare nonprofits have been made since 2010, but they are still pending. So is an earlier CREW complaint against Americans for Tax Reform for its spending in 2010. A scandal that erupted in May over the IRS targeting the applications of Tea Party and other conservative social welfare nonprofits may have also made the IRS more likely to take a hands-off approach to the groups, experts say.

“They’re going to keep their heads down,” Owens said.

Photo: National Constitution Center via Flickr

Dark Money Groups Pay $1 Million In Fines In California Case

by Kim Barker ProPublica.

Two dark money groups linked to conservative billionaire brothers Charles and David Koch have paid a record $1 million in fines to California to settle allegations that the combined $15 million they spent on two ballot proposals in the state was not properly disclosed.

The civil settlement, announced Thursday afternoon in Sacramento, caps a year of investigation into the activities of the two Arizona groups, Americans for Responsible Leadership and the Center to Protect Patient Rights.

The settlement disclosed new details in the case, including how the money was raised and how the Center to Protect Patient Rights disguised its two contributions to two California political committees. As part of the settlement, the Center to Protect Patient Rights conceded it was responsible for funneling $11 million through Americans for Responsible Leadership to a political committee spending money to fight a tax-hike measure and to support a proposition restricting unions’ political power.

The Center to Protect Patient Rights also gave an additional $4 million to another dark money group, the American Future Fund, which gave the money to another political committee spending on the anti-union measure.

“What is the takeaway from this trail of dark money?” asked Ann Ravel, the outgoing head of California’s Fair Political Practices Commission, which investigated the groups along with the state attorney general’s office. “This is a nationwide issue. These groups exploit loopholes in the law to undermine the clear purpose of the law, to give essential information to the public.”

The state assessed one $500,000 fine to the Center to Protect Patient Rights only, and another $500,000 fine to the two groups jointly. The state is also demanding that the two political committees “disgorge,” or hand over, the $15 million they received in improper donations through the Center to Protect Patient Rights before the end of November. All of the money would go to California’s general fund.

In an interview, Gary Winuk, the chief of enforcement for the California Fair Political Practices Commission, acknowledged that the state may have to go to court to recover that $15 million. One of the political committees has already closed down.

The settlement says California authorities determined that the Center to Protect Patient Rights “inadvertently, or at worst negligently,” did not report itself as a donor to the American Future Fund. A similar decision was made on the group’s lack of disclosure to Americans for Responsible Leadership.

In a statement sent through its lawyer, the Center to Protect Patient Rights said the commission recognized it erred largely because it had never before made contributions in California and that it had no intention to violate campaign reporting rules.

“Also, the California Attorney General conducted a complete and thorough investigation and agreed that the conduct was unintentional and inadvertent,” said the lawyer, Malcolm Segal.

Americans for Responsible Leadership did not return a message seeking comment.

Anonymous money funneled through social welfare nonprofits and trade associations has become a major factor in federal elections since the Supreme Court’s Citizens United decision in early 2010 opened up the door to unlimited corporate and union spending on outside ads, as documented by ProPublica. In the past two election cycles, social welfare nonprofits have spent more than $350 million, mostly from unknown donors, on election ads telling people to vote for or against federal candidates.

Some national groups have also started playing on the state level, particularly with ballot proposals.

The California agreement, reached on Oct. 17, underscored how some states, such as California, Idaho and Montana, have actually done more to identify anonymous donors than the Federal Election Commission. In June, New York Attorney General Eric Schneiderman imposed regulations attempting to require disclosure for money spent on state elections. A new disclosure bill has been introduced in California. This month, after a push by California’s Ravel, regulators from 10 states announced the launch of a nationwide effort to encourage the disclosure of donors.

But the settlement also highlights the limitations of investigations into who’s behind dark money groups: Instead of unmasking some reclusive billionaire or shy corporation, regulators often uncover yet another nonprofit, like a set of Russian nesting dolls. The original sources of the money spent in California were not publicly identified, nor will they be.

“A number of donors did not want to be identified,” said Winuk, the enforcement chief for California’s campaign finance regulator, who received only a redacted list of donors for the original contributions.

And while the groups have been linked to the Koch brothers, it’s not clear how exactly they’re connected. The Center to Protect Patient Rights, which operates out of a post office box in Arizona and doesn’t even have a website, has been described practically like an ATM machine for various groups affiliated with the Koch brothers. The press release issued by California authorities says the Center and Americans for Responsible Leadership “operated as part of the ‘Koch Brothers Network’ of dark money political nonprofit corporations.”

The Kochs have long been known for spending millions to influence elections behind the scenes, through a complex network of groups that critics have nicknamed “the Kochtopus.” The Kochs themselves have remained determinedly in the background.

One link between these two groups and the Koch network is Sean Noble, a GOP strategist who runs two political consulting firms and is the sole employee of the Center to Protect Patient Rights, which was launched in 2009. In 2010, he spoke on a panel at a Koch brothers’ secretive retreat, small semiannual affairs that are invitation-only and closed to the media. In 2010 and 2011, the Center to Protect Patient Rights handed out almost $60 million to conservative groups that spent tens of millions on election ads. The Huffington Post recently quoted a GOP operative describing Noble as “the wizard behind the screen” for the Koch network’s election efforts in 2012.

Noble did not return a call for comment.

Another link is Wayne Gable, a former top official at Koch Industries who has also served in leadership roles in several nonprofits formed by the Kochs. In 2011, Gable launched a new trade association that gave almost $115 million to the Center to Protect Patient Rights over the following year. It’s not yet clear how the Center doled out its money, as its tax return for 2012 isn’t yet available.

The leader of Americans for Responsible Leadership has close ties to Noble. Republican Kirk Adams hired Noble’s firm in 2011 and 2012 to help run his failed campaign to replace outgoing U.S. Rep. Jeff Flake in Arizona. Adams lost in the primary in August 2012; the next month, he was named president of Americans for Responsible Leadership.

According to the settlement, some $24.5 million of the money distributed by the Center to Protect Patient Rights was raised by GOP strategist Tony Russo for another organization, Americans for Job Security, a Virginia-based trade association. (Russo didn’t return calls for comment.)

Americans for Job Security gave the money to the Center to Protect Patient Rights. Then the Center gave about $7 million to the Iowa dark money powerhouse American Future Fund on Sept. 11, 2012; of that, the American Future Fund gave about $4 million to a new California committee, the California Future Fund for Free Markets, which supported the anti-union measure. That committee has since closed down.

The Center also gave $18 million to Americans for Responsible Leadership in October 2012, recommending that the group “should use the funds to support common social interests, including support” for the Small Business Action Committee PAC, a committee that Russo was also raising money for, the settlement said. Americans for Responsible Leadership then gave $11 million to the Small Business Action Committee PAC to spend on the two ballot proposals.

That $11 million contribution sparked a complaint, an investigation and a court battle. Just before the election, Americans for Responsible Leadership admitted that it got its money from the Center to Protect Patient Rights, which in turn got the money from Americans for Job Security.

The fine is the largest in California history in a campaign-finance case.

The manner in which the groups paid it speaks volumes about how dark their money really is.

They paid by cashier’s check, sent by a Sacramento lawyer’s office Thursday morning, betraying no clue to the money’s origin.

Photo: Phillip Taylor PT via Flickr

D’Oh! ‘America Is Not Stupid’ Wins IRS Recognition As Tax-Exempt Nonprofit

by Kim Barker, ProPublica.

Smart move?

The IRS has granted nonprofit status to America Is Not Stupid — a so-called dark money group best known for a 2012 election ad featuring a talking baby who compared the smell of his diaper with a Montana senator.

As ProPublica wrote in January, America Is Not Stupid and a related group, A Better America Now, applied for IRS recognition in the run-up to the 2012 election, swearing under penalty of perjury that they would not spend money on elections.

Then both groups went ahead and did exactly that, spending more than $125,000 on mailers and ads opposing Democratic candidates in Texas and Montana.

Despite these disclosures, records show, the IRS gave A Better America Now its stamp of approval as a social welfare nonprofit in April and recognized America Is Not Stupid in late June, decisions that elicited amazement among campaign finance watchdogs.

Marcus Owens, a nonprofit lawyer who ran the IRS Exempt Organizations division from 1990 to 2000, questioned whether a controversy that erupted earlier this year, over the agency subjecting certain conservative nonprofits to extra review, had damaged its ability to fulfill its regulatory functions.

“The oversight has collapsed,” Owens said. “The current people in Exempt Organizations have no tax law enforcement experience and no exempt organization experience in particular. And they’ve been charged with making this particular headache go away.”

Because of the government shutdown, the IRS could not be reached for comment. In the past, the IRS has not commented on stories about specific groups. Talking about individual taxpayers violates the law.

No one from either America Is Not Stupid or A Better America Now responded to emails and phone calls asking for comment.

In May, the IRS admitted that it had flagged the applications of Tea Party and related groups for extra review, dooming many to years of limbo. That admission turned into a firestorm, leading to the immediate resignation of the acting IRS commissioner and the eventual replacement of the top officials in the Exempt Organizations division. Senate and House committees started investigating. The Treasury Inspector General for Tax Administration expanded its initial audit. And the Justice Department announced a criminal inquiry. (Later, records were released showing that the IRS was also flagging liberal groups with “progressive” in their names.)

Since the Supreme Court’s Citizens United ruling in early 2010 opened the door to increased political spending by corporations and unions, nonprofits like America Is Not Stupid have taken on an expanding role in U.S. elections. That’s largely because they do not have to identify their donors, unlike SuperPACs, leading them to be dubbed “dark money” groups.

About 150 of these nonprofits spent more than $254 million in 2012 on ads, phone calls and mailings reported to the Federal Election Commission. Almost all the donors of that money have remained anonymous. Most of that money 2014 more than 85 percent 2014 was spent by conservative groups, according to the Center for Responsive Politics and research by ProPublica.

