Sunday, April 29, 2012

How Apple Sidesteps Billions in Taxes

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By Charles Duhigg and David Kocieniewski

Apple, the world’s most profitable technology company, doesn’t design iPhones here. It doesn’t run AppleCare customer service from this city. And it doesn’t manufacture MacBooks or iPads anywhere nearby.

Yet, with a handful of employees in a small office here in Reno, Apple has done something central to its corporate strategy: it has avoided millions of dollars in taxes in California and 20 other states.
Apple’s headquarters are in Cupertino, Calif. By putting an office in Reno, just 200 miles away, to collect and invest the company’s profits, Apple sidesteps state income taxes on some of those gains.
California’s corporate tax rate is 8.84 percent. Nevada’s? Zero.

Setting up an office in Reno is just one of many legal methods Apple uses to reduce its worldwide tax bill by billions of dollars each year. As it has in Nevada, Apple has created subsidiaries in low-tax places like Ireland, the Netherlands, Luxembourg and the British Virgin Islands — some little more than a letterbox or an anonymous office — that help cut the taxes it pays around the world.

Almost every major corporation tries to minimize its taxes, of course. For Apple, the savings are especially alluring because the company’s profits are so high. Wall Street analysts predict Apple could earn up to $45.6 billion in its current fiscal year — which would be a record for any American business.

Apple serves as a window on how technology giants have taken advantage of tax codes written for an industrial age and ill suited to today’s digital economy. Some profits at companies like Apple, Google, Amazon, Hewlett-Packard and Microsoft derive not from physical goods but from royalties on intellectual property, like the patents on software that makes devices work. Other times, the products themselves are digital, like downloaded songs. It is much easier for businesses with royalties and digital products to move profits to low-tax countries than it is, say, for grocery stores or automakers. A downloaded application, unlike a car, can be sold from anywhere.

The growing digital economy presents a conundrum for lawmakers overseeing corporate taxation: although technology is now one of the nation’s largest and most valued industries, many tech companies are among the least taxed, according to government and corporate data. Over the last two years, the 71 technology companies in the Standard & Poor’s 500-stock index — including Apple, Google, Yahoo and Dell — reported paying worldwide cash taxes at a rate that, on average, was a third less than other S.& P. companies’. (Cash taxes may include payments for multiple years.)
Even among tech companies, Apple’s rates are low. And while the company has remade industries, ignited economic growth and delighted customers, it has also devised corporate strategies that take advantage of gaps in the tax code, according to former executives who helped create those strategies.

Apple, for instance, was among the first tech companies to designate overseas salespeople in high-tax countries in a manner that allowed them to sell on behalf of low-tax subsidiaries on other continents, sidestepping income taxes, according to former executives. Apple was a pioneer of an accounting technique known as the “Double Irish With a Dutch Sandwich,” which reduces taxes by routing profits through Irish subsidiaries and the Netherlands and then to the Caribbean. Today, that tactic is used by hundreds of other corporations — some of which directly imitated Apple’s methods, say accountants at those companies.

Without such tactics, Apple’s federal tax bill in the United States most likely would have been $2.4 billion higher last year, according to a recent study by a former Treasury Department economist, Martin A. Sullivan. As it stands, the company paid cash taxes of $3.3 billion around the world on its reported profits of $34.2 billion last year, a tax rate of 9.8 percent. (Apple does not disclose what portion of those payments was in the United States, or what portion is assigned to previous or future years.)

By comparison, Wal-Mart last year paid worldwide cash taxes of $5.9 billion on its booked profits of $24.4 billion, a tax rate of 24 percent, which is about average for non-tech companies.

Apple’s domestic tax bill has piqued particular curiosity among corporate tax experts because although the company is based in the United States, its profits — on paper, at least — are largely foreign. While Apple contracts out much of the manufacturing and assembly of its products to other companies overseas, the majority of Apple’s executives, product designers, marketers, employees, research and development, and retail stores are in the United States. Tax experts say it is therefore reasonable to expect that most of Apple’s profits would be American as well. The nation’s tax code is based on the concept that a company “earns” income where value is created, rather than where products are sold.

