crew: irs: regarding the commission on hope, growth, and opportunity: 5/23/2011 - irs complaint

8/6/2019 CREW: IRS: Regarding the Commission on Hope, Growth, and Opportunity: 5/23/2011 - IRS Complaint

1/8

CREW citizens for responsibilityand ethics in washingtonMay 23,2011

Douglas H. ShulmanCommissionerInternal Revenue Service1111 Constitution Ave., N.W.Washington, D.C. 20224

Re: Complaint Against Commission on Hope, Growth and OpportunityDear Commissioner Shulman:

Citizens for Responsibility and Ethics in Washington ("CREW") respectfully requeststhat the Internal Revenue Service ("IRS") investigate whether the Commission on Hope, Growthand Opportunity ("CHGO"), a non-profit organization exempt from taxation pursuant to sectionSO1(c)(4) of the Internal Revenue Code ("Code"), is violating the Code by operating with theprimary purpose of influencing political campaigns.'

Under the law, section S O l (c)(4) organizations such as CHGO must be primarily engagedin the promotion of social welfare," which does not include "direct or indirect participation orintervention in political campaigns on behalf of or in opposition to any candidate for publicoffice.:" The Code does not state precisely what constitutes political activity, but some activitiesunquestionably are political, such as advocating the election or defeat of a candidate for publicoffice." For other activities, the IRS currently applies a facts and circumstances test to determinewhether an organization has intervened in a political campaign.' Similarly, the IRS applies afacts and circumstances test to determine if an organization is primarily engaged in social welfareor if it has violated its tax-exempt status due to the amount of political activity it conducts."

1 CREW submits this letter in lieu of Form 13909; a copy is being sent to the Dallas office.226 U.S.c. SOl(c)(4); Treas. Reg. 1.S01(c)(4)-1(a)(2)(i) ("an organization is operatedexclusively for the promotion of social welfare if it is primarily engaged in promoting in someway the common good and general welfare of the people of the community").3 Treas. Reg. 1.S01(c)(4)-1(a)(2)(ii). While the Supreme Court's landmark decision in CitizensUnited v. FEC, 130 S. Ct. 876 (2010) greatly expanded the types of political activities in whichsection SO1(c)(4) organizations can engage, it did not alter the requirement that political activitymay not be the primary activity of these organizations.4 Rev. Rul. 2004-6; see also Election Year Issues, 2002 EO CPE Text at 349,388.5 Rev. Rul. 2007-41.6 Rev. Rul. 68-4S; see also Raymond Chick & Amy Henchey, Political Organizations and IRCSOlCc)(4), 1995 EO CPE Text.

14 00 E ye S tre et, N W ., S uite 45 0, W ash ington , D .C . 2 00 05 I 2 02 .4 08 .5 56 5 p ho ne I 20 2.5 88 .50 20 fax www.ci t izensforeth ics.o
http://www.citizensforethics.org/http://www.citizensforethics.org/


2/8

Douglas H. ShulmanMay 23,2011Page 2

Despite the fact that CHGO told the IRS it did not plan to spend any money attempting toinfluence elections, it did exactly that throughout the 2010 election cycle. Just two weeks afterthe IRS granted its application for tax-exempt status, CHGO claimed it had raised millions ofdollars to broadcast political advertisements, and then began airing them. Moreover, while it isdifficult to assess the extent of CHGO' s political activity because it failed to file mandatoryreports disclosing its campaign spending to the Federal Election Commission ("FEC"), a reviewof CHGO' s activities demonstrates that its primary activity in 2010 was sponsoringadvertisements intended to influence federal elections.

Because of the serious nature of the tax law violations, the IRS should consider revokingCHGO's tax-exempt status and/or imposing appropriate excise taxes and penalties on theorganization.

The Commission on Hope, Growth and Opportunity's Representations to the IRSCHGO was established on March 31,2010, and submitted under penalty of perjury an

application for recognition under section 501(c)(4) in late July 2010.7 On the application, CHGOrepresented it had not and did not plan to spend any money attempting to influence the selection,nomination, election, or appointment of any person to federal, state, or local public office." Inaddition, in its statement of revenue and expenses, CHGO claimed it expected to spend $5million between March 31, 2010 and December 31, 2010, all on activities attributable to itsexempt purpose:" to "advance the principle that sustained and expanding economic growth iscentral to America's future and the well-being of all Americans.?"