These groups are allowed to spend limited amounts to influence elections, as long as they can prove their primary purpose is “social welfare.” But ProPublica has shown how dozens of social welfare nonprofits have underreported their political spending, or spent money on elections despite telling the IRS they would not do so.

In its 2012 annual work plan, the IRS recognized the problem, announcing it would take a hard look at nonprofits and “serious allegations of impermissible political intervention.”

If the agency’s exchanges with America Is Not Stupid and A Better America Now are any indication, however, the augmented focus on nonprofits has been less than ferocious.

The IRS sent ProPublica the groups’ applications for recognition last November, even though they had not yet been recognized and the documents were therefore not supposed to be made public. We wrote stories about these and several other pending applications, bringing it to the IRS’ attention that these groups had pledged that they would not spend money on elections, yet did so.

According to IRS records, neither group ever amended its application to reflect its political spending.

In response to IRS questions about their applications, though, the groups acknowledged that they had spent small amounts on elections — a contradiction that apparently did not hobble their chances for recognition.

A month after receiving IRS recognition in April of this year, A Better America Now changed its story again. It filed its 2012 tax return and asserted — again, under penalty of perjury — that it had spent no money to influence elections. ProPublica reported this in July.

The group’s president, Bob Portrie, lawyer Eugene Peek, and accounting firm LBA Group, all out of Florida, did not return calls and emails for comment.

The IRS told ProPublica that the 2012 tax return for America Is Not Stupid was “unavailable” as of last month. Renae Duncan, the group’s certified public accountant in Texas, said she would pass on an inquiry from ProPublica to Miguel A. Gutierrez, the group’s president, on Monday morning. He has not yet responded.

In replying this May to IRS questions on America Is Not Stupid’s application, Gutierrez provided several examples of the group’s activities as proof that it had a bona fide social welfare mission of improving the good of a community — the critical factor in maintaining tax-exempt status.

He said the group had created a website, www.NewsEagle360.com, and had authored articles “regarding how underserved communities or minority populations and economically disadvantaged small businesses may be affected by certain U.S. federal rules and regulations in the coming years.” There’s no sign of any such articles on the website or elsewhere, however. (On Monday, one of the website’s top stories was on “CoralActives: Breakthrough Acne Skin Care.”)

To showcase the group’s “educational content,” Gutierrez pointed to the main website for America Is Not Stupid, a single page with 156 words on it.

He told the IRS that the nonprofit conducted polls in Montana, Nevada and Texas, targeting heads of households with Hispanic surnames. But the only poll included in the response didn’t mention Latinos at all. Instead, it asked Montanans about which candidates they planned to vote for in the 2012 election.

The group’s president also said the group held events, including one in San Antonio to “openly discuss topics affecting the Hispanic population in the U.S., including, but not limited to, healthcare, the housing market, jobs and the economy, and various education issues.”

Gutierrez said the event was held on Oct. 26 — just before the 2012 election. The event was free for the first 3,000 people, and billed to the public as strictly entertainment, an evening featuring comedian Paul Rodriguez and the Leslie Lugo Band playing music “to dance into the night.”

But former Bush official Hector Barreto gave the keynote address, Gutierrez told the IRS. One detail America Is Not Stupid didn’t mention: Barreto also happened to be the co-chair of Juntos Con Romney, Republican presidential candidate Mitt Romney’s Hispanic steering committee.

Nothing Gutierrez said in his May 24 response to the IRS seems to have raised any red flags with the IRS, however.

A month after receiving it, the IRS recognized America Is Not Stupid.

Inside Game: Creating PACs And Then Spending Their Money

by Kim Barker, ProPublica.

In August 2008, as the right wing of the Republican Party grew increasingly disenchanted with the party’s direction, the men from Russo, Marsh and Associates sensed opportunity: They created a political action committee, Our Country Deserves Better, and in time launched the Tea Party Express.

Russo, Marsh — an established California outfit of Republican consultants — was just getting started. The firm formed a second political committee, this one with a pro-military agenda. And eventually, seizing on the president’s unpopularity in certain circles, they opened a third, the Campaign to Defeat Barack Obama.

Throughout the 2012 election cycle, the committees were relentless. In email after email, they pleaded for small donations to run ads supporting candidates who would defeat President Obama’s “socialist” agenda. And it worked: They collected more than $14 million in donations — from all over the country, and from donors who gave as little as $10 to elect Ted Cruz as a Republican senator from Texas or to put Mitt Romney in the White House.

Yet an examination of the PACs’ expenditures shows they spent a small percentage of the money they raised on work directly aimed at getting candidates elected — paid ads, say, or contributions to other political committees. Mainly, they paid consultants. And the biggest chunk of that consultant money went to Russo, Marsh and Associates, and people connected to the firm.

Of the $9.3 million spent by Our Country Deserves Better, more than $3.8 million went to Russo, Marsh and Associates, employees or others connected to the firm. Of the $3.9 million spent by the Campaign to Defeat Barack Obama, $2.4 million went to the firm and its associates. The pro-military Move America Forward Freedom PAC spent almost $143,000. Of that, $92,000 went to the firm and people connected to it.

Some of that money went for travel, or for ads funneled through the consultants. But most was for consulting, fundraising fees and administrative help.

It’s rare for the people who form PACs to pay and treat themselves quite so generously. In addition to paying Russo, Marsh an assortment of fees, the PACs spent money so its principals could travel well: from almost $1,300 for meals at a fondue restaurant in Ohio on Oct. 18, to more than $50,000 for consultants and staff to occasionally stay at a golf resort on Lake Michigan last fall.

Meanwhile, the people who gave money had no idea that such amounts would go to consultants, not to the nuts-and-bolts efforts to get preferred candidates elected and their opponents defeated.

“How does Joe Average know this?” asked Linda Knox, 73 — who with her husband gave $585 to the Campaign to Defeat Barack Obama, mainly in $10 and $15 increments — after learning of the PAC’s spending habits. “Of course I want the money to go to elect people who share my values, not to consultants.”

No one from Russo, Marsh and Associates returned calls asking for comment. The two largest PACs didn’t respond to emails and calls. Danny Gonzalez, a spokesman at the pro-military PAC, said: “I was not aware of what the particular numbers are.” He said he would prepare a more detailed response.

Shawn Callahan, who’s worked for Russo, Marsh and now does consulting for the PACs, said Our Country Deserves Better did much more than just contribute to campaigns “in a traditional sense.” He said the PAC focused on coordinating unpaid grassroots activists, and spent much of its money on political organizing. He said the Tea Party Express held more than 400 rallies over the past three years, adding that the group had been credited with making the difference in dozens of House races.

“What looks like overhead is not overhead, but the costs of performing the mission of rallying citizens to get involved in conservative politics,” he wrote in an email. At a later point, he added: “As a political activist and donor myself, I hope that donors are proud of all that we have accomplished together. I know I am.”

While many watchdog organizations track how political committees raise money, few look at how the money is ultimately disbursed. PACs can spend their money as they want — on legal fees, on big meals, on trips to Dubai. But while PACs often devote some money to fundraising, most spend the bulk of contributions on efforts clearly aimed at electing specific candidates.

This last election, more than 3,000 PACs like the Russo, Marsh ones — independent committees supporting more than one candidate and not officially run by a lobbying group — spent almost half a billion dollars. Two-thirds of those committees spent most of their money directly supporting candidates.

PACs like these are allowed to donate money to a candidate or candidate committee — up to $5,000 per election. They can also donate up to $15,000 to a national political party committee and $5,000 to local parties or other political committees every year. But PACs also often spend money on what are known as independent expenditures, such as TV ads and phone calls supporting or opposing candidates. This spending can be unlimited, but it must be done independent of the candidates, meaning that the candidates often aren’t even aware it’s happening — especially with PACs that don’t spend much on ads.

Longtime conservative activist Sal Russo, who helped found the consulting firm that became Russo, Marsh and Associates in Sacramento, CA, in 1976, has a long history with mainstream Republicans. He got his big break as an aide to Ronald Reagan, when the late president was California’s governor. Russo developed longtime ties with several conservative politicians, including Utah senator Orrin Hatch. He worked on the campaigns of former presidential candidate Jack Kemp and former New York governor George Pataki.

Questions about the role of Russo, Marsh and Associates with political committees are not entirely new. The New York Times and Talking Points Memo detailed how one of the committees, Our Country Deserves Better, had paid out a substantial amount of money to the Russo, Marsh firm in 2009 and 2010. Sal Russo told The New York Times his firm did nothing wrong.

One Republican consultant, who would not be identified, said that PACs that raise and spend money like Russo, Marsh in the end hurt the efforts and reputation of conservatives, while often failing to have any truly reliable influence on election night.

After the 2012 elections — and despite critical news stories in several publications — the PACs got back to work. The Campaign to Defeat Barack Obama changed its name to the Conservative Campaign Committee just after the election, and emails this week from the group have asked people to send money for ads supporting Larry Grooms, who is running in a Republican primary for a U.S. House seat in South Carolina.

“Any entity that raises money under the banner of a certain cause and then doesn’t spend money on that cause raises serious questions,” said Hogan Gidley, a consultant with Grooms’ campaign, adding that the campaign wasn’t affiliated with the Conservative Campaign Committee and that he wasn’t familiar with the inner workings of the group.

Of the donors who give to such committees, Gidley said, “They should hold the groups’ collective feet to the fire and make sure the money is going to its stated purpose.”

The Our Country Deserves Better PAC, which created the Tea Party Express, “the most aggressive and influential national Tea Party group in the political arena,” according to its website, spent some of the $9.3 million it ran through in this election cycle on bus tours and rallies.

But it spent only 10 percent of its money directly on elections — $259,500 in contributions to political committees and candidates, and $681,000 on independent expenditures, most of which were funneled through Russo, Marsh and Associates.

The PAC spent almost half its money on fundraising, often using the Russo, Marsh firm or affiliated consultants. That fundraising ratio — spending almost $1 to earn $2 — is very high in the world of political action committees.

