NYT: Political Advocacy Groups Denied Tax-Exempt Status

-By Stephanie Strom

July 19, 2011- Three nonprofit advocacy groups that recruited and trained potential political candidates in the last several years have been denied tax exemption by the Internal Revenue Service.

Copies of the letters informing the groups of the decisions were heavily redacted by the I.R.S. when it released them last week, so it was impossible to know the names of the organizations involved, or which political party they might have worked with.

“You are not operated primarily to promote social welfare because your activities are primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole,” the I.R.S. wrote in the letters. “Accordingly, you do not qualify for exemption.”

Word of the decisions has been circulating this week, especially among lawyers who advise these types of nonprofits because they have become more prominent in political elections.

The organizations had been created as a type of nonprofit — known as a 501(c)4 for the section of the tax code that governs it. “I don’t know that you can read a message into these decisions, but the fact that they’re landing now, just as interest in these types of organizations is heating up again, is causing them to get a lot more attention than they normally would,” said Marcus S. Owens, a lawyer who used to run the division of the I.R.S. that oversees all nonprofit groups.

In recent months, the I.R.S. has undertaken actions that suggested the agency had stepped up its scrutiny of these groups. The agency recently backed off inquiries into whether five major donors to such groups had paid gift taxes — a rule rarely if ever enforced. The I.R.S. said it needed to develop a broader policy before taking any individual actions.

Billionaires like the Koch brothers and political strategists like Karl Rove are best known on the Republican side for being affiliated with groups weighing in on recent elections, like the 2010 midterm cycle. Democrats have also begun forming similar groups to counter those heavyweights.

Al From, founder of the recently folded Democratic Leadership Council, an advocacy group once led by Bill Clinton, said state-affiliated groups of national organizations like the D.L.C. had proved troublesome in the past.

“In the early 1990s, a lot of people wanted to organize chapters and we let them do that,” Mr. From said. “But it caused so many problems that we severed all ties to them not long after that.”

In 2002, the I.R.S. moved to revoke the council’s tax exemption for three years — 1997, 1998 and 1999 — but the United States District Court for the District of Columbia ruled that the revocation was improper and the organization continued. It closed in February.

Some experts speculated that the groups that received the recent I.R.S. letters — two founded in 2006 and one in 2007 — might have applied for tax exemption with an eventual court challenge in mind.


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