Huffington Post: IRS To Take On Karl Rove? Tax Laws Could Take A Bite Out Of Secret Political Spending

-By Dan Froomkin

May 25, 2011- Top Republican political strategist Karl Rove's method of secretly funneling unlimited contributions from big donors was so hugely successful in the 2010 campaign that Democrats are now trying to copy it. But his model may yet end up backfiring spectacularly.

In one scenario, groups like Rove's Crossroads Grassroots Political Strategies could find themselves subject to massive fines, ranging as high as 35 to 70 percent of the money they received in secret donations.

In another scenario, their deep-pocket donors could be hit by a 35 percent tax on their contributions.

Rove may well have found a way around the nation's federal election laws. But now the key question is whether the Internal Revenue Service is willing to be assertive. Because if it is, then just like with Al Capone, it could be the IRS that gets him.

In Crossroads GPS's solicitations for money, the group describes itself as a tax-exempt 501(c)(4) organization, and due to a controversial loophole in federal campaign finance rules, the names of donors to those organizations do not have to be disclosed publicly.

But contrary to popular belief, Rove's group has not formally attained 501(c)(4) status. The group's application, requesting the IRS to classify it as a "social welfare" group, is still pending.

And while the designation is typically not much more than a formality — organizations routinely call themselves (c)(4) groups before they've been formally approved — tax and campaign finance experts contacted by The Huffington Post said the IRS could well deny Crossroads GPS's application.

IRS guidelines for 501(c)(4) status state that social welfare groups "must operate primarily to further the common good and general welfare of the people of the community" — which "does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office."

Intervening in political campaigns isn't prohibited, it just can't be the primary activity.

Were Crossroads GPS denied its 501(c)(4) status, the organization could be on the hook for tens of millions of dollars in fines. And operating in secrecy would suddenly come with an enormous new price tag.

FULL STORY HERE:


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