And the PAC also let its consultants live rather large: $3,500 for “PAC Election Night Headquarters” at a casino-resort in Las Vegas, $3,200 for meals and a meeting at a Mediterranean restaurant in Boston in February, 2011, more than $1,000 for parking at LaGuardia Airport in New York in May, 2011.

Barely one-third of the $3.9 million spent by The Campaign to Defeat Barack Obama went to truly focused efforts at electing candidates, but its consultants traveled comfortably: more than $4,500 to stay at Caesars Palace in Las Vegas in June, more than $8,200 to stay at the Paris Las Vegas Hotel in July.

Individual consultants, including current or former Russo, Marsh employees, did very well.

Joe Wierzbicki, who works at Russo, Marsh and Associates, pulled in almost $528,000 from two of the PACs. Most of that came from the Our Country Deserves Better PAC, which describes Wierzbicki on its website as “PAC coordinator,” but neglects to mention he is a senior account executive at the Russo, Marsh firm.

Ryan Gill, who has also worked for the pro-military PAC and a related charity, was paid almost $592,000 from the two PACs, mostly from the Campaign to Defeat Barack Obama, for strategic consulting, fundraising commissions, travel reimbursement and online ads supporting several candidates.

In one month alone, the Campaign to Defeat Barack Obama paid Gill about $5,300 on July 2, $2,300 on July 3, $4,100 on July 6, and $12,000 on July 9, calling the payments “fundraising salary.” Then he was paid $5,000 for “PAC strategy consulting” on July 20. He was also paid $7,400 for online advertising to promote certain candidates. And he was reimbursed almost $12,300 for travel.

Until last year, Callahan, the former Russo, Marsh employee, was the executive director of the pro-military charity. Callahan helped form a business called Frontline Strategies & Media.

Two of the PACs paid Frontline Strategies about $386,000 for fundraising commissions, consulting and website maintenance.

Callahan is also the founding chief executive officer of a company called DonationSafe, which the three PACs paid $450,000 for credit-card processing fees.

In responses to emailed questions, Callahan said he had to pay multiple employees for Frontline who “are dedicated full-time to those accounts.” He said the PAC payments help cover his employees’ salaries, “along with all the other costs that come from running a business.”

The PACs linked with Russo, Marsh and Associates frequently attach themselves to popular causes or candidates or topics in the news. In past weeks, for example, they’ve sent emails praising Republican senators Rand Paul and Ted Cruz, while asking for donations.

This month, the Conservative Campaign Committee — formerly the Campaign to Defeat Barack Obama — has sent out emails, asking supporters to pony up $35,000 for a radio ad campaign backing Grooms in South Carolina. One email urged supporters to volunteer for Grooms and to give money to support him — not to Grooms’ actual campaign, but to the PAC. That email also linked to the proposed radio ad and to two TV ads that were actually put out by Grooms’ campaign — a nuance that would likely be lost on many supporters, who would probably think that the PAC was somehow involved in the TV ads.

“So many of you have told us how much you want to see real action taken to stop Barack Obama’s radical agenda,” said another email, sent March 6, with the subject line of “Time Sensitive: Your attention required.” “That’s why it’s so important for Larry Grooms to win this election — we need his voice and his vote in Congress to defeat Obama’s aggressive push for socialism.”

It won’t be clear until July how much the PAC raised. But it’s already reporting some of what it spent. The cost of sending out the  two emails was $1,670, and it was paid to Russo, Marsh and Associates.

IRS Should Bar Dark Money Groups From Funding Political Ads, Lawsuit Says

by Kim Barker, ProPublica

A former Illinois congressional candidate and a government watchdog organization have teamed up to sue the Internal Revenue Service, claiming the agency should bar dark money groups from funding political ads.

The lawsuit, filed on Tuesday by David Gill, his campaign committee and Citizens for Responsibility and Ethics in Washington (CREW), is the first to challenge how the IRS regulates political spending by social welfare nonprofits, campaign-finance experts say.

As ProPublica has reported, these nonprofits, often called dark money groups because they don’t have to identify their donors, have increasingly become major players in politics since the Supreme Court’s Citizens United ruling in early 2010.

Gill, an emergency room doctor who has advocated for health care reform, including a single-payer plan, was the Democratic candidate for the 13th district in Illinois last year. After a tight race, Gill ended up losing to the Republican candidate by 1,002 votes — a loss the lawsuit blames “largely, if not exclusively,” on spending by the American Action Network, a social welfare nonprofit.

It’s impossible to say for certain why Gill lost. He had lost three earlier races for a congressional seat.

But the American Action Network, launched in 2010 by former Minnesota Republican senator Norm Coleman, played a role. It reported spending almost $1.5 million on three TV commercials and Internet ads opposing Gill, mainly in the weeks right before the election. That was more than any other outside group spent on the race, and more than Gill’s principal campaign committee spent on the entire election, according to Federal Election Commission records.

Though Gill had never held public office, the American Action Network ads described him as “a mad scientist” who supported sending jobs to China, channeling money to the failed green-energy company Solyndra, and making a mess out of health care and Medicare.

Gill said he ran into people every day who said they weren’t voting for him because of claims he would destroy Medicare.

“I think that certainly the money put forward — they saw that they could have an impact here,” Gill said of the American Action Network. “They wanted to put their money where it could make a difference between victory and defeat.”

Dan Conston, spokesman for the American Action Network, described CREW as a “left-wing front group” in an email. He said Gill was a “failed candidate with an extreme ideology, looking to blame anyone but himself for losing his fourth straight congressional election.”

Nonprofits like the American Action Network have poured hundreds of millions of dollars into political ads in the last two election cycles. Like SuperPACs, these groups can accept unlimited donations. But SuperPACs must identify their donors, allowing voters to see who is behind their messages.

The Gill lawsuit, filed in U.S. District Court in the District of Columbia, alleges the IRS failed to properly regulate the American Action Network, citing seemingly contradictory definitions the agency has applied to such groups for years.

The statute governing social welfare nonprofits says they should be operated “exclusively” for promoting social welfare. But the IRS paved the way for political spending by these groups by interpreting “exclusively” as meaning the groups had to only be “primarily” engaged in promoting the public good. Some groups have taken this to mean they can spend up to 49 percent of their money on election ads.

The lawsuit claims the IRS’ interpretation of the law “is arbitrary, capricious, and contrary to law,” and asks for an injunction prohibiting the agency from using it.

Melanie Sloan, CREW’s executive director, blamed the IRS for sitting on its hands as social welfare nonprofits have been formed specifically to run negative ads paid for by anonymous donors.

“Now the IRS can explain its deplorable inaction in federal court,” she said.

The IRS didn’t respond to requests for comment Tuesday. It typically doesn’t comment on issues related to individual taxpayers.

The American Action Network has been one of the more controversial dark money groups active in politics. Conston said the American Action Network’s primary focus was on non-electoral activities and called the dispute over the group’s election spending a “tired, long-since-settled argument.”

In filings to the IRS, the group said it spent $25.7 million in its 2010 tax year. In separate filings to the Federal Election Commission, it reported spending about $19.4 million over the same period on political ads, or about 76 percent of the total expenditures reported to the IRS.

If the group stays on its current schedule, American Action Network won’t file its taxes covering the 2012 election until May 2014.

(Carlos T. Miranda, The Pantagraph/AP Photo)

Controversial Dark Money Group Among Five That Told IRS They Would Stay Out of Politics, Then Didn’t

by Kim Barker, ProPublica.

Five conservative dark money groups active in 2012 elections previously told tax regulators that they would not engage in politics, filings obtained from the IRS show.

The best known and most controversial of the groups is Americans for Responsible Leadership, an Arizona-based organization. Not long after filing an application to the IRS pledging — under penalty of perjury — that it would not attempt to sway elections, the group spent more than $5.2 million, mainly to support Republican presidential candidate Mitt Romney.

The California Fair Political Practices Commission has accused Americans for Responsible Leadership of “campaign money laundering” for failing to disclose the origin of $11 million it funneled to a group trying to influence two state ballot propositions.

The other groups that filed applications for IRS recognition of tax-exempt status saying they wouldn’t engage in politics are Freedom Path, Rightchange.com II, America Is Not Stupid and A Better America Now.

Much hangs on these applications, all of which are still pending. The tax code allows social welfare nonprofits to engage in political activities as long as public welfare, not politics, is their primary purpose. If the IRS ultimately decides not to recognize these groups, they could have to disclose their donors.

Such decisions, along with IRS’ oversight of social welfare nonprofits overall, have come under increasing scrutiny as these groups have assumed an ever larger role in elections, pouring an unprecedented $322 million into the 2012 cycle.

ProPublica has documented how some social welfare nonprofits underreport their political activities, characterizing them to the IRS as “education” or “issue advocacy.” Other groups have popped up, spent money on elections and then folded before tax regulators could catch up with them.

The IRS sent the applications submitted by the five groups to ProPublica in response to a public records request, although the agency is only required to supply these records after groups are recognized as tax-exempt. (ProPublica also obtained the pending application of Crossroads GPS, the dark money group launched by GOP strategist Karl Rove that spent more than $70 million on the 2012 elections, which we wrote about separately.)

The IRS confirmed that none of the groups had been recognized as tax-exempt and referred ProPublica to its earlier response about Crossroads’ application. In that email, the IRS cited a law that says publishing unauthorized tax returns or return information is a felony punishable by up to five years in prison or a fine of up to $5,000, or both.

A lawyer for Americans for Responsible Leadership, Jason Torchinsky, cited the same law in an email.

“If you willfully to (sic) print or publish in any manner any information about Americans for Responsible Leadership that you do not lawfully possess — and which may or may not be complete — you will be doing so in violation of (the law) and we will not hesitate to report such unlawful publication to the appropriate law enforcement officials,” Torchinsky wrote.

The other groups for which ProPublica obtained IRS applications did not respond to calls or emails for comment.

ProPublica has published the applications of all five groups, but redacted parts to omit financial information.