However, Apple’s accountants have found legal ways to allocate about 70 percent of its profits overseas, where tax rates are often much lower, according to corporate filings.

Neither the government nor corporations make tax returns public, and a company’s taxable income often differs from the profits disclosed in annual reports. Companies report their cash outlays for income taxes in their annual Form 10-K, but it is impossible from those numbers to determine precisely how much, in total, corporations pay to governments. In Apple’s last annual disclosure, the company listed its worldwide taxes — which includes cash taxes paid as well as deferred taxes and other charges — at $8.3 billion, an effective tax rate of almost a quarter of profits.

However, tax analysts and scholars said that figure most likely overstated how much the company would hand to governments because it included sums that might never be paid. “The information on 10-Ks is fiction for most companies,” said Kimberly Clausing, an economist at Reed College who specializes in multinational taxation. “But for tech companies it goes from fiction to farcical.”
Apple, in a statement, said it “has conducted all of its business with the highest of ethical standards, complying with applicable laws and accounting rules.” It added, “We are incredibly proud of all of Apple’s contributions.”

Apple “pays an enormous amount of taxes, which help our local, state and federal governments,” the statement also said. “In the first half of fiscal year 2012, our U.S. operations have generated almost $5 billion in federal and state income taxes, including income taxes withheld on employee stock gains, making us among the top payers of U.S. income tax.”

The statement did not specify how it arrived at $5 billion, nor did it address the issue of deferred taxes, which the company may pay in future years or decide to defer indefinitely. The $5 billion figure appears to include taxes ultimately owed by Apple employees.

The sums paid by Apple and other tech corporations is a point of contention in the company’s backyard.

A mile and a half from Apple’s Cupertino headquarters is De Anza College, a community college that Steve Wozniak, one of Apple’s founders, attended from 1969 to 1974. Because of California’s state budget crisis, De Anza has cut more than a thousand courses and 8 percent of its faculty since 2008.

Now, De Anza faces a budget gap so large that it is confronting a “death spiral,” the school’s president, Brian Murphy, wrote to the faculty in January. Apple, of course, is not responsible for the state’s financial shortfall, which has numerous causes. But the company’s tax policies are seen by officials like Mr. Murphy as symptomatic of why the crisis exists.

“I just don’t understand it,” he said in an interview. “I’ll bet every person at Apple has a connection to De Anza. Their kids swim in our pool. Their cousins take classes here. They drive past it every day, for Pete’s sake.

“But then they do everything they can to pay as few taxes as possible.”

Escaping State Taxes

In 2006, as Apple’s bank accounts and stock price were rising, company executives came here to Reno and established a subsidiary named Braeburn Capital to manage and invest the company’s cash. Braeburn is a variety of apple that is simultaneously sweet and tart.

Today, Braeburn’s offices are down a narrow hallway inside a bland building that sits across from an abandoned restaurant. Inside, there are posters of candy-colored iPods and a large Apple insignia, as well as a handful of desks and computer terminals.

When someone in the United States buys an iPhone, iPad or other Apple product, a portion of the profits from that sale is often deposited into accounts controlled by Braeburn, and then invested in stocks, bonds or other financial instruments, say company executives. Then, when those investments turn a profit, some of it is shielded from tax authorities in California by virtue of Braeburn’s Nevada address.

Since founding Braeburn, Apple has earned more than $2.5 billion in interest and dividend income on its cash reserves and investments around the globe. If Braeburn were located in Cupertino, where Apple’s top executives work, a portion of the domestic income would be taxed at California’s 8.84 percent corporate income tax rate.

But in Nevada there is no state corporate income tax and no capital gains tax.

