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June 17, 2016

Dark Money Groups Targeted By Complaints Ran Last Minute Attack Ads in AG Races

By Matt Corley

Earlier this week, Citizens for Responsibility and Ethics in Washington (CREW) filed IRS complaints against 10 politically active non-profit groups that sought to influence elections across the country in 2014. Many of the groups violated their tax-exempt status by impermissibly making politics their primary activity while others significantly underreported their political activity. CREW also filed complaints with the Department of Justice against six of the organizations that appear to have made false statements to the IRS about their political activity.

Despite the fact that they spent hundreds of thousands of dollars on television ads targeting candidates in the weeks before an election, several of the organizations did not report any political activity to either election authorities or the IRS. Take the American Dream Initiative (ADI), for instance.

In May 2014, just days before the runoff election in Texas’ Republican primary for attorney general, the Virginia-based section 501(c)(4) organization broadcast ads in seven Texas cities criticizing one of the two candidates, then-Texas Senator Ken Paxton, who eventually won the election. ADI spent approximately $532,000 to air the ads, but never filed any reports with the Texas Ethics Commission. The group’s founder, campaign finance lawyer Dan Backer, claimed he didn’t have to because it was an “issue ad” that didn’t explicitly advocate for now-Attorney General Paxton’s defeat.

When it came time to file ADI’s annual tax return with the IRS, Backer asserted the group did not engage in any “direct or indirect political campaign activities on behalf of or in opposition to candidates for public office.” But as CREW noted in its complaint against ADI, the IRS considers several key factors when it determines whether particular communications constitute political campaign intervention, and ADI’s ads do appear to constitute political activity. They were broadcast immediately before an election, identified someone who was a candidate, and expressed disapproval of him. They were neither part of an ongoing series of communications on an issue nor related to any non-electoral event such as a vote on legislation. Instead, the only reasonable interpretation is that the ads were aimed at swaying voters in the runoff election.

The Rule of Law Project (ROLP), a Virginia-based non-profit that spent nearly $200,000 on ads in Wisconsin’s 2014 attorney general election, also did not file any reports with the Badger State’s campaign finance authority. The ads, which ran during the week before the November 4, 2014 election, clearly identified the two contenders as candidates while praising the Republican nominee and attacking the Democratic nominee. Yet, just like ADI, ROLP told the IRS on its tax return that it did not try to influence any elections in 2014.

It may not be a coincidence that these two groups used the same tactic of running last minute attack ads while refusing to comply with basic disclosures of political spending. As CREW has previously noted, the two groups share financial ties. Between July 1, 2013 and June 30, 2014, the Judicial Crisis Network, a non-profit known for spending millions in opposition to Supreme Court nominee Merrick Garland, contributed $250,000 to ADI and $100,000 to ROLP. Another group with ties to the Judicial Crisis Network also gave money to both groups in 2014. The Wellspring Committee, known in as a “pioneer” in moving money between politically active non-profits, contributed $350,000 to ADI and $30,000 to ROLP.

A third group that received funds from both the Judicial Crisis Network and the Wellspring Committee also paid for last minute ads in a 2014 attorney general election. Unlike ADI and ROLP, however, the Arizona Public Integrity Alliance (AZPIA) provided a modicum of disclosure. AZPIA spent hundreds of thousands of dollars on ads attacking then-Attorney General Tom Horne’s ethics in 2014, including one that called on him to resign. For an ad that the group ran close to the August 26, 2014 primary, AZPIA actually filed an independent expenditure report with the Arizona Secretary of State’s office disclosing spending $138,287. Even though the group said it believed the ad was an issue ad and not express advocacy, it filed the report “in an abundance of caution and in the interest of transparency.” AZPIA does not appear to have counted the ad as political spending on its 2014 tax return, though the group did admit to spending $11,015 on politics.

Still, the little bit AZPIA did disclose is a vast improvement over ADI and ROLP. While AZPIA made a nod toward respecting the public’s interest in transparency, the other two groups brazenly ignore disclosure requirements. In fact, ADI went so far as to refuse to even reveal its significant donors to the IRS, as section 501(c)(4) organizations are required to do (the IRS is barred from disclosing this information to the public). The American Dream apparently does not include knowing anything about who spends money to influence political campaigns just before Americans cast their votes. 

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