“As we said when we published our story on the Crossroads application, ProPublica believes that the information we are publishing is not barred by the statute cited by the IRS, and it is clear to us that there is a strong First Amendment interest in its publication,” said Richard Tofel, ProPublica‘s president.

Social welfare nonprofits do not need IRS recognition, though most opt to apply for it. They can operate, and spend money on politics, while their applications are under consideration.

Americans for Responsible Leadership incorporated in Arizona in July 2011 and applied for IRS recognition last September.

By that time, the group had already spent $5,300 on get-out-the-vote efforts for Sen. Orrin Hatch (R-UT), and given $57,500 to two Republican political committees in Arizona.

Nonetheless, its IRS application said the group hadn’t spent any money to influence elections, nor would it. It also said the group planned to split its efforts between influencing policy and educating the public, in part by “promoting a more ethical and transparent government.”

According to Federal Election Commission filings, the group spent more than $5.2 million on campaign activities in October and early November, mostly on phone calls urging the defeat of President Barack Obama. In addition to the millions it pumped into California ballot measures, the group also spent $1.5 million on two Arizona propositions.

While the IRS doesn’t classify spending on ballot measures as political, California election authorities do.

When ProPublica read the group’s description of its activities on its IRS application to Ann Ravel, the chairwoman of the California Fair Political Practices Commission, she laughed.

“Wow,” she said, upon hearing that the group said it would not try to influence elections. “That’s simply false.”

The California commission pressed Americans for Responsible Leadership to identify who contributed the funds it aimed at the California ballot measures, a battle that reached the state Supreme Court. Just before Election Day, the court ordered the group to reveal its donors.

So, who were they? Another Arizona social welfare nonprofit, which got its money from a Virginia trade association, which also didn’t have to report its donors. California regulators are still trying to peel back the group’s layers, to see who’s behind the money.

Photo credit: AP/J Pat Carter, File

In Montana, Dark Money Helped Democrats Hold A Key Senate Seat

by Kim Barker, ProPublica

Dec. 27: This post has been corrected.

In the waning days of Montana’s hotly contested Senate race, a small outfit called Montana Hunters and Anglers, launched by liberal activists, tried something drastic.

It didn’t buy ads supporting the incumbent Democrat, Sen. Jon Tester. Instead, it put up radio and TV commercials that urged voters to choose the third-party candidate, libertarian Dan Cox, describing Cox as the “real conservative” or the “true conservative.”

Where did the group’s money come from? Nobody knows.

The pro-Cox ads were part of a national pattern in which groups that did not disclose their donors, including social welfare nonprofits and trade associations, played a larger role than ever before in trying to sway U.S. elections. Throughout the 2012 election, ProPublica has focused on the growing importance of this so-called dark money in national and local races.

Such spending played a greater role in the Montana Senate race than almost any other. With control of the U.S. Senate potentially at stake, candidates, parties and independent groups spent more than $51 million on this contest, all to win over fewer than 500,000 voters. That’s twice as much as was spent when Tester was elected in 2006.

Almost one quarter of that was dark money, donated secretly to nonprofits.

“It just seems so out of place here,” said Democrat Brian Schweitzer, the governor of Montana who leaves office at the end of this year. “About one hundred dollars spent for every person who cast a vote. Pretty spectacular, huh? And most of it, we don’t have any idea where it came from. Day after the election, they closed up shop and disappeared into the dark.”

Political insiders say the Montana Senate race provided a particularly telling glimpse at how campaigns are run in the no-holds-barred climate created by the Supreme Court’s 2010 Citizens United decision, giving a real-world counterpoint to the court’s assertion that voters could learn all they needed to know about campaign funding from disclosure.

In many ways, Montana was a microcosm of how outside spending worked nationally, but it also points to the future. Candidates will be forced to start raising money earlier to compete in an arms race with outside groups. Voters will be bombarded with TV ads, mailers and phone calls. And then on Election Day, they will be largely left in the dark, unable to determine who’s behind which message.

All told, 64 outside groups poured $21 million into the Montana Senate election, almost as much as the candidates. Party committees spent another $8.9 million on the race.

The groups started spending money a year before either candidate put up a TV ad, defining the issues and marginalizing the role of political parties. In a state where ads were cheap, they took to the airwaves. More TV commercials ran in the Montana race between June and the election than in any other Senate contest nationwide.

The Montana Senate race also shows how liberal groups have learned to play the outside money game — despite griping by Democratic officials about the influence of such organizations.

Liberal outside groups spent $10.2 million on the race, almost as much as conservatives. Conservatives spent almost twice as much from anonymous donors, but the $4.2 million in dark money that liberal groups pumped into Montana significantly outstripped the left’s spending in many other races nationwide.

As in other key states, conservative groups devoted the bulk of their money in Montana to TV and radio ads. But sometimes the ads came across as generic and missed their mark.

Liberal groups set up field offices, knocked on doors, featured “Montana” in their names or put horses in their TV ads. Many of them, including Montana Hunters and Anglers, were tied to a consultancy firm where a good friend of Jim Messina, President Barack Obama’s campaign manager, is a partner.

The end result? Tester beat Republican Rep. Denny Rehberg by a narrow margin. And the libertarian Cox, who had so little money he didn’t even have to report to federal election authorities, picked up more votes than any other libertarian in a competitive race on the Montana ballot.

Montana Republicans blamed Montana Hunters and Anglers, made up of a Super PAC and a sister dark money nonprofit, for tipping the race. Even though Super PACs have to report their donors, the Montana Hunters and Anglers Super PAC functioned almost like a dark money group. Records show its major donors included an environmentalist group that didn’t report its donors and two Super PACs that in turn raised the bulk of their money from the environmentalist group, other dark money groups and unions.

“Part of what’s frustrating to me is I look at Montana Hunters and Anglers and say, ‘That is not fair,'” said Bowen Greenwood, executive director for the Montana Republican Party. “I am a hunter. I know plenty of hunters. And Montana hunters don’t have their positions. It would be fairer if it was called Montana Environmental Activists. That would change the effect of their ads.”

Cox and Tester deny the group’s efforts swung the race. No one from Montana Hunters and Anglers returned calls for comment.

Tester, who’s argued that all groups spending on elections should disclose their donors and also pushed against Super PACs, said he wasn’t familiar with any of the outside groups running ads. By law, candidates are not allowed to coordinate with outside spending groups, which are supposed to be independent.

Despite his ambivalence, he said he was glad the outside groups jumped in.

“If we wouldn’t have had folks come in on our side, it would have been much tougher to keep a message out there,” Tester said. “We had no control over what they were saying. But by the same token, I think probably in the end if you look at it, they were helpful.”

* * *

Montana has long prided itself on a refusal to be pigeonholed. It’s the kind of place that votes Republican for president but elects Democrats to state office. Politicians wear bolo ties, tout their Montana credentials and use words like “hell” and “crap.” People introduce themselves by saying what generation Montanan they are.

Consistently, the state fights against any mandate that smacks of Washington meddling, from the federal speed limit to the Citizens United ruling in early 2010, which opened the door to corporations and unions spending unlimited money on independent ads, echoing an earlier court ruling that equated money with free speech.

Before that, Montana had one of the country’s toughest campaign finance laws, dating back 100 years, to the time of the copper kings. After one of those kings bribed state lawmakers to back him as senator, the state banned corporate political spending.

Even after Citizens United, the Montana Supreme Court insisted that Montana’s legacy of corruption justified keeping the ban. In June, the U.S. Supreme Court squashed that move, saying the Citizens United decision applied to every state in the nation.

By then, dark money groups were already weighing in on Montana’s Senate race.

The TV ads started in March 2011, the month after Rehberg announced. The Environmental Defense Action Fund attacked Rehberg for his stance on mercury emissions. The Electronic Payments Coalition praised Tester for his push to delay implementing new debit-card swipe fees.

“The thing that surprised me a little bit was how early they got involved,” said David Parker, an associate professor of political science at Montana State University who tracked all 160 TV commercials as part of a book he is writing on the race. “And I think that was critical, because very early on, they were able to establish the contours of this race. The candidates were just busy putting their organizations together and raising money.”

Most of the money spent in 2011 on TV ads came from groups that didn’t have to report their donors. They also didn’t have to report their ads to the Federal Election Commission, because they didn’t specifically tell voters to vote for or against a candidate. Instead of saying “Vote for Rehberg,” they said things like “Call Jon Tester. Tell him to stop supporting President Barack Obama.” Ads like that only have to be reported to the FEC if they air during the two months before an election.

The only way to compile data on such ad spending is by visiting TV stations, which Parker did. ProPublica helped him collect information on the last round of ads.

Parker’s data shows that several heavyweight conservative groups entered the fray in mid-2011 to try to cast Tester, whom they saw as vulnerable, as a big spender.

Crossroads GPS, the dark money group launched by GOP strategist Karl Rove, ran two ads in July 2011 similar to those attacking Democrats in other states for supporting excessive spending.

Also that month, a conservative group called Concerned Women for America Legislative Action Committee ran a sarcastic ad about a new miracle drug called “Spenditol,” Washington’s answer to America’s problems. “Call Sen. Jon Tester,” the ad said. “Tell him, stop spending it all.” Similar ads ran against Democratic senators up for election in tight races in Florida, Nebraska and Ohio.

Several ads run by conservative groups backfired, messing up in ways that irked Montanans.

The National Republican Senatorial Committee — a party committee that reports its donors — ran an ad that appeared to show Tester with all five digits on his left hand. (Tester is well known for having lost three fingers in a childhood accident involving a meat grinder.) The U.S. Chamber of Commerce misspelled Tester’s first name. A Montana cable operator yanked a Crossroads ad for claims the operator deemed false.

“The first one that burned me really bad was from the U.S. Chamber,” said Verner Bertelsen, a former Republican state legislator and Montana secretary of state. “I thought — you buggers! We don’t need you to come in here and tell us who to vote for.”