What’s more, Braeburn allows Apple to lower its taxes in other states — including Florida, New Jersey and New Mexico — because many of those jurisdictions use formulas that reduce what is owed when a company’s financial management occurs elsewhere. Apple does not disclose what portion of cash taxes is paid to states, but the company reported that it owed $762 million in state income taxes nationwide last year. That effective state tax rate is higher than the rate of many other tech companies, but as Ms. Clausing and other tax analysts have noted, such figures are often not reliable guides to what is actually paid.

Dozens of other companies, including Cisco, Harley-Davidson and Microsoft, have also set up Nevada subsidiaries that bypass taxes in other states. Hundreds of other corporations reap similar savings by locating offices in Delaware.

But some in California are unhappy that Apple and other California-based companies have moved financial operations to tax-free states — particularly since lawmakers have offered them tax breaks to keep them in the state.

In 1996, 1999 and 2000, for instance, the California Legislature increased the state’s research and development tax credit, permitting hundreds of companies, including Apple, to avoid billions in state taxes, according to legislative analysts. Apple has reported tax savings of $412 million from research and development credits of all sorts since 1996.

Then, in 2009, after an intense lobbying campaign led by Apple, Cisco, Oracle, Intel and other companies, the California Legislature reduced taxes for corporations based in California but operating in other states or nations. Legislative analysts say the change will eventually cost the state government about $1.5 billion a year.

Such lost revenue is one reason California now faces a budget crisis, with a shortfall of more than $9.2 billion in the coming fiscal year alone. The state has cut some health care programs, significantly raised tuition at state universities, cut services to the disabled and proposed a $4.8 billion reduction in spending on kindergarten and other grades.

Apple declined to comment on its Nevada operations. Privately, some executives said it was unfair to criticize the company for reducing its tax bill when thousands of other companies acted similarly. If Apple volunteered to pay more in taxes, it would put itself at a competitive disadvantage, they argued, and do a disservice to its shareholders.

Indeed, Apple’s decisions have yielded benefits. After announcing one of the best quarters in its history last week, the company said it had net profits of $24.7 billion on revenues of $85.5 billion in the first half of the fiscal year, and more than $110 billion in the bank, according to company filings.

A Global Tax Strategy

Every second of every hour, millions of times each day, in living rooms and at cash registers, consumers click the “Buy” button on iTunes or hand over payment for an Apple product.
And with that, an international financial engine kicks into gear, moving money across continents in the blink of an eye. While Apple’s Reno office helps the company avoid state taxes, its international subsidiaries — particularly the company’s assignment of sales and patent royalties to other nations — help reduce taxes owed to the American and other governments.

For instance, one of Apple’s subsidiaries in Luxembourg, named iTunes S.à r.l., has just a few dozen employees, according to corporate documents filed in that nation and a current executive. The only indication of the subsidiary’s presence outside is a letterbox with a lopsided slip of paper reading “ITUNES SARL.”

Luxembourg has just half a million residents. But when customers across Europe, Africa or the Middle East — and potentially elsewhere — download a song, television show or app, the sale is recorded in this small country, according to current and former executives. In 2011, iTunes S.à r.l.’s revenue exceeded $1 billion, according to an Apple executive, representing roughly 20 percent of iTunes’s worldwide sales.

The advantages of Luxembourg are simple, say Apple executives. The country has promised to tax the payments collected by Apple and numerous other tech corporations at low rates if they route transactions through Luxembourg. Taxes that would have otherwise gone to the governments of Britain, France, the United States and dozens of other nations go to Luxembourg instead, at discounted rates.

“We set up in Luxembourg because of the favorable taxes,” said Robert Hatta, who helped oversee Apple’s iTunes retail marketing and sales for European markets until 2007. “Downloads are different from tractors or steel because there’s nothing you can touch, so it doesn’t matter if your computer is in France or England. If you’re buying from Luxembourg, it’s a relationship with Luxembourg.”
An Apple spokesman declined to comment on the Luxembourg operations.

