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Public Citizen Urges IRS to Investigate Tax Status of Freedom Partners

Sept. 23, 2013

Public Citizen Urges IRS to Investigate Tax Status of Freedom Partners

Obscure Group Calls Itself a Business League But Its Purpose Appears to Be Funneling Money into Groups That Engage in Political Activities

WASHINGTON, D.C. – Public Citizen today called on the IRS to investigate whether Freedom Partners, a relatively obscure group but one of the largest entities to fund political activities in the 2012 election cycle, is a legitimate business league, as it claims on its tax forms.

Freedom Partners is registered as a 501(c)(6) organization. Business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues can be exempt from taxes under this section of the IRS code. Business leagues must be made up of members who have a common business interest and whose purpose is to promote that interest.

However, Freedom Partners appears to have been little more than a conduit for about 200 members to funnel nearly a quarter billion dollars into electioneering and political activities during the 2012 elections – while keeping the identity of its donors secret, according to Public Citizen’s letter to the IRS, available here. Freedom Partners has raised $256 million and granted $236 million to politically active nonprofit groups since being founded in November 2011.

For instance, it gave $32.3 million to Americans for Prosperity, a group started by David Koch and Richard Fink (a Koch Industries board member) that is largely dedicated to the election of Republican congressional and presidential candidates. Freedom Partners also gave $13.6 million to American Future Fund, a group that supports candidates who back conservative principles, and it gave millions more to other politically active nonprofits ranging from the National Rifle Association to the Tea Party Patriots.

Donations to 501(c)(6) organizations may be tax-deductible as business expenses for donors. To avoid the use of tax-deductible contributions to support political activities, business leagues are required either to report to members how much of their contributions went to support electoral activities and lobbying, or pay a “proxy tax” to make up for possible excess deductions by contributors. But despite its large gifts to organizations that engaged in considerable electoral spending, Freedom Partners’ recently filed tax return (or “Form 990”) claims that the organization engaged in no electoral activity, directly or indirectly.

Freedom Partners’ leadership includes several Koch Industries officials, and its membership comes from participants in the Koch brothers’ semi-annual retreat designed to coordinate resources for conservative causes and politicians. Until earlier this month, when its leaders revealed details about the group to the media, Freedom Partners was virtually unknown by those tracking money in politics.

Freedom Partners appears to have drawn its membership and financial support from a variety of donors who have little in common other than to secretly finance an assortment of political causes and candidacies under the Koch brothers’ vast political umbrella, Public Citizen says in its letter. Freedom Partners functions as a grant-making entity to politically active nonprofit groups while concealing the sources of its funds. The bulk of its grants appear to be awarded to organizations that finance electioneering activities.

“It shouldn’t take the tools of the NSA to figure out who’s spending what to influence our elections,” said Robert Weissman, president of Public Citizen. “Freedom Partners constitutes a mockery of tax and campaign spending laws beyond anything we’ve yet seen. If the Kochs and their friends are able to succeed with this scheme, it will become the new normal in the ever-deteriorating world of campaign spending.”

In an effort to shine more light on who is funding election activities, several states have begun to require nonprofit social welfare groups formed as 501(c)(4) groups to disclose the identities of their donors. But because Freedom Partners is a 501(c)(6), these new disclosure requirements don’t apply to it.

“Based on the way it has passed out its money, it looks as though Freedom Partners is just one more new way to mobilize dark money to affect our political arena,” said Craig Holman, government affairs lobbyist for Public Citizen, “The information now available about the organization calls into question whether it legitimately qualifies as a 501(c)(6), as well as whether it may be being used as a vehicle for mobilizing tax-deductible contributions for political purposes.”