Starting in July 2011, three new liberal dark money groups ran ads. Patriot Majority USA criticized Republicans for allegedly planning to cut Medicare and help to seniors. The Partnership to Protect Medicare praised Tester for opposing Medicare cuts.

And in October, weeks after forming, the dark money side of Montana Hunters and Anglers, Montana Hunters and Anglers Action!, launched its first TV ad, starring Land Tawney, the group’s gap-toothed and camouflage-sporting president, who also served on the Sportsmen’s Advisory Panel for Tester. At the time, the Super PAC side of the group was basically dormant.

The new Hunters ad accused Rehberg of pushing a bill — House bill 1505 — that supposedly would give Washington politicians control of access to public lands in Montana. Rehberg, one of 60 co-sponsors, argued the legislation was necessary to help the Department of Homeland Security protect the state from illegal immigrants, drug smugglers and terrorists.

“Nobody in Montana was talking about that bill,” Greenwood said. “I’ve only heard it talked about in campaign ads. And it played a role throughout the election.”

* * *

The gusher of outside money into Montana’s Senate race was part of a larger pattern. Nationally, in addition to the $5.1 billion spent by candidates and parties, almost 700 outside spending groups dumped more than $1 billion into federal elections in the 2012 cycle, FEC filings show.

Of that, about $322 million was dark money, most of it from 153 social welfare nonprofits, groups that could spend money on politics as long as social welfare — not politics — was their primary purpose.

Relating those numbers to previous elections is a largely pointless exercise, akin to comparing statistics from baseball and lacrosse. The Citizens United ruling changed the game, opening the door to unlimited corporate donations to Super PACs and to a new breed of more politically active nonprofits.

“Instead of being in a boxing match in a ring, you’re in a dark alley being hit by four or five people, and you don’t know who they are,” said Michael Sargeant, the executive director of the Democratic Legislative Campaign Committee, which helps Democrats run for state offices.

Some of the players in the 2012 cycle were longtime activist organizations such as the liberal Sierra Club and the conservative National Right to Life Committee, with clear social welfare missions and only a limited amount of political spending. Other dark money groups were juggernauts like Crossroads GPS and Americans for Prosperity, founded years ago by conservative billionaire brothers Charles and David Koch, which crank up their fundraising during election years and devote more money to election ads than other nonprofits.

Finding out about some of the less prominent nonprofits was no easy feat. Many were formed out of post-office boxes or law firms. On their applications to the Internal Revenue Service, they minimized or even denied any political activity.

Documents for pop-up nonprofits like the conservative America Is Not Stupid and A Better America Now, both of which formed in 2011, led back to a Florida law firm that offered no explanations. The Citizens for Strength and Security Action Fund, a liberal pop-up group that spent millions on elections in 2010, closed down in 2011. In its place came a new group: the Citizens for Strength and Security Fund, which earlier this year bought almost $900,000 in ads attacking Rehberg and the Republican Senate candidate in New Mexico.

Groups picked names that seemed designed to confuse: Patriot Majority USA is liberal. Patriotic Veterans is conservative. Common Sense Issues backed conservatives. Common Sense Movement backed a Democrat.

As in the 2010 midterms, the dark money spent in 2012 had a partisan tilt. Conservative groups accounted for about 84 percent of the spending reported to the FEC — mainly through Crossroads GPS, Americans for Prosperity and the U.S. Chamber of Commerce. Liberal groups spent 12 percent of the dark money. Nonpartisan groups made up the rest.

Despite shelling out hundreds of millions of dollars, conservatives lost big. Only about 14 percent of conservative dark money went to support winners.

Still, campaign-finance reformers say it’s a mistake to minimize the influence of this money.

“What these donors were buying was access and influence, not only to the candidates but to the party machine,” said Paul S. Ryan, senior counsel for the Campaign Legal Center. “And they will get that access. On the Republican side, you have people lining up to kiss the ring of (billionaire donor) Sheldon Adelson. And on the Democratic side, you have even people critical of these groups meeting with the funders of these groups. This money is not going away.”

Even though liberal groups spent far less than conservative ones, they had a higher success rate. About 70 percent backed winning candidates.

Some Democrats have shown distaste for the dark-money arts, pushing for more transparency. But liberal strategists are preparing to ramp up their efforts before the next election, unless the IRS, Congress or the courts change the rules.

“We probably have a lot less comfort with some of the existing rules that allow for the Koch brothers to write unlimited checks to these groups,” said Navin Nayak, the senior vice president for campaigns at the League of Conservation Voters, a liberal social welfare nonprofit for more than 40 years. “But as long as these are the rules, we’re certainly going do our best to make sure we’re competitive and that our candidates have a shot at winning. We’re certainly not going to cede the playing field to the Koch brothers.”

* * *

By the time Tester and Rehberg started buying TV ads, outside groups had been defining the race for a year.

Rehberg, 57, a six-term congressman and rancher often pictured wearing a cowboy hat and a plaid shirt, was portrayed as voting five times to increase his pay and charging an SUV to taxpayers. Tester, 56, a farmer with a flat top, was dinged for voting with Obama 95 percent of the time.

Tester’s campaign went up with ads in March, mainly to counter the outside messages.

“The original plans were going up 60 or 90 days later than that,” Tester said. “But it was important…We had to remind people of who I am.”

His early ads highlighted his Montana roots, depicting him riding a combine on his farm and packing up Montana beef to carry back to Washington.

Rehberg had less money, so his earliest TV ads, which mainly attacked Tester, went up in May.

Neither Rehberg nor anyone from his media staff responded to requests for an interview on his views on campaign finance. In the past, he has said he supports the Citizens United ruling.

Meanwhile, conservative groups bought TV ads that hit at Tester but stopped just short of telling people how to vote. For instance, the conservative 60 Plus Association spent almost $500,000 buying TV ads featuring crooner Pat Boone criticizing Tester over the health care law. None of that was reported to the FEC.

Over the summer, the Concerned Women for America’s legislative committee, Crossroads GPS and the U.S. Chamber of Commerce all weighed in. The TV spots were overwhelmingly negative, and many of them were cookie-cutter ads, similar to those that ran in other states against Democrats.

Liberal groups bought TV ads, too, but that was only part of their game plan. They spent their dark money on retail politics, hitting the streets and knocking on doors.

In January, the League of Conservation Voters set up two offices in Montana — one in Missoula and one in Billings. It canvassed voters and hired a full-time organizer, reaching out to 28,000 sporadic voters to urge them to vote early by mail.

Lindsay Love, the spokeswoman at Planned Parenthood Advocates of Montana, another nonprofit that doesn’t report its donors for election spending, said the group targeted 41,000 female voters. More than 1,500 people ended up knocking on 28,500 doors and making 162,000 phone calls, she said. The group sent out about 470,000 pieces of mail.

“It’s hard to unpack this,” Parker said. “But it’s fascinating to look at groups like the League, unions and Planned Parenthood. By and large, they did phones, canvassing, mail, very little TV. One of the best ways to get out the vote is personalized contact.”

Many liberal groups active in Montana, including Montana Hunters and Anglers, were connected through Hilltop Public Solutions, a Beltway consulting firm.

Barrett Kaiser, a former aide to Montana’s other Democratic senator, Max Baucus, is a partner at Hilltop and runs its office in Billings. The Hilltop website notes that Kaiser helped with Tester’s upset Senate win in 2006. Kaiser is also a good friend of Messina, the manager of Obama’s 2012 campaign, who also once worked for Baucus.

Kaiser was on the board of the Montana Hunters and Anglers dark money group. Another Hilltop employee in Billings served as the treasurer for the Montana Hunters and Anglers super PAC.

Hilltop partners in Washington also helped run two other dark money groups that spent money on the Montana race: the Citizens for Strength and Security Fund and the Partnership to Protect Medicare.

The League of Conservation Voters and Planned Parenthood Advocates of Montana paid management fees to Hilltop.

No one from Hilltop returned calls, but Nayak and Love said they worked with Hilltop independently of other groups.

Outside groups are allowed to coordinate with each other or use the same consultants — they’re just not allowed to coordinate with a candidate. By working together, groups can disguise who is actually behind an ad.

In early July, for instance, the League of Conservation Voters gave $410,000 to the Montana Hunters and Anglers Super PAC — almost all the money the group raised as of that date.

When the Super PAC spent the money on TV ads against Rehberg later that month, the spots were paid for by what appeared to be an organization of Montana hunters, not some Washington-based conservationist group. Nayak said that was not a coincidence.

“We figured having a local brand like that and partnering with them on local issues made more sense than having a D.C. brand,” he said.

Nayak said the League did not donate money for the later ads pushing Cox, the libertarian.

It’s not clear where that money came from. The dark money side of Montana Hunters and Anglers paid for the radio ads. The Super PAC bought the TV ads and had to disclose its donors, but FEC filings show its money came mainly from two other Super PACs, which in turn reported getting most of their money from unions and dark money groups, including the League.

As the Montana Senate race approached its climax, as many as five fliers landed in voters’ mailboxes daily. Robocalls, supposedly illegal in Montana, interrupted meals. Strangers knocked on doors, promising free pizza for voting. People turned off their TVs, dumped their mail without looking at it and stopped answering the phone.

“My ex and I moved in together, because he had cancer and I took care of him,” said Louise McMillin, 51, who lives in the university district in Missoula. “He kept getting polling calls as he was dying. After he died, I kept saying, ‘He’s dead, could you take his name off the list?’ And they said, ‘Sure, sure.’ And they kept calling.”

The race stayed tight. Demand for TV ad slots spiked, so the TV stations started raising their prices. The law required them to charge candidates their lowest rate. But outside groups? They could be hit up for whatever the market would bear.

Rehberg’s campaign paid $400 to run a 30-second ad during the show Blue Bloods on Oct. 19 on the CBS affiliate in Great Falls. A week later, Crossroads GPS paid $2,000 for a slot during the same show.