Downloadable goods illustrate how modern tax systems have become increasingly ill equipped for an economy dominated by electronic commerce. Apple, say former executives, has been particularly talented at identifying legal tax loopholes and hiring accountants who, as much as iPhone designers, are known for their innovation. In the 1980s, for instance, Apple was among the first major corporations to designate overseas distributors as “commissionaires,” rather than retailers, said Michael Rashkin, Apple’s first director of tax policy, who helped set up the system before leaving in 1999.

To customers the designation was virtually unnoticeable. But because commissionaires never technically take possession of inventory — which would require them to recognize taxes — the structure allowed a salesman in high-tax Germany, for example, to sell computers on behalf of a subsidiary in low-tax Singapore. Hence, most of those profits would be taxed at Singaporean, rather than German, rates.

The Double Irish

In the late 1980s, Apple was among the pioneers in creating a tax structure — known as the Double Irish — that allowed the company to move profits into tax havens around the world, said Tim Jenkins, who helped set up the system as an Apple European finance manager until 1994.
Apple created two Irish subsidiaries — today named Apple Operations International and Apple Sales International — and built a glass-encased factory amid the green fields of Cork. The Irish government offered Apple tax breaks in exchange for jobs, according to former executives with knowledge of the relationship.

But the bigger advantage was that the arrangement allowed Apple to send royalties on patents developed in California to Ireland. The transfer was internal, and simply moved funds from one part of the company to a subsidiary overseas. But as a result, some profits were taxed at the Irish rate of approximately 12.5 percent, rather than at the American statutory rate of 35 percent. In 2004, Ireland, a nation of less than 5 million, was home to more than one-third of Apple’s worldwide revenues, according to company filings. (Apple has not released more recent estimates.)

Moreover, the second Irish subsidiary — the “Double” — allowed other profits to flow to tax-free companies in the Caribbean. Apple has assigned partial ownership of its Irish subsidiaries to Baldwin Holdings Unlimited in the British Virgin Islands, a tax haven, according to documents filed there and in Ireland. Baldwin Holdings has no listed offices or telephone number, and its only listed director is Peter Oppenheimer, Apple’s chief financial officer, who lives and works in Cupertino. Baldwin apples are known for their hardiness while traveling.

Finally, because of Ireland’s treaties with European nations, some of Apple’s profits could travel virtually tax-free through the Netherlands — the Dutch Sandwich — which made them essentially invisible to outside observers and tax authorities.

Robert Promm, Apple’s controller in the mid-1990s, called the strategy “the worst-kept secret in Europe.”

It is unclear precisely how Apple’s overseas finances now function. In 2006, the company reorganized its Irish divisions as unlimited corporations, which have few requirements to disclose financial information.

However, tax experts say that strategies like the Double Irish help explain how Apple has managed to keep its international taxes to 3.2 percent of foreign profits last year, to 2.2 percent in 2010, and in the single digits for the last half-decade, according to the company’s corporate filings.

Apple declined to comment on its operations in Ireland, the Netherlands and the British Virgin Islands.

Apple reported in its last annual disclosures that $24 billion — or 70 percent — of its total $34.2 billion in pretax profits were earned abroad, and 30 percent were earned in the United States. But Mr. Sullivan, the former Treasury Department economist who today writes for the trade publication Tax Analysts, said that “given that all of the marketing and products are designed here, and the patents were created in California, that number should probably be at least 50 percent.”

If profits were evenly divided between the United States and foreign countries, Apple’s federal tax bill would have increased by about $2.4 billion last year, he said, because a larger amount of its profits would have been subject to the United States’ higher corporate income tax rate.

“Apple, like many other multinationals, is using perfectly legal methods to keep a significant portion of their profits out of the hands of the I.R.S.,” Mr. Sullivan said. “And when America’s most profitable companies pay less, the general public has to pay more.”

Other tax experts, like Edward D. Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, have reached similar conclusions.

“This tax avoidance strategy used by Apple and other multinationals doesn’t just minimize the companies’ U.S. taxes,” said Mr. Kleinbard, now a professor of tax law at the University of Southern California. “It’s German tax and French tax and tax in the U.K. and elsewhere.”

