Money & Politics | Daily Report

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A campaign finance reform organization has sent a letter to the Internal Revenue Service challenging the tax-exempt status of four high-profile political committees, including one that recently made headlines in California.

The challenge [PDF] is the latest, and likely not the last, attack on a new regime of campaign finance rules that came into focus after a series of court decisions last year. Under the new rules, corporations and interest groups have the power to spend unlimited amounts in support of their favored candidates.

Last week, the Washington D.C.-based campaign reform group Democracy 21 sent a letter to the IRS arguing that the political activities of four committees should disqualify their tax-exempt status.

Each of the committees has been a prominent player in the run-up to the 2012 elections: Crossroads GPS, an organization founded by conservative strategist Karl Rove; Priorities USA Action, which was founded by former aides to President Barack Obama; American Action Network, which bills itself as a center-right advocacy group; and Americans Elect, which aims to have voters nominate a third-party candidate directly and recently submitted 1.6 million signatures to qualify for the ballot in California.

The organizations are incorporated under a section of the tax code that allows them to engage in political activities as long as they do not constitute the organization’s “primary activity.”

Under that designation, known as 501(c)(4), the groups are supposed to be formed with the purpose of serving “social welfare.” Such groups can raise unlimited amounts of money and do not have to disclose their donors.

The groups are not allowed to coordinate with political candidates or contribute to their campaigns, but they can do things like run commercials promoting ideological positions that clearly favor one party over another.

Among other things, the Supreme Court’s so-called Citizens United ruling last year enabled these social welfare groups to spend corporate and union money on political advocacy, making them an attractive vehicle for wealthy interests to promote their causes.

The Democracy 21 letter claims that the nonprofit groups’ activities are primarily political, which would disqualify their tax-exempt status – an allegation representatives of those groups have called baseless in published reports.

“The idea that these organizations are social welfare groups is nonsense,” Democracy 21 President Fred Wertheimer said in a statement. “The overriding purpose of these groups is to participate in and influence elections, which makes them ineligible for tax-exempt status.”

If the IRS finds that the groups do not qualify for tax exemptions, they could be held liable for back taxes and other penalties.