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Public Citizen Calls on IRS and FEC to Penalize Nonprofit Group For Electioneering, Revoke Tax Status

April 11, 2007

Public Citizen Calls on IRS and FEC to Penalize Nonprofit Group For Electioneering, Revoke Tax Status

Analysis of Americans for Job Security’s Communications Uses IRS Test to Conclude That the Group Violated Terms of its Tax Status

WASHINGTON, D.C. – Public Citizen today filed complaints with the Internal Revenue Service (IRS) and the Federal Election Commission (FEC) alleging that the nonprofit group Americans for Job Security (AJS) has violated both the terms of its tax status and federal election law. The complaints, which were also sent to congressional committee leadership as part of a request for an investigation into the issue, ask the IRS to revoke the group’s tax status and the FEC to fine the group for election law violations.

Americans for Job Security is registered under Section 501(c)(6) of the tax code, the category reserved for business leagues and trade associations. Groups that are registered under this section are prohibited from engaging in efforts to influence elections as their primary purpose. But AJS, which maintains no Web site and appears to have only one paid employee, spends millions of dollars on advertisements to influence elections without appearing to engage in any other substantive efforts, according to the complaint. While many groups registered under 501(c) of the tax code participate in some level of electioneering activity and others may have violated the law, Public Citizen has identified AJS as one of the most egregious offenders. In response, Public Citizen is asking that the IRS revoke AJS’s 501(c) status, collect back taxes for its undeclared electioneering activities and require it to pay penalties for violating its tax-exempt status.

“To ensure the integrity of campaign finance laws, the IRS and FEC must curtail AJS’s unlawful activity,” said Public Citizen president Joan Claybrook. “The group makes a mockery of the ban on corporate spending to influence federal political races, while putting independent groups that obey the law at a disadvantage.”

Public Citizen’s complaint is one of the first efforts by any group to analyze a significant share of a 501(c) group’s advocacy communications by using the 11-point test developed by the IRS in early 2004 to determine whether advertisements should be deemed electioneering or issue-advocacy messages. Public Citizen’s analysis of the transcripts of 32 AJS-funded messages found that each satisfied a clear majority of criteria in favor of deeming a message  “electioneering” and failed to satisfy more than a slim minority of criteria that disfavor classifying a message as electioneering. These findings show that the IRS should conclude that AJS has engaged primarily in attempting to influence congressional and presidential elections in each election year from 2000. To provide evidence for its complaints, Public Citizen today provided the IRS and FEC with transcripts and audio files of the advertisements included in the complaint.

The complaints are timely: The Club for Growth announced on Tuesday that it intends to establish a 501(c) organization to evade the legal scrutiny that has been focused on its 527, and other groups are likely to follow suit unless the IRS and FEC take action. By taking refuge within its 501(c)(6) status, AJS has been able to keep its contributors’ identities secret, fostering an illusion that it represents regular Americans. In fact, AJS began in the late 1990s with a pair of $1 million contributions from trade associations. The organization has since concealed its contributors list, claiming that disclosure of donors would distract from its message. In contrast, if the group were registered under Section 527 of the tax code, the section reserved for political groups, AJS would at a minimum have to disclose its contributions and expenditures.

Until recently, groups could avoid FEC action against their advertisements by avoiding using certain “magic words” – such as “vote for” or “vote against” – that would classify the messages as “express advocacy,” a category of electioneering speech that may be regulated. In late 2006, however, the FEC adopted a more commonsense approach and fined three groups for failing to register as political committees because their paid advertisements clearly expressed an electoral message to voters even though they did not invoke the magic words in paid messages, and because the groups’ major purpose was electoral activity.  Under this approach, AJS, too, likely qualifies as a political committee but has failed to register as such with the FEC.

Throughout its history, AJS has sought to influence high-profile and closely contested political races without reporting its expenditures as political activity as required by law. In recent years, AJS has targeted its six-figure – and sometimes seven-figure – ad campaigns at such controversial races as: the 2006 Pennsylvania Senate contest pitting Rick Santorum against Bob Casey; the 2004 North Carolina Senate contest between Richard Burr and Erskine Bowles; the 2004 South Carolina Senate race pitting Jim DeMint against Inez Tannenbaum; and the 2002 Colorado Senate contest between Wayne Allard and Tom Strickland. The group spent more than $1 million to defeat Paul Wellstone in his Minnesota Senate race before he died in an airplane crash in 2002. AJS also has attempted to influence each of the past two presidential races. Its efforts included a television ad for the 2000 presidential election that said Al Gore’s ideas were so extreme that “if they ever came to pass, Americans would truly be Gored at the pump.”

AJS ads have favored candidates with whom the group’s associates have relationships. For example, an AJS adviser recruited John Sununu to run for the Senate in 2002. After Sununu ran, AJS ran ads attacking Sununu’s opponent, Democrat Jeanne Shaheen. Another AJS consultant, Eddie Mahe, Jr., was a paid adviser to Sen. Frank Murkowski (R-Alaska) and Sen. Slade Gorton (R-Wash.). AJS ran ads favoring Gorton (and attacking his likely opponent, now-Sen. Maria Cantwell (D. Wash.)) in 2000 and attacking Murkowski’s opponent when he ran for governor of Alaska in 2002.

The group’s electioneering motives were further laid bare in 2000, when, according to press reports, Sen. Trent Lott (R-Miss.) directed lobbyists to send money to AJS to fund an ad campaign promoting then-Sen. Spencer Abraham (R-Mich.) and attacking his challenger, now-Sen. Debbie Stabenow (D-Mich.). AJS broadcast an ad that did both.

“The 2008 presidential and congressional elections will be record-setters for the amount of money spent by outside groups and the number of paid issue ads that will hit the airwaves,” said Laura MacCleery, director of Public Citizen’s Congress Watch division. “It’s essential that the IRS and FEC enforce the law, cracking down on rogue organizations that blatantly violate election laws as a clear message to other groups that there will be not be this kind of lawless field day in future election cycles.”

To read Public Citizen’s complaint, click here.