Based on these submissions, the IRS granted CHGO' s application for section 501(c)(4)status on August 16, 2010, less than a month after it received the application. 1 1

The Commission on Hope, Growth and Opportunity's Political ActivityContrary to the statements contained on CHGO's application for tax-exempt status, only

two weeks after the IRS granted CHGO 501(c)(4) status, the organization's founder, Scott

7 See Form 1024, Application for Recognition Under Section 501(a) ("CHGO Form 1024")(attached as Exhibit A). The date in the application's signature block is March 31, 2010, but it isstamped as having been postmarked July 19,2010. Id.8 Id., response to Part II, Line 15.9 Id., response to Part III, Section A.10 Id., response to Part II, Line 1.1 1 See Letter from the IRS to CHGO, August 16,2010 (attached as Exhibit B).


3/8

Douglas H. ShulmanMay 23,2011Page 3Reed,12said CHGO planned to raise $25 million airing political ads in the 2010 elections, andclaimed to have already raised half of that. 13

CREW has been unable to ascertain how much CHGO actually spent on political ads in2010, however, because the group failed to file campaign finance disclosure reports with the FECas required by law. As explained in a separate complaint CREW filed today with the FEC,14anyperson or organization that spends more than $10,000 on independent expenditures (activitiesthat expressly advocate the election or defeat of a candidate) or electioneering communications(advertisements that mention a candidate by name close to an election) must promptly report thatspending to the FEC.IS Nevertheless, CHGO failed to file any such reports.

Despite CHGO's failure to disclose its campaign activity, CREW has obtainedinformation regarding some of its political spending in 2010 from the Campaign Media AnalysisGroup ("CMAG"), which tracks political ads broadcast on local, national, and cable television.CMAG collects data including: the date an ad ran, the market in which it was broadcast, thecontent of the ad, and the estimated cost of the air time purchased. 16According to CMAG, justtwo months after CHGO told the IRS it did not plan to engage in any political activity, it beganbroadcasting political campaign ads. In all, CMAG found CHGO spent more than $2.3 million

12 See Brody Mullins & Danny Yadron, GOP Groups Launch Massive Ad Blitz, Wall StreetJournal, October 13,2010 (attached as Exhibit C).13 See Peter H. Stone, Independent GOP Fundraising Picks Up Steam, Center for Public IntegrityiWatch News, September 3,2010 (attached as Exhibit D); see also Peter H. Stone, CampaignCash: The Independent Fundraising Gold Rush Since 'Citizens United' Ruling, Center for PublicIntegrity iWatch News, October 4,2010 (attached as Exhibit E); Peter H. Stone, Inside theShadow GOP, National Journal, October 27,2010 (attached as Exhibit F). Although Mr. Reedhas been described in several news reports as CHGO's founder and quoted as speaking forCHGO, he is neither named on CHGO's website, nor listed in its Form 1024 as an officer of theorganization. See Peter Overby & Andrea Seabrook, Question Marks Surround Key ElectionAdvertiser, National Public Radio, October 27,2010 (attached as Exhibit G). That form listsSteven Powell as the President/Executive Director, James Warring as the Treasurer, and WilliamB. Canfield as the General Counsel. CHGO Form 1024, Part II, Line 3.14A copy of the complaint is attached as Exhibit H.1511 C.F.R. 100.16(a), 100.22(a)-(b), 100.29(a), 104.20(b), 109.10(c)-(d).16 See http://mycmag.kantarmediana.comlmethodology.asp. CMAG monitors the transmissionsof 12 national broadcast networks, 77 national cable networks, and local broadcast televisionadvertising in the top 210 media markets. Id. However, CMAG does not monitor local cablenetworks, where independent groups such as CHGO frequently advertise. See Ben Smith, Whatthe Ad Trackers Miss, Politico, October 14,2010 (attached as Exhibit I).
http://mycmag.kantarmediana.comlmethodology.asp./http://mycmag.kantarmediana.comlmethodology.asp./


4/8

Douglas H. ShulmanMay 23,2011Page 4broadcasting campaign ads between September 25,2010 and November 1,2010, attackingDemocratic candidates for reelection and supporting their Republican opponents.

