IRS Approves Crossroads GPS as Exempt 501(c)(4) After Six Years

Amid a great deal of controversy, the IRS has granted exemption to Crossroads GPS, an organization famous both for its top advisor, Republican strategist Karl Rove, and for its center stage role in the 2013 IRS scandal in which the agency apologized for using phrases such as “Tea Party” for selecting applicants for exemption for extra scrutiny. According to IRS documents shared with the House Ways and Means Committee, a denial of exemption letter had already been drafted for Crossroads GPS when the scandal broke. Two years later, the IRS has remained quiet as to the reason behind the reversal of its decision.

Crossroads GPS and its sister organization, American Crossroads (a Super PAC), were launched in the wake of the Supreme Court’s 2010 ruling Citizens United v. FEC, 558 U.S. 310 (2010). While American Crossroads registered with the FEC and complied with PAC reporting rules, Crossroads GPS has maintained that it is exempt from the FEC rules as a policy-oriented organization. As a social welfare organization under Section 501(c)(4), Crossroads GPS must have social welfare activities as a primary purpose—not political campaign activity. Crossroads GPS President Steven Law said in response to the IRS’s decision, “We have always taken compliance very seriously, so we are not surprised by the final result. What we were surprised by was how long it took and how people outside the IRS improperly tried to influence and politicize the process, not just against us but against many other law-abiding advocacy groups.”

Other commentators and watchdog groups are, however, surprised by the IRS’s change of heart about Crossroads GPS. Fred Wertheimer, a campaign finance activist and head of the nonprofit Democracy 21, said that by granting exemption “the IRS has licensed the ability of Crossroads GPS and other so-called ‘social-welfare’ organizations to use the tax laws to continue to raise and spend hundreds of millions of dollars of undisclosed contributions in federal elections.” Indeed, Crossroads GPS has to date reported roughly $140 million in spending to influence campaigns and has never reported any of its donors. Further, tax documents show a clear spike in contributions and spending by the organization in election years. According to Wertheimer, this ruling amounts to “a complete abdication of the agency’s duty to enforce the tax laws.”

All is not coming up roses for Crossroads GPS and Karl Rove, however. The organization, as well as Rove personally, have been dogged by accusations of violating campaign finance laws by failing to report spending on political ads and collecting undisclosed money earmarked for campaign advertising. Further, litigation over what is widely seen as a political dismissal of allegations surrounding Crossroads GPS’s 2010 election activities by the FEC is pending in federal district court in Washington as well.

Crossroads GPS and American Crossroads together spent about $175 million directly trying to influence the 2012 presidential race and they are expected to be major players again this year after the GOP presidential primary is settled. With the election at hand, a possible negative outcome in federal court and the outcry from commentators and watchdog groups, it remains to be seen whether Crossroads GPS can stay in the IRS’s good graces and use its exemption to maintain the secrecy of its donor list.

For more information on the Supreme Court’s ruling in Citizens United and the resulting rise in political activities of Section 501(c)(4) organizations, see our previous blog post.

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