One downside for companies using such strategies is that when money is sent overseas, it cannot be returned to the United States without incurring a new tax bill.

However, that might change. Apple, which holds $74 billion offshore, last year aligned itself with more than four dozen companies and organizations urging Congress for a “repatriation holiday” that would permit American businesses to bring money home without owing large taxes. The coalition, which includes Google, Microsoft and Pfizer, has hired dozens of lobbyists to push for the measure, which has not yet come up for vote. The tax break would cost the federal government $79 billion over the next decade, according to a Congressional report.

Fallout in California

In one of his last public appearances before his death, Steven P. Jobs, Apple’s chief executive, addressed Cupertino’s City Council last June, seeking approval to build a new headquarters.
Most of the Council was effusive in its praise of the proposal. But one councilwoman, Kris Wang, had questions.

How will residents benefit? she asked. Perhaps Apple could provide free wireless Internet to Cupertino, she suggested, something Google had done in neighboring Mountain View.

“See, I’m a simpleton; I’ve always had this view that we pay taxes, and the city should do those things,” Mr. Jobs replied, according to a video of the meeting. “That’s why we pay taxes. Now, if we can get out of paying taxes, I’ll be glad to put up Wi-Fi.”

He suggested that, if the City Council were unhappy, perhaps Apple could move. The company is Cupertino’s largest taxpayer, with more than $8 million in property taxes assessed by local officials last year.

Ms. Wang dropped her suggestion.

Cupertino, Ms. Wang said in an interview, has real financial problems. “We’re proud to have Apple here,” said Ms. Wang, who has since left the Council. “But how do you get them to feel more connected?”

Other residents argue that Apple does enough as Cupertino’s largest employer and that tech companies, in general, have buoyed California’s economy. Apple’s workers eat in local restaurants, serve on local boards and donate to local causes. Silicon Valley’s many millionaires pay personal state income taxes. In its statement, Apple said its “international growth is creating jobs domestically, since we oversee most of our operations from California.”

“The vast majority of our global work force remains in the U.S.,” the statement continued, “with more than 47,000 full-time employees in all 50 states.”

Moreover, Apple has given nearby Stanford University more than $50 million in the last two years. The company has also donated $50 million to an African aid organization. In its statement, Apple said: “We have contributed to many charitable causes but have never sought publicity for doing so. Our focus has been on doing the right thing, not getting credit for it. In 2011, we dramatically expanded the number of deserving organizations we support by initiating a matching gift program for our employees.”

Still, some, including De Anza College’s president, Mr. Murphy, say the philanthropy and job creation do not offset Apple’s and other companies’ decisions to circumvent taxes. Within 20 minutes of the financially ailing school are the global headquarters of Google, Facebook, Intel, Hewlett-Packard and Cisco.

“When it comes time for all these companies — Google and Apple and Facebook and the rest — to pay their fair share, there’s a knee-jerk resistance,” Mr. Murphy said. “They’re philosophically antitax, and it’s decimating the state.”

“But I’m not complaining,” he added. “We can’t afford to upset these guys. We need every dollar we can get.”

With The Spotlight On Super PACs, Here's How Donors Are Really Hiding Money

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When super PACs announced their 2011 fundraising numbers earlier this week, it provided an early glimpse into how the new way of financing political campaigns may work in the upcoming election.
The filings showed that super PACs are indeed fundraising juggernauts, pulling in more than $98 million, with an average donation of $47,718. But so far, their sources of funding are largely transparent, not clouded in the kind of secrecy that some campaign-finance watchers had feared, and not relying that much on connected nonprofits that don't disclose donors.

Instead, it was separate announcements this week from a cluster of politically active social welfare groups, known as 501(c)4s for their IRS tax code, that hinted at how secret money could factor into the upcoming election -- and in a more direct fashion than initially forecast after the Supreme Court opened the door to super PACs two years ago.