For example, CRGO spent $438,310 broadcasting two ads explicitly attacking Rep. JohnSpratt (D-SC) and supporting his Republican opponent, Mick Mulvaney. In one, CRGO saidthat even though "it's the worst economy in decades," Rep. Spratt, "instead of looking out for us,approved billions in deficit spending without missing a beat."?" The ad then encouraged voters to"pull the plug on this song and dance once and for all," and "join Mick Mulvaney's fight againstthe big spenders in Washington." The second ad ostensibly promoted a collectible coincommemorating President Obama "increasing our national debt to a staggering $13.4 trillion,"and Rep. Spratt's votes for the agenda of Rouse Speaker Nancy Pelosi (D_CA).18 CRGO's adsuggested voters call Rep. Spratt "to order yours today," and encouraged them to "help MickMulvaney," who "has a better idea - stop the spending and get America working again."

CRGO spent millions more broadcasting similar ads against other Democratic candidates.It spent $240,690 to air the same "Song and Dance" ad used against Rep. Spratt against Rep.Kathy Dahlkemper (D-PA) and in support of her opponent, Republican Mike Kelly, encouragingvoters to "fight back" and join Mr. Kelly's "fight against the big spenders in Washington.':"CRGO similarly bought $238,740 of air time to broadcast the "Song and Dance" ad against Rep.Frank Kratovil (D-MD) and in support of Republican Andy Harris."

CRGO paid $131,830 to air the "Collectible Coin" ad against Rep. Suzanne Kosmas (D-FL) and in support of her Republican opponent, Sandy Adams; $101,070 to air it against Rep.Baron Rill (D-IN) and in support of Republican Todd Young; $76,230 to broadcast it againstRep. c.A. (Dutch) Ruppersberger (D-MD) and in support of Republican Marcelo Cardarelli; and$53,580 to air it against Rep. Paul Kanjorski (D-PA) and in support of Republican Lou Barletta."

CRGO spent $263,650 on a different ad against Rep. John Salazar (D-CO) and in supportof his Republican opponent, Scott Tipton. In this ad, CRGO claimed Rep. Salazar "squanderedbillions on a bogus stimulus bill as unemployment skyrocketed," and "led the charge with Pelosi

17The advertisements CRGO broadcast are included on the disc attached as Exhibit J andavailable at W\vw.citizensforethics.org/CRGO. This advertisement, titled "Song and Dance," istrack 1 of the disc. A transcript of the advertisement is attached as Exhibit K.18Exhibit J, track 2 ("Collectible Coin").19Jd., track 3.20 Jd., track 4.21 Jd., tracks 6,7,8,9. CRGO also intervened in the race of Rep. Walt Minnick (D-ID), spending$74,370 to air the "Collectible Coin" ad in his support. Jd., track 13.


5/8

Douglas H. ShulmanMay 23,2011Page 5for Obamacare, further crippling rural Colorado's economy.v" The ad also touted Mr. Tipton,saying "he believes Coloradans know best how to create jobs and grow our economy," andencouraging voters to "help Scott Tipton make America work again." CRGO spent $99,160 on asimilar ad against Rep. Dan Maffei (D-NY) and in support of Republican Ann Marie Buerkle."CRGO also spent $65,860 running the "Collectible Coin" ad against Rep. Maffei."

CRGO spent $74,240 to run the "Song and Dance" ad against Rep. Allen Boyd (D-FL)and in support of Republican Steve Southerland, and $41,100 on another ad against him entitled"Queen Nancy.'?" This ad asserts Boyd was one of Pelosi's most loyal followers, but after he"voted no on Obamacare, Queen Nancy shouted 'off with his head,' and Allen quickly changedhis vote to yes." CRGO then encouraged voters to call Boyd and urge him "to vote no again"and "repeal Obamacare." Even though this advertisement ostensibly refers to a vote, the timingof the advertisement was not related to any scheduled vote on repealing health care legislation.