Anything was fair game for the ads. One, from the Super PAC Now Or Never, made fun of Tester’s buzz cut, then showed his hair growing down to his shoulders, a bizarre sequence apparently designed to signal his ties to Obama. Another ad, from the dark money group America Is Not Stupid, featured a baby with a gravelly voice saying he didn’t know what smelled worse, his diaper or Tester.

“By the middle of October, people were just so tuned out and quite frankly disgusted by all these third-party ads,” said Ted Dick, the executive director of the Montana Democratic Party. “We found that face-to-face conversations toward the end were most persuasive and effective. That’s the lesson we’re taking forward.”

There are other lessons. Tester said the Montana race made clear that candidates will have to raise money sooner, and go up with TV ads faster. Although uncomfortable with outside money, Tester also said it’s just the way things are now, even on the liberal side.

“I mean, look, they did it,” he said. “And with as many ads that were against me, I was glad they did. But it needs to be transparent. I mean, everybody’s needs to be transparent… It’s important to know who’s spending money on who so you know why they’re doing it. And the way the system is set up right now, there is no transparency. Very little.”

Campaign finance reformers agree that knowing who is behind a message helps people assess it.

One example: Two postcards sent to thousands of Montanans just before the election didn’t include the required notice saying who paid for them. One said Rehberg had wasted “hundreds of millions of our tax dollars on pork barrel projects,” and urged people to vote for Cox, “a champion for fiscal responsibility.” The other called Rehberg “the king of pork” and told people to vote for Cox.

Cox said he didn’t send them. The bulk-mail permit on the postcards came back to a Las Vegas company called PDQ Printing, according to the U.S. Postal Service. In an online manual, PDQ describes itself as “Nevada’s preeminent Union printer.” No one there returned phone calls.

Greenwood, the head of the Montana Republican Party, filed a complaint with the FEC over the mailers. The complaint blames liberal groups and says they “engaged in a duplicitous strategy of supporting the libertarian candidate, Dan Cox, in a desperate attempt” to siphon votes from Rehberg.

More than likely, that complaint won’t be resolved for years.

Greenwood said he didn’t think disclosure was a cure-all. But he also said the current system marginalized political parties.

“Whether it’s Montana Hunters and Anglers or [the conservative Super PAC] American Crossroads, they are not responsive to the grassroots,” Greenwood said. “These are the professionals and the money men who are not responsive at all to people. The system as it is now does not reflect what people want.”

Besides picking between Tester and Rehberg, Montanans got a chance in this election to say how they want the system to work. On the ballot was an initiative — largely symbolic in light of recent court decisions — that declared that corporations are not human beings and banned corporate money in politics.

Gov. Schweitzer, a Democrat, and Bertelsen, the former Republican secretary of state, campaigned for the initiative. In a shocker for backers, almost 75 percent of voters supported it.

“I realized it absolutely didn’t have any legal basis to do anything dramatic,” said Bertelsen, who is 94. “But it’s a case of saying, ‘We don’t like it.’ I guess we could just sit down and not say a word. But the Supreme Court — I think they made a mistake. Money isn’t speech, anyhow. It’s just money.”

Correction (12/27): This story originally said that the libertarian candidate Dan Cox picked up more votes than any other libertarian on the Montana ballot. He actually picked up more votes than any other libertarian in a competitive race on the Montana ballot.

 

Karl Rove’s Dark Money Group Promised It Would Spend ‘Limited’ Money On Elections

by Kim Barker, ProPublica.

In a confidential 2010 filing, Crossroads GPS — the dark money group that spent more than $70 million from anonymous donors on the 2012 election — told the Internal Revenue Service that its efforts would focus on public education, research and shaping legislation and policy.

The group’s application for recognition as a social welfare nonprofit acknowledged that it would spend money to influence elections, but said “any such activity will be limited in amount, and will not constitute the organization’s primary purpose.”

Political insiders and campaign-finance watchdogs have long questioned how Crossroads, the brainchild of GOP strategist Karl Rove, had characterized its intentions to the IRS.

Now, for the first time, ProPublica has obtained the group’s application for recognition of tax-exempt status, filed in September 2010. The IRS has not yet recognized Crossroads GPS as exempt, causing some tax experts to speculate that the agency is giving the application extra scrutiny. If Crossroads GPS is ultimately not recognized, it could be forced to reveal the identities of its donors.

The tax code allows groups like Crossroads to spend money on political campaigns — and to keep their donors private — as long as their primary purpose is enhancing social welfare.

Crossroads’ breakdown of planned activities said it would focus half its efforts on “public education,” 30 percent on “activity to influence legislation and policymaking” and 20 percent on “research,” including sponsoring “in-depth policy research on significant issues.”

This seems at odds with much of what the group has done since filing the application, experts said. Within two months of filing its application, Crossroads spent about $15.5 million on ads telling people to vote against Democrats or for Republicans in the 2010 midterm elections.

“That statement of proposed activities does not seem to align with what they actually did, which was to raise and spend hundreds of millions to influence candidate elections,” said Paul S. Ryan, senior counsel for the Campaign Legal Center, who reviewed the group’s application at ProPublica‘s request.

Officials with Crossroads GPS would not answer specific questions about the material in the application or whether the IRS had sent a response to it.

“As far as we know, the Crossroads application is still pending, in which case it seems that either you obtained whatever document you have illegally, or that it has been approved,” Jonathan Collegio, the group’s spokesman, said in an email.

The IRS sent Crossroads’ application to ProPublica in response to a public-records request. The document sent to ProPublica didn’t include an official IRS recognition letter, which is typically attached to applications of nonprofits that have been recognized. The IRS is only required to give out applications of groups recognized as tax-exempt.

In an email Thursday, an IRS spokeswoman said the agency had no record of an approved application for Crossroads GPS, meaning that the group’s application was still in limbo.

“It has come to our attention that you are in receipt of application materials of organizations that have not been recognized by the IRS as tax-exempt,” wrote the spokeswoman, Michelle Eldridge. She cited a law saying that publishing unauthorized returns or return information was a felony punishable by a fine of up to $5,000 and imprisonment of up to five years, or both. The IRS would not comment further on the Crossroads application.

ProPublica believes that the information we are publishing is not barred by the statute cited by the IRS, and it is clear to us that there is a strong First Amendment interest in its publication,” said Richard Tofel, ProPublica‘s general manager.

ProPublica has redacted parts of the application to omit Crossroads’ financial information.

With its sister group, the super PAC American Crossroads, Crossroads GPS has helped remake how modern political campaigns are financed.

American Crossroads, which does identify its donors, spent almost $105 million on election ads in the 2012 cycle. For its part, Crossroads GPS poured more than $70 million into ads and phone calls urging voters to pick Republicans — outlays that were reported to the Federal Election Commission. It also announced spending an additional $50 million on ads critical of President Barack Obama that ran outside the FEC’s reporting window.

Based on the extent of Crossroads GPS’ campaign activities, Obama’s re-election campaign asked the FEC in June to force it to register as a political action committee and disclose its donors. The FEC has yet to rule on the request.

Politically active social welfare nonprofits like Crossroads have proliferated since the Supreme Court’s Citizens United decision in January 2010 opened the door to unlimited political spending by corporations and unions.

Earlier this year, a ProPublica report showed that many of these groups exploit gaps in regulation between the IRS and the FEC, using their social welfare status as a way to shield donors’ identities while spending millions on political campaigns. The IRS’ definition of political activity is broader than the FEC’s, yet our investigation showed many social welfare groups underreported political spending on their tax returns.

It’s impossible to know precisely how Crossroads has directed its efforts, but the breakdown of expenses on its tax returns from June 2010 to December 2011 gives some indications.

During those 19 months, Crossroads spent a total of $64.7 million, of which $1.4 million — or just 2 percent — was identified as being spent on research. That compares with the 20 percent of effort Crossroads said it would devote to research in its application.

A tax return covering this year isn’t due until November 2013.

The IRS rarely pursues criminal charges against nonprofits based on statements in their applications. It’s more common for the agency to deny recognition or revoke a group’s tax-exempt status.

In a letter to Congress in September, the IRS said it was engaged in “more than 70 ongoing examinations” of social welfare nonprofits. Earlier, in its work plan for the 2012 fiscal year, the agency said it was taking a hard look at social welfare nonprofits with “serious allegations of impermissible political intervention.”

Campaign finance watchdog Fred Wertheimer, who runs Democracy 21 and has filed several complaints to the IRS about Crossroads, said the group’s application for recognition showed why more aggressive enforcement is needed.

“When you read what they say on their application, there are a lot of words there. But I find them to be disingenuous and to have little to do with why Karl Rove founded this organization,” Wertheimer said. “If you believe this is a social welfare organization, I have a rocket that can get you to the moon very quickly and at very little cost.”

Photo credit: AP/Tony Gutierrez, File

 

Key Montana Senate Race Draws Deluge Of Dark Money

by Kim Barker, ProPublica

Montana is known for its big skies, jagged mountains and open roads. Not so much for people.

Yet as much as $40 million is being spent to tell the state’s 675,000 registered voters who to pick as senator: incumbent Democrat Jon Tester or Republican Rep. Denny Rehberg. That’s almost $60 for every potential voter.

Much of the TV ad spending is being done by outside groups that do not have to identify their donors, unseen hands that may tip a race that could determine which party controls the Senate.

More than 20 dark-money groups have chimed in so far, from big shots like Karl Rove’s Crossroads GPS to obscurities like Citizens for Strength and Security Fund. More TV ads — an estimated 89,000 between June 1 and Oct. 21 — have run in the Tester vs. Rehberg faceoff than in any other Senate race in the country, the Wesleyan Media Project says.

“I made a joke recently to some people that I was going to sit down and watch a discussion of the Senate race, interrupted by some football,” said Bowen Greenwood, the head of Montana’s Republican Party. “Nobody really understands how to adapt to this new landscape yet. We’re all doing this by the seat of our pants.”