On Tuesday, Crossroads GPS, the nonprofit arm of the GOP super PAC American Crossroads, announced it raised $32.6 million last year, far outstripping the super PAC itself, which raised $18.4 million. Priorities USA and American Bridge 21st Century Foundation, the nonprofit arms of the two largest Democrat super PACs, announced they raised $5.1 million. The super PACs, Priorities USA Action and American Bridge 21st Century, raised $8.1 million.

Unlike super PACs, which are required to identify their donors, social-welfare nonprofits such as Crossroads GPS and Priorities USA -- also referred to as "dark money" groups -- don't have to disclose contributions to the FEC, although they are supposed to report spending on political ads within a day or two. The nonprofits have to disclose their annual revenue and expenses to the IRS, but often delay such filings. A few have not yet filed their taxes for 2010.

Campaign finance watchdogs had worried that 501(c)4s, or "c4s" as insiders call them, would filter money from unidentified donors through super PACs, but, if the recent filings are any guide, they may spend funds directly. This means c4s could have a more muscular, proactive role than previously anticipated.

"Certainly the Crossroads announcement of their fundraising totals suggest the c4s will be big players, and could be even bigger players than the super PACs themselves," said Paul Ryan, a lawyer for the Campaign Legal Center.

Though social-welfare nonprofits have been around for years, they emerged as bigger players in the 2010 midterm elections.

The Supreme Court's ruling in Citizens United v. FEC in January 2010 led to the creation of super PACS, the turbo-charged political action committees that can raise unlimited amounts of money from donors, including corporations, unions and nonprofits, as long as they don't coordinate with a candidate when they spend that money.

The ruling also jump-started a new crop of nonprofits. Fifty-nine social-welfare groups reported spending more than $78.6 million on political ads during the 2010 election cycle, according to numbers provided to ProPublica by the Center for Responsive Politics. That money was spent mainly by Republican-leaning groups, including more than $26 million spent by the GOP-leaning American Action Network and more than $17 million by Crossroads GPS. For a time, those groups shared the same offices. It's unknown where any of their money came from.

After the 2010 election, Democrats started forming their own super PACs and connected social-welfare nonprofits, such as Priorities USA Action, the super PAC, and Priorities USA, the nonprofit. Both were formed by former aides to President Barack Obama, although he and other Democrats have expressed ambivalence and even anger over the role of anonymous money in politics.

Super PAC filings released Tuesday showed few donations from social-welfare nonprofits, or from shell companies with mystery owners.

Republicans, engaged in a bitter primary, raised more than 74 percent of the super PAC money that could be attributed to partisan groups, according to data compiled by the Center for Responsive Politics. (Our "PAC Track" application keeps track of spending and donations to prominent super PACs, and has different numbers.) Of those groups, Restore Our Future, the super PAC supporting GOP frontrunner Mitt Romney, raised more than $30 million. American Crossroads, the super PAC led by former Bush White House strategist Karl Rove and other top Republicans, including former party chairman Ed Gillespie and Mississippi Gov. Haley Barbour, raised $18.4 million.

Fourteen conservative super PACs, nine of which supported specific Republican presidential candidates, got the bulk of their more than $67 million in donations from publicity-shy conservative billionaires and companies. Almost 26 percent of donations to Republican super PACs came directly from companies, but two super PACS2014the one backing Newt Gingrich, and one backing former candidate Jon Huntsman2014only collected money from individuals. (About 70 percent of the donations to the Huntsman super PAC came from Huntsman's father. The major backer of the Gingrich super PAC is Las Vegas billionaire Sheldon Adelson, who gave $10 million in January. That money has not yet been reported to the FEC.)
A 15th conservative super PAC, Revolution PAC, which backs Ron Paul, missed the FEC filing deadline, but so far has spent almost $126,000 on ads and has given another $10,000 to another pro-Paul super PAC.