In addition, CRGO spent $415,270 to broadcast an ad against Rep. Carol Shea-Porter (D-NR), pointing to her votes for the stimulus package and the health care bill, and adding "it getsworse" because the congresswoman "voted for the Pelosi Rouse agenda 93%" of the time." Thead then asks "does she believe what we believe?" and encourages voters to call Rep. Shea-Porterand "let her know if what you believe is what she believes."

Because these ads attack Democratic candidates and advocate the election of theRepublican candidates, instructing voters to join the fight or help the Republicans, they clearlyare political activity, and are not part of the social welfare activities in which section 501(c)(4)organizations must be primarily engaged."

While issue advocacy advertisements about public policy issues can promote socialwelfare," even if CRGO' s ads fall short of expressly advocating the election or defeat of thecandidates they nevertheless constitute political activity and are not issue advocacy under IRSauthority. In determining whether a communication constitutes issue advocacy or intervention ina political campaign, the IRS considers all the facts and circumstances of a particular

22 Id., track 10.23 Exhibit J, track 11.24 Id., track 12.25 Id., tracks 5, 15.26 Id., track 14.27 Rev. Rul. 2004-6.28 Rev. Rul. 2007-41.


6/8

Douglas H. ShulmanMay 23,2011Page 6communication, examining: (1) whether the statement identifies one or more candidates; (2)whether the statement expresses approval or disapproval for a candidate's position; (3) whetherthe statement is delivered close to an election; (4) whether the statement makes reference tovoting or an election; (5) whether the issue addressed has been raised as an issue distinguishingcandidates for an office; (6) whether the communication is part of an ongoing series ofcommunications by the organization on the issue that are made independent of the timing of anyelection; and (7) whether the timing of the communication is related to a non-electoral event suchas a scheduled vote on specific legislation by an officeholder running in an election." Applyingthese factors, all of CHGO' s ads constitute intervention in political campaigns."

For example, the "Song and Dance" ads all identified both the Democratic incumbent andhis or her Republican opponent, expressed disapproval for the Democrat's position ongovernment spending and approval of the Republican's position, were broadcast close to theelection, do not appear to have been part of any ongoing series of communications by CHGOindependent of the election, referenced the election by encouraging voters to fight back and jointhe Republican candidate's fight against big spending in Washington, and addressed an issue thatdistinguished the candidates. In addition, the timing of the ads was not related to any scheduledvote on government spending, and they did not ask the public to contact their members ofCongress regarding legislation. The same analysis applies to the "Collectible Coin" and otherCHGO ads, all of which constitute intervention in political campaigns."

While the total amount CHGO spent on political activities cannot be ascertained frompublic data, it is clear that the $2.3 million CHGO paid to broadcast campaign ads does notrepresent all of its political spending. At a minimum, CHGO also must have paid for the

29Id. While this ruling addresses political activity by section 501(c)(3) organizations (which maynot participate at all in political campaigns), the IRS applies the ruling's analysis to determinewhether the activities of a section 501 (c)(4) organization are political. See, e.g., Frances R. Hill,Exempt Organizations in the 2008 Election: Will Wisconsin Right to Life Bring Changes?, 19 U.Fla. J.L. & Pub. Pol'y 271,284 (2008).30 All of CHGO' s advertisements are similar to the hypothetical situation analyzed in Situation15 of Revenue Ruling 2007-41, in which an organization broadcast an advertisement identifyingan officeholder shortly before an election that was not part of an ongoing series of similarcommunications on the same issue, was not timed to coincide with a non-election event, and tooka position on an issue that distinguished the officeholder from his or her opponent. Suchadvertisements, the IRS concluded, constitute political campaign intervention.31 While the "Queen Nancy" advertisement CHGO ran against Rep. Boyd encouraged voters tocall Rep. Boyd and urge him to "repeal Obamacare," the analysis is still the same because at thetime CHGO broadcast this ad no vote was scheduled on repealing the health care law.


