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As IRS scandal flares, watchdog calls attention to other tax-exempt groups

Fred Wertheimer, founder of Democracy 21, says some tax-exempt groups are flaunting the tax law.

Alex Leary | Times

Fred Wertheimer, founder of Democracy 21, says some tax-exempt groups are flaunting the tax law.

WASHINGTON — There's a framed Wall Street Journal editorial outside Fred Wertheimer's office that still makes him smile. The headline: "The man who ruined politics."

Eighteen years later, politics are doing just fine as one whiff of scandal-beset Washington attests.

Headlines track the uproar over the Internal Revenue Service's singling out tea party groups. But if you ask Wertheimer, who has been battling for good government long before the public heard of the Cincinnati IRS office, the outcry obscures a deeper scandal.

"We fully support the investigation going on into the improper targeting," said Wertheimer, president of Democracy 21. "But we also think it's essential to investigate why what we believe are blatant abuses of the tax laws were never challenged by the IRS. These phony groups were created solely for the purpose of hiding their donors."

Wertheimer isn't talking about local tea party groups that have sought tax-exempt status but big players such as Crossroads GPS and Priorities USA that have unleashed a torrent of money into elections but escaped the scrutiny the small organizations received.

Many of the ads you saw last fall bashing President Barack Obama's policies or slamming Mitt Romney came from Crossroads GPS, Priorities USA and similar groups. Unlike exclusively political organizations, they do not have to disclose donors.

"In 2012, C4 groups accounted for more than $250 million in dark money expenditures in federal elections," Wertheimer said, using the shorthand for section 501(c)(4) of the tax law. "The interests of the American people are being violated because they have a right to basic campaign finance information."

Crossroads GPS, started by Republican strategist Karl Rove, and Priorities USA , run by a former aide to Obama, are technically "social welfare" groups. The law says the nonprofit groups must be operated "exclusively" for the promotion of the public good. But IRS guidelines state, "to be operated exclusively to promote social welfare, an organization must operate primarily to further the common good and general welfare of the people of the community."

Behold the rub: Exclusively versus primarily.

In a series of letters to the IRS, Wertheimer has challenged the tax status of Crossroads GPS and Priorities USA, arguing, for example, that the fact that Crossroads reported spending $70 million on campaign ads in 2012 is "prima facie evidence that the organization does have a 'primary purpose' to engage in campaign activities."

The C4 designation is rooted in tax law from 1913 but it was a 2010 U.S. Supreme Court decision, Citizens United vs. Federal Election Commission, allowing corporations to spend unlimited amounts on elections that led to the proliferation of nonprofit groups Wertheimer and other watchdogs say are flaunting the law.

Wertheimer's Democracy 21 has been pestering the IRS to take a closer look at Crossroads and Priorities and reconcile the difference between the law and its guidelines.

The mess the IRS created by targeting tea party groups who also wanted tax-exempt status could make the agency reluctant to touch the issue.

"Until this all settles down, it could," said Sen. John McCain, R-Ariz. "We have to make sure we have eliminated all aspects of discrimination in the IRS that is obviously taking place. But once that is done there is still a need for overall campaign finance reform. There will be scandals. I have promised that since the Supreme Court decision. You cannot have that much money washing around without corruption."

Leaning back in a chair, Wertheimer, who is 74 and has a white moustache and a ring of white hair around a bald crown, looks more grandfather than tooth-bearing government adversary. But the Harvard-educated lawyer, whose wife is Linda Wertheimer of National Public Radio, has a reputation as a relentless advocate for open government.

"Even though the IRS is under enormous pressure right now, we're not going to walk away," he said. "We're currently exploring bringing a lawsuit and we will see what other avenues we can look at. These battles are impossible to win, until you win."

He has been at it since 1971, when he landed a job with Common Cause and headed up lobbying on campaign finance issues. Watergate soon broke, pushing the issue and Wertheimer to the fore. Over the years, he has been involved in some of the top reforms, including the 2002 "soft money" ban limiting individual contributions to political parties.

Wertheimer has been cast a hero and villain by people in both parties. Famously, one anti-reform Democrat in the 1970s dismissed him as "that bald-headed bastard." The 1995 Wall Street Journal editorial framed in Wertheimer's office blames him for the "cockamamie financial gauntlet we inflict on our potential leaders," a reference to Watergate-era reforms that included limits on individual political contributions and creation of the Federal Election Commission.

Critics today accuse him of hiding contempt for conservative causes behind the watchdog cloak. "Fred is a partisan Democrat who believes in limitations on free speech and is trying to get the IRS and full power of the federal government to shut down his opponents," said Jonathan Collegio, spokesman for Crossroads GPS.

Wertheimer said Democracy 21 does not have the resources to deal with all the liberal and conservative groups that have claimed a tax exemption. "Instead we picked what we believed at the time were egregious examples."

Wertheimer has urged the IRS to set a clear limit on the amount of money a group can spend on campaign activity, say, 5 or 10 percent, not the 49 percent groups generally think is acceptable (a standard the IRS has never established), or to follow the original intent of the law and bar any political activity. Groups could still engage in politics by forming so-called 527s, which fall under a different section of the law and allow unlimited contributions but full disclosure of donors.

But after repeated attempts to force a change, all Wertheimer has gotten is a letter in July 2012 stating the IRS is "aware of the current public interest in the issue" and that it will "consider proposed changes in this area."

It was signed by Lois Lerner, director of the IRS division on tax-exempt organizations who disclosed earlier this month that tea party groups were targeted for special scrutiny and who on Wednesday told a House committee she had done nothing wrong before invoking her Fifth Amendment right against self-incrimination.

As IRS scandal flares, watchdog calls attention to other tax-exempt groups 05/22/13 [Last modified: Thursday, May 23, 2013 12:03am]
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