The four best-known Democratic super PACs didn't raise nearly as much2014perhaps because President Barack Obama is relying on more traditional sources of funding, or because Democrats don't have to worry about a primary. They raised more than $13.7 million, getting the bulk of their donations from unions, liberal PACs and Hollywood types. Almost 36 percent of the donations to the liberal super PACs were from unions and union PACs.

Tuesday's filings included only a handful of donations that raised questions about transparency.
A social-welfare group called the League of American Voters, Inc. gave $25,000 to American Crossroads on Dec. 12. The league, formed in the summer of 2010, is likely related to a better known Republican-leaning nonprofit, Americans for Tax Reform, run by strategist Grover Norquist; it rents office space from the group, and gets calls through its phone line.

But it's not clear what the League of American Voters actually does. An intern who answered the phone said she was told the man who ran the group, Bob Adams, a longtime GOP activist, rarely came to the office. Adams did not respond to an email from a ProPublica reporter.

A Democrat-leaning super PAC, Citizens for Strength and Security, reported that almost all of its $72,000 came from a social-welfare nonprofit, also called Citizens for Strength and Security. Both are run out of post-office boxes at a UPS store on M Street in Washington.

The New York Times also reported on Thursday that $500,000 of the donations to Restore Our Future came from two companies with questionable backgrounds: Paumanok Partners LLC and Glenbrook LLC.

Some campaign-finance watchdogs had a problem with super PACs that reported receiving large payments from affiliated nonprofits for overhead and administrative expenses. A conservative super PAC, Freedomworks for America, reported getting almost half its total contributions--$1.34 million2014as "in kind" payments from a linked social-welfare nonprofit, Freedomworks. The two leading Democrat super PACs, Priorities USA Action and American Bridge 21st Century, reported that they received a total of $438,000 from their affiliated nonprofits, for rent and other expenses.

Other Republican super PACs reported getting much less money from their affiliated nonprofits for operating expenses. Two Republican super PACs, Club for Growth Action and the Congressional Leadership Fund, reported getting less than $30,000 from their affiliated nonprofits for shared expenses. American Crossroads reported getting nothing from Crossroads GPS.

"Bottom line, you still have a problem that secret money is being channeled into the super PAC to help it function without the name of the donors ever being known ," said Fred Wertheimer, who runs Democracy 21, which advocates campaign-finance reform. "In essence you are hiding the donors."
The most prominent c4s seem to be saving their money for the general election. Crossroads GPS has spent less than $61,000 on political ads in the last year, paying for one anti-Obama ad in December and another released Wednesday. Other conservative social-welfare nonprofits, such as American Action Network and the National Organization for Marriage, have reported spending nearly $300,000 on ads for this election cycle. It's not clear how much either group raised in 2011, as that amount of money does not have to be made public.

Liberal social-welfare nonprofits also appear to be waiting to spend their money. Priorities USA has not reported spending anything; American Bridge 21st Century Foundation has spent only $5,089 on an ad opposing Mitt Romney on Jan. 20.

UC Irvine professor Rick Hasen, an election-law expert who runs a popular blog, said early reports indicated that people and groups that didn't mind being publicly identified gave to super PACs, while those preferring anonymity gave to c4 groups. But it was too early to say what might happen in the coming months, he added.

"Whatever conclusions people are tempted to make right now, you have to be tentative, it's a moving object," Hasen said. "Campaign finance is changing so quickly, it's difficult in the midst of the election to get a handle on what's going on."

More than half Crossroads' cash comes from three Texas tycoons

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Trio of Texas tycoons fuel Karl Rove super PAC with millions

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By Wayne Slater

More than half the money raised by the Karl Rove-affiliated super PAC American Crossroads has come from three Texans - Dallas billionaire Harold Simmons, Houston home builder Bob Perryand Dallas hotel and energy executive Robert Rowling . According to a report by the Center for Public Integrity, the trio collectively has donated $30.5 million - or just over 54 percent of the PAC's revenue this election cycle. Rove and GOPcolleague Ed Gillespie were involved in forming American Crossroads and a sister PAC, Crossroads GPS in 2010 as a way to raise big money for political campaigns. A 2010 Supreme Court decision cleared the way for super PACs to collect unlimited donations from individuals and corporations - and the Crossroads political committees have been among the most aggressive in raising money in this presidential year. In an interview last week, Rove said he hopes to spend $300 million electing Republicans.