7/8

Douglas H. ShulmanMay 23,2011Page 7production of the ads, and almost certainly paid a buyer to purchase the air time. CHGO alsomay have paid to air the ads on local cable networks, broadcasts CMAG does not track.

CREW has been unable to discover how much CHGO spent on non-political activities asthe organization has not yet filed a Form 990. Nevertheless, CHGO represented to the IRS thatits entire budget for 2010 was $5 million," but spent more than $2.3 million just to broadcastpolitical ads. This, combined with Mr. Reed's September 2010 statement that CHGO planned tospend $25 million on campaign ads in the 2010 election cycle, half of which had already beenraised, suggests the organization was primarily engaged in political activities.

That CHGO's primary activity was participating in the 2010 mid-term elections is furtherunderscored by its coordination of efforts with other outside groups. Just weeks after the IRSgranted CHGO's section 50 1(c)(4) status, CHGO began coordinating with American Crossroads,Crossroads GPS, and the American Action Network on a $50 million "advertising blitz"designed to help Republicans win a majority in the House of Representatives." The groupsreferred to their coordinated effort as the "House surge strategy," and a Republican involved withthe operation explained, "It's fair to say that the targets are coordinated so that we are all nottripping over each other.?"

CHGO's coordinated political initiative with other groups on behalf of Republicancandidates may be a product of the organization's ties to the Republican party. Mr. Reed, forexample, is the former campaign manager for Sen. Robert Dole's 1996 presidential campaignand the former executive director of the Republican National Committee," while CHGO'sgeneral counsel, William B. Canfield, is a longtime Republican lawyer and the former GeneralCounsel of the National Republican Senatorial Committee."

In sum, the amount of money CHGO spent to broadcast clearly political ads, itscoordination with outside groups to support Republican candidates, and its close ties to theRepublican party conclusively demonstrate CHGO's primary purpose in 2010 was politicalcampaigning.

32 CHGO Form 1024.33See Mullins & Yadron, Wall Street Journal, October 13,2010.34Id.

35 See Biography of Scott Reed, Leading Authorities website (attached as Exhibit L).36 See Overby & Seabrook, National Public Radio, October 27,2010; Philip Shenon, RepublicanFund Raising Is Attacked in Federal Suit, New York Times, August 27, 1990 (attached as ExhibitM).


8/8

Douglas H. ShulmanMay 23,2011Page 8

ConclusionCRGO's activities during the 2010 election cycle were inconsistent with its tax

exemption application and clearly violate the laws governing section 501 (c)(4) organizations.Therefore, the IRS should investigate CRGO and, upon finding CRGO has violated its tax-exempt status, revoke its section 501(c)(4) status, impose any applicable excise taxes undersection 4958 for excess benefit transactions, and treat CRGO as a taxable corporation or as asection 527 organization.

Recently, CREW and others have filed complaints with the IRS against groups that haveengaged in impermissible political activity in violation of their tax exempt status." It isimperative that the IRS investigate likely tax law violators and vigorously enforce the law to theto deter others from exploiting tax exempt organizations for political gain.

Thank you for your prompt attention to this matter. -7

Melanie SloanExecutive DirectorCitizens for Responsibility and Ethics in Washington

Encls.cc: IRS-EO Classification

3 7 See, e.g., Letter from CREW to the IRS, March 8, 2011 (requesting investigation of theAmerican Action Network for violating its 501(c)(4) status); Letter from CREW to the IRS,February 1,2011 (requesting investigation of the American Future Fund, Inc. for violating its501(c)(4) status); Letter from CREW to the IRS, October 26,2010 (requesting investigation ofPray in Jesus Name Project for violating its 501(c)(3) status); Letter from Campaign LegalCenter and Democracy 21 to the IRS, October 5,2010 (requesting investigation of CrossroadsGPS for violating its 501(c)(4) status).

crew: irs: regarding the commission on hope, growth, and opportunity: 5/23/2011 - irs complaint

Documents