Greenwood’s lament gets at what life has become in the new post-Citizens United, Wild West of campaign finance. The ad saturation has been highest in close Senate races, not only in Montana, but in Wisconsin, Indiana and Virginia, according to Wesleyan’s study of estimates by Kantar Media’s Campaign Media Analysis Group, which tracks broadcast and national cable spots. And still, despite the millions spent, Tester and Rehberg are locked in a tight race, with a recent poll showing Rehberg slightly ahead.

David Parker, an associate professor at Montana State University who is writing a book on the Tester-Rehberg Senate race, estimates that as much as $15 million more will be spent to win the seat than was spent in 2006.

Outside groups could account for half the spending on TV commercials, most of which are attack ads.

“They’re just harsh and negative and mean,” Parker said.

Much of the spending has been on so-called “issue” ads that ran outside the reporting window for the Federal Election Commission, but Parker has driven around the state twice to collect information from TV stations on spending.

The influx of outsiders may be turning off some voters. Liberal groups with Montana-sounding names — think “rural” and “hunters” — have been accused of being fronts for national environmental interests. A cable system pulled one negative Crossroads ad for falsehoods — rare this election season. The U.S. Chamber of Commerce drew ridicule for an ad opposing “John” Tester.

Smaller groups show not only how dark the money can be, but how odd.

A nonprofit called America Is Not Stupid, incorporated last year in Florida, is among those running ads in Montana. The IRS has no record of the group’s tax-exempt status. Its purported president, Miguel Angel Gutierrez, couldn’t be located, and the lawyer who founded it, Gene Peek, didn’t return phone calls. Its ad features a baby in need of a diaper change.

“I don’t know what smells worse: my diaper or Jon Tester,” the voiceover says.

Greenwood said a constituent had called to ask if America Is Not Stupid was affiliated with the Republican Party. The GOP state director said he’d never heard of the group.

“Politicians care a great deal about their message,” he said. “And nobody is happy that somebody else is dictating what we’re talking about rather than our candidates.”

Photo by “jimmywayne” via Flickr.com

 

No Tax Returns For You, Dark Money Groups Say

by Kim Barker, ProPublica

It was mid-July and I had come to Hilltop Public Solutions because Jessie Bradley, a partner with the consulting firm, appeared to run two social-welfare nonprofits out of its Washington, D.C., office.

ProPublica was preparing a story about how such groups – also known as 501(c)(4)s for their section of the tax code – were pouring money into elections. The nonprofits run by Bradley, Economy Forward and the Citizens for Strength and Security Action Fund, or CSS Action Fund, had spent more than $3 million supporting Democrats in 2010, records showed.

I wanted the groups’ tax returns and the applications they had submitted to get IRS recognition of their tax-exempt status. The law requires 501(c)(4)s to make these forms available for inspection immediately if someone requests them in person or to provide them by mail within 30 days.

When I reached the office suite listed as Hilltop’s headquarters, however, it turned out to be a law firm.

The firm’s receptionist said Hilltop was located in an inaccessible area of the building and called Bradley to convey my request.

Bradley said she was busy.

The receptionist asked if I could meet with someone else. “She hung up on me,” the secretary said, putting down the phone.

Bradley wasn’t the only one who refused to provide ProPublica with these crucial records, in which social-welfare groups set down, under penalty of perjury, their revenue, spending and involvement with political activities.

Eighteen of 106 social-welfare nonprofits that we identified as having spent money on elections in 2010 would not provide us with these documents, despite repeated requests and reminders that they were legally obligated to do so.

Some groups promised to provide the records, but never did. Others wouldn’t even tell us their addresses, so we couldn’t ask for them in person. (ProPublica got the tax returns from CSS Action Fund and Economy Forward from the IRS. Available records show they never applied to the agency to be recognized as tax-exempt.)

Several groups offered reasons why they couldn’t gather the documents, at least not right away: A death in the family. A wife with cancer.

“It’s the middle of August,” said Neil Corkery of The Annual Fund. “Everyone’s on vacation.”

Corkery later had the group’s tax return sent to ProPublica, but it was missing a breakdown of the group’s $2.7 million in grants, some of which went to other social-welfare nonprofits heavily involved in politics. Corkery never responded to a request for The Annual Fund’s application for recognition, or to questions about whether the group filed one. Though listed as the person keeping the group’s records on its tax return, Corkery said he was no longer really involved with The Annual Fund.

Thorney Lieberman of the West Virginia Conservative Foundation said he couldn’t provide records for the group right away because he was out of town.

“If it’s a public record, then shouldn’t it be available online?” he asked.

Sure—if the nonprofit or Guidestar, which tracks charities, puts it there. Guidestar had a copy of the West Virginia Conservative Foundation’s tax return but not its application for recognition. Regardless, the group is required to provide documents when requested.

Lieberman asked me to send an email requesting the records. He never responded. Or supplied the address of the West Virginia Conservative Foundation, which reported spending more than $630,000 on political ads in 2010 to the Federal Election Commission. (That’s 97 percent of the group’s expenditures in 2010, according to its tax return.)

The Foundation for a Secure and Prosperous America—which spent more than $111,000 on ads in 2010—also didn’t respond to a request for its application for IRS recognition. Lawyer Scott Thomas, a former FEC chairman who is now with Dickstein Shapiro LLP in Washington D.C., said the associate that advised the group on the filing had just left the firm. Thomas said he couldn’t find a copy of the group’s application.

“I’ve explained the obligation to make a copy available if requested,” Thomas wrote in an email. Neither he nor the group responded to a follow-up email.

Chris Carmouche of GrassTops USA said in mid-May that he was out of the country but would be willing to “talk about” ProPublica’s request for records when he returned later in the month.

But Carmouche never called or responded to a note left at his front door. The IRS couldn’t locate 2009 or 2010 tax returns for GrassTops, which says in daily emails that its mission is to “wage web warfare against the liberal establishment.”

The IRS says that citizens who are rejected from seeing tax returns or applications should write to complain about the offending nonprofit, which can be fined $20 a day, up to $10,000 maximum, as long as the failure continues.

And we’re considering it.

But despite all the rejection, ProPublica has a message for the groups that have not yet supplied us with tax returns and applications for recognition: You have one more chance. Feel free to send them along.

Two Dark Money Groups Outspending All Super PACs Combined

by Kim Barker, ProPublica.

Two conservative nonprofits, Crossroads GPS and Americans for Prosperity, have poured almost $60 million into TV ads to influence the presidential race so far, outgunning all Super PACs put together, new spending estimates show.

These nonprofits, also known as 501(c)(4)s or c4s for their section of the tax code, don’t have to disclose their donors to the public.

The two nonprofits had outspent all other types of outside spending groups in this election cycle, including political parties, unions, trade associations and political action committees, a ProPublica analysis of data provided by Kantar Media’s Campaign Media Analysis Group, or CMAG, found.

Super PACs, which do have to report their donors, spent an estimated $55.7 million on TV ads mentioning a presidential candidate, CMAG data shows. Parties spent $22.5 million.

Crossroads GPS, or Crossroads Grassroots Policy Strategies, is the brainchild of GOP strategist Karl Rove, and spent an estimated $41.7 million. Americans for Prosperity, credited with helping launch the Tea Party movement, is backed in part by billionaire brothers David and Charles Koch, and spent an estimated $18.2 million.

Campaign-finance reform advocates say the spending by the two organizations highlights the role anonymous money is playing in this election, which will be the most expensive in history.

“First of all, it shows how much desire there is for secrecy among huge donors who want to be able to spend money to influence this election without leaving any fingerprints,” said Fred Wertheimer, who runs Democracy 21, a watchdog group. “Secondly, it shows that so far, there is an enormous advantage being played in this election by just two groups that are exercising undue influence in the elections.”

In an email, Jonathan Collegio, a spokesman for Crossroads GPS, defended the group’s work. Wertheimer’s concern reflected partisan bias, he charged.

“Liberal partisans are attacking conservative nonprofits for doing the same things that environmentalist groups, anti war groups, and labor groups have been doing for years without a single complaint,” Collegio wrote.

Americans for Prosperity did not respond to a phone call or an email.

Conservative social-welfare nonprofits have spent about $70 million on TV ads in the election cycle so far, compared to just $1.6 million by liberal groups, CMAG data shows.

ProPublica’s analysis of CMAG data is part of an ongoing investigation looking at the growing influence of 501(c)(4) groups on the 2012 election.

The data reflects spending on ads mentioning a candidate for president this election cycle, including President Barack Obama, his Republican challenger Mitt Romney and former candidates such as Newt Gingrich. Most c4 groups didn’t start spending until after the Republican primaries, however.

CMAG develops its estimates based on regular surveys of TV stations of what they charge, plus discussions with media buyers about what they’re paying. The analysis for ProPublica includes data through Aug. 8.

Its totals differ from actual spending reported to the Federal Election Commission in several ways. CMAG’s numbers reflect expenditures on broadcast TV ads, but not on ads aired on local cable or radio. They also exclude robo-calls and mailers that some groups must report to election officials. In some cases, however, CMAG’s estimates include TV ads that social-welfare nonprofits do not have to report to the FEC because of their content or the time frame in which they ran.

After the Supreme Court’s Citizens United decision in January 2010, which paved the way for unlimited corporate and union spending on federal elections, many predicted that super PACs would become the biggest vehicle for outside spending. Hundreds of super PACs soon sprang up, some of which paired up with c4s.

But it’s the sidekicks, the c4s, that have proved more muscular. Rove’s super PAC, American Crossroads, has spent an estimated $6.6 million on broadcast TV ads mentioning a candidate for president, CMAG data shows. Crossroads GPS has spent more than six times as much.

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Political Donations Flagged As Potential Fraud

by Kim Barker, ProPublica

 

When MaryAnn Nellis tried to pay for groceries on April 14, her credit card was declined. Later, she said, she found out why: Her credit card company, Capital One, had flagged an earlier purchase as potentially fraudulent. The problem? A $5 donation to Friends of Scott Walker, the Wisconsin governor’s campaign committee, Nellis said.

