Money and Democracy

Published — February 27, 2014 Updated — July 28, 2014 at 5:27 pm ET

Nonprofits’ failure to report political activity to IRS raises questions

Organizations ‘playing with fire’ says tax attorney


A Center for Public Integrity analysis of dozens of Internal Revenue Service and Federal Election Commission documents found three social welfare nonprofits that spent money on politics and did not report their activity to the Internal Revenue Service, as required.

“That’s called playing with fire,” Marcus Owens, a former chief of the IRS’s nonprofits division, said about groups that neglect to report political expenses.

Colorado Family Action reported no political activity on its 2012 tax return but the social welfare nonprofit reported $78,058 worth of expenses to fight President Barack Obama’s re-election, according to FEC records.

Jessica Haverkate, Colorado Family Action’s executive director, told the Center for Public Integrity in an email that the group plans to amend its tax return to “accurately state our primary exempt purpose,” reduce its stated revenue to remove an in-kind donation and report political expenses of $25,498.

Haverkate didn’t explain why the political expenses were lower than what was reported to the FEC.

Family Foundation Action claimed no political campaign activity on its 2012 tax return but spent $18,942 last year attempting to oust Obama, according to FEC records. Family Foundation Action officials did not return calls and emails.

Public Interest Forum said it isn’t political on its 2012 tax return. But it spent $4,038 opposing Obama in 2012, FEC records show. Public Interest Forum officials did not return calls and emails.

Meanwhile, one group — II — underreported its political spending, as first noted by ProPublica. It reported $150,000 in political campaign activity during 2010 to account for a grant it gave of the same amount to its 527 committee, which is not limited in terms of how much it can spend on politics.

But the group reported making $192,070 worth of independent expenditures that year, according to Center for Responsive Politics and FEC records.

The money paid for an ad supporting Tim Burns, the Republican nominee in the special election that spring for the seat of longtime Democratic Rep. John Murtha of Pennsylvania who died in February 2010. Burns lost.

Representatives of II, including North Carolina state Sen. Fletcher Hartsell Jr., who was listed as the group’s secretary, did not return calls or emails.

Since the nonprofits’ political spending was reported as independent expenditures — money spent to expressly advocate for the election or defeat of a candidate — “it’s hard to imagine any way that they could claim those activities were not political campaign intervention reportable to the IRS,” said John Pomeranz, a nonprofit tax law expert and attorney with Harmon, Curran, Spielberg & Eisenberg.

The groups could get their tax-exempt status revoked, or worse, face criminal charges for reporting incorrect information to the IRS, said Owens, an attorney with Caplin & Drysdale. He added that intentionally filing false tax returns is a crime: “Since tax returns are filed under penalty of perjury, it raises an interesting question as to whether that’s a false return.”

Owens noted that the Department of Justice successfully prosecuted the leader of the Fiesta Bowl organization, a 501(c)(3) charitable nonprofit, a few years ago because it made political contributions that weren’t reported on its tax return.

“The issue of lying on your tax return is a problem in and of itself,” said Adam Rappaport, senior counsel with Citizens for Responsibility and Ethics in Washington. “The other question is, how is IRS supposed to enforce law [and determine the extent of a group’s political activity] if they don’t know how much was spent?”

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