Nellis told a Capital One representative she had not made the donation to Walker, who is fighting an effort to recall him as governor in a closely watched, expensive election set for June 5.

“Over my dead body,” said Nellis, a potter and retired teacher in upstate New York who describes herself as “adamantly angry and upset” at Republicans such as Walker. Nellis disputed the charge and she was issued a new card.

Though the amount of money was small, ProPublica decided Nellis’ complaint was worth following up. There have been other reports recently about insecure campaign-donation websites and the potential for fraud. Earlier this month, The Washington Times reported that Restore Our Future, the super PAC supporting Republican Mitt Romney, was using a collection system that made online donors’ credit card information accessible to even amateur snoopers.

At ProPublica’s request, Nellis called Capital One and asked a representative about the $5 charge to Friends of Scott Walker.

“She told me that they watch for fraudulent merchants who will put through a bunch of charges that are not legitimate,” Nellis said. “I said, ‘The fraudulent merchant here was Friends of Scott Walker, right?’ And she said, ‘Yes.’ They had a little flag on any Scott Walker activity.”

As an experiment, a ProPublica employee also made a $5 donation to Friends of Scott Walker on her Capital One card on May 10. Almost immediately, Walker’s campaign sent an email thanking her. Less than a minute after that, Capital One emailed a fraud protection alert, saying the company “noticed potentially suspicious activity” on her account and asking her to call fraud protection as soon as possible.

When she inquired, a Capitol One representative said the donation wasn’t in line with her spending pattern and “our fraud department had some potential fraud concerns on the account.”

Another $5 donation, made to Walker’s opponent on the Capital One card, was not flagged as potentially fraudulent. Neither was a $5 donation to Friends of Scott Walker made on an American Express card. (The employee is seeking refunds of all three donations.)

We called Friends of Scott Walker and eZcontribution, the Wisconsin company that runs the website handling donations for Walker’s campaign, for an explanation, but no one would answer our questions.

Walker’s campaign spokeswoman, Ciara Matthews, emailed ProPublica on May 10 under the subject line of “follow up.”

“I received a message about the story you are doing,” she wrote. “The campaign does not comment on internal matters.”

“How about allegations of credit-card fraud?” we wrote back. “That’s hardly internal, it’s external.”

Matthews did not reply.

Ultimately, all we can say at this point is that Capital One appears to be flagging donations to Friends of Scott Walker as potentially fraudulent.

If anyone out there has had similar issues with online donations to Walker or other political campaigns, please let us know via email or by commenting below.

 

Read The Tax Returns From Karl Rove’s ‘Dark Money’ Group (Donors Still A Mystery)

by Kim Barker, ProPublica

 

One of the most talked-about “dark money” groups of the election released its tax returns yesterday, showing it raised almost $77 million from fewer than 100 donors over 19 months. Most of the money spent in its first year went directly to political ads or grants to other groups.

The returns are the first glimpse showing how much money has been raised by Crossroads GPS, launched by GOP strategist Karl Rove in mid-2010.

(Here are the full returns, for both 2010 and 2011. We’ve marked interesting bits. If you spot something we haven’t, let us know.)

By choosing to include the number of donors and the amounts of some of its larger donations, including one of $10.1 million in the first year and another of $10.1 million in the last seven months of 2011, the group was somewhat more transparent than the IRS requires.

Still, Crossroads GPS, also known as Crossroads Grassroots Policy Strategies, retained plenty of mystery — namely, their donors’ identities.

There are no donor names, no clues as to whether they are individuals, companies or trade groups, and no hint as to whether there are repeated donors from year to year.

Nonprofits like Crossroads GPS, classified by the IRS as “social welfare” organizations, are not required to disclose their donors, even if those organizations spend money on political ads. That is why they are sometimes referred to as “dark money” groups.

Yesterday, two campaign-finance watchdog groups again called for the IRS to investigate the tax status of Crossroads GPS. Critics have complained that the group and others like it use the IRS social-welfare status as a fig leaf to be able to hide the names of donors. The IRS says a social-welfare nonprofit, or 501(c)4, must have social welfare as a “primary purpose” but has never defined what that means. Most groups interpret this to mean social-welfare nonprofits can spend up to 49 percent of their money on politics.

Crossroads GPS spokesman Jonathan Collegio responded to critics by sending an email message with the subject line “Snarky comments” that pointed out that some of the group’s critics are nonprofits that also don’t disclose their donors. In another email, he compared what the group does to how environmental and labor groups have operated for decades.

Although similar nonprofits engaged in politics in past elections, their use exploded in 2010, particularly in tandem with super PACs, taking advantage of federal court rulings that paved the way for a new role for outside-spending groups in elections.

The IRS doesn’t comment on individual groups but is expected to give more scrutiny to politicking social-welfare nonprofits this year, considering the major role the groups are expected to play in the election. Together with its affiliated super PAC, American Crossroads, Crossroads GPS hopes to raise $300 million, primarily to help defeat President Barack Obama and to elect Republicans to Congress.

Crossroads GPS reported 64 donors in its first year, between June 2010 and May 2011, including four who gave $10.1 million, $5 million, $4.5 million and $4 million. There were 32 donors in the last seven months of 2011, including two who gave $10 million and $4.3 million. It’s unknown whether any of them were repeat donors.

Between June 2010 and May 2011, Crossroads GPS spent about $42.3 million, including about $15.9 million directly for political ads and another $15.9 million on grants to 12 like-minded nonprofits and trade groups.

The $15.9 million that Crossroads GPS gave in grants coincided with the midterm 2010 elections. The money included $500,000 to the American Action Network, the conservative nonprofit that once shared an office with Crossroads GPS and American Crossroads, and $4 million to Americans for Tax Reform, formed by anti-tax activist and GOP heavy hitter Grover Norquist.

Federal Election Commission records show that these groups, as well as five other grant recipients of Crossroads GPS, spent money on political ads, directly or indirectly, in the 2010 election cycle. The grant money that groups received from Crossroads was earmarked for non-political activities.

In its 2011 filing, which covers the last seven months of the year, Crossroads GPS reported spending almost $22.4 million, including $1.7 million on political ads, including this anti-Obama ad. It gave only one grant, of $50,000, to a charity called the Ethics and Public Policy Center. The organization describes itself as “D.C.’s premier institute dedicated to applying the Judeo-Christian moral tradition to critical issues of public policy.”

 

The Return Of CREEP

by Kim Barker, ProPublica

 

With 300-plus super PACs and counting, it would be easy to miss CREEP. But last Thursday, a new super PAC ingeniously named the Committee for the Re-Election of the President registered with the Federal Election Commission.

The committee is based out of a post office box at the Watergate Complex — an homage, of course, to the other Committee for the Re-Election of the President, the fundraising committee for President Richard Nixon that became embroiled in the Watergate scandal.

It’s an inside joke with a serious punchline. The old CREEP (which used the acronym CRP and at one point was called the Committee to Re-Elect the President) helped spur the creation of the FEC. The website for CREEP Super PAC says it’s committed “to raising voices not dollars” and advocates disclosure.

“It’s an excellent chance for people to step back and say, ‘Are we happy with 40 years of campaign finance and the lack of disclosure?'” said Robert Lucas, 22, founder of the new CREEP and a graduate student in public policy at Georgetown University. “There’s a lot of irony, with the 40th anniversary of Watergate and where we are now.”

The latest FEC disclosures show that super PACs are forming at an accelerated pace, taking advantage of court rulings in 2010 that opened the door to political action committees that can raise unlimited amounts of money as long as they don’t coordinate with a candidate.

Seven new super PACs turned up yesterday morning alone, while one dropped out today, bringing the tally to 324. Only 159 have reported raising or spending any money. Of those, just 11 reported having more than $1 million in their coffers in their most recent filings with the FEC, led by GOP super PAC American Crossroads, which had more than $23.5 million at the end of February. (CREEP, being new, hasn’t reported raising any money, and Lucas says he has no plans to do so.)

Another 27 super PACs reported having at least $100,000 in the bank. The rest seem to be counting their pennies and hoping for a millionaire. (The Friends for a Democratic White House PAC, for instance, reported having only $12.02.)

Several of the money-less super PACs appear to be following the mocking trail blazed by comedian Stephen Colbert with his super PAC, Americans for a Better Tomorrow, Tomorrow. These have names like Just Drink the Koolaid, Joe Six PAC, Americans for America, and Americans for a Better Tomorrow, Yesterday.

Republican frontrunner Mitt Romney’s decision to put his dog in a kennel strapped to the roof of his car for a 1983 family vacationhas sparked the formation of four super PACs: DogPAC, Dogs Against Romney, I Ride Inside-The Pets Against Romney Committee, and, the latest in the genre, Mitt Is Mean — The Animal Lovers Against Romney Committee.

Despite being accused of chronic deadlock and doing nothing to rein in super PACs, the FEC has quietly taken action against certain committees. It warned 15 for failing to file annual financial reports from 2011 — unless they do, they’ll be off the list. (Which might mean the end of super PACs such as the Brady Bunch PAC, Men Against Prostitution and Trafficking and the Bucket Tea Party Political Action Committee.)

The FEC also has shed 60 super PACs registered by super PAC man Josue Larose.  All of Larose’s super PACs were terminated by the FEC on March 7, apparently because they didn’t do much for a year. So farewell to the Unites States Celebrities Super PAC, the United States Billionaires Super PAC and the Wall Street Corporations Super PAC.

It was never quite clear what Larose was doing with all his super PACs. They attracted virtually no donations. (One exception: the $5,000 contributed by a PAC of employees of Contran Corp. to Larose’s Rick Perry 2012 Victory Committee super PAC, which had nothing to do with Rick Perry. Contran is run by billionaire Harold Simmons, the largest single donor to GOP super PACs.)

Florida just filed more than 2,000 counts of state election violations against Larose.

So what does all this mean for the 2012 election? CREEP’s back, but we won’t have Larose to kick around anymore.