KarlDancing.JPG Simmons, Perry and Rowling were among a handful of wealthy Texas donors that Rove began cultivating in the 1980s to fuel the campaigns of Gov. Bill Clements , agriculture commission hopeful Rick Perry , business-friendly candidates to the Texas Supreme Court and George W. Bush beginning with his first race for governor in 1994. Simmons and Perry helped bankroll the Swift Boat Veterans group attacked Democratic presidential candidate Sen. John Kerryin 2004. Both men have been beneficiaries of government decisions - Simmons winning approval to build a nuclear waste site in West Texas and Perry securing a state agency that critics say served as protection against lawsuits over defective houses. The Dallas Morning News reported in February that Simmons, Perry and Rowling were the top three donors to American Crossroads. The News reported 60 percent of American Crossroads' money last year came from the same Texans first tapped by Rove two decades ago. The new report by the Center for Public Integrity includes money raised by the PAC through the most recent filings with the Federal Election Commission.

Unlike American Crossroads, which must identify its donors, Crossroads GPS can keep its contributors secret. And while the individual donors aren't public, IRS filings last week indicate that nearly 90 percent of the $77 million raised so far by Crossroads GPS had come from two unidentified donors of $10 million each and nearly two dozen contributors of at least $1 million each. Under the law, American Crossroads can campaign directly for or against a candidate while Crossroads GPS is required to spend its money on ads that focus on issues rather than specific candidates. As such, Crossroads GPS has run attack ads around issues like health care in congressional districts that target Democratic candidates.

By comparison, the Democrats' pro-Obama super PAC Priorities USA has raised $8.9 million. Its only million-dollar donors are DreamWorksco-founder Jeffrey Katzenberg, comedian Bill Maher and plant conservationist Amy Goldman. The emergence of super PACs have allowed political donors to give unlimited sums. According to FEC reports, the biggest super PAC contributors to date are casino executive Sheldon Adelson and family member, $16.5 million to a pro-Newt GingrichPAC; Simmons, $15.4 million to various GOP committees; Perry, $6.6 million to Crossroads and various committees and Dallas real estate executive Harlan Crow, $1 million to Crossroads and other GOP committees.

Secret Donor Gave Anti-Obama Group $10 Million, Watchdogs Demand IRS Crackdown

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By Mike Ludwig

The name Crossroads Grassroots Political Strategies is misleading: much of the Karl Rove-affiliated group's funding comes from megarich donors, not a grassroots political movement, and campaign finance reformers say the group is deliberately using its nonprofit status to hide the names of its donors from the public as the election season heats up.

Two watchdog groups asked the Internal Revenue Service (IRS) this week to investigate Crossroads GPS and other groups on both sides of the political spectrum after Crossroads GPS tax filings revealed the organization has received dozens of multimillion-dollar checks from unknown donors to pay for ads attacking President Obama and Democratic policies.

Since June 2010 and the end of 2011, Crossroads GPS has received 22 donations ranging from $1 to $5 million and two single donations of $10 million, according to tax filings.

One of the $10 million donations, given by an unknown donor last year, made up the largest chunk of the group's 2011 income of $28.4 million.

The lines for names and addresses of donors in the group's tax filings were simply left blank. Crossroads GPS is not required to report them due to its nonprofit status. The group has raised nearly $77 million since its inception in 2010.

Unlike its sister group, the super PAC American Crossroads, Crossroads GPS claims 501(c)(4) nonprofit status. The IRS considers such groups to be social welfare organizations that cannot make political activity their primary purpose. Such groups can, however, run what are referred to as "issue ads," such as a recent television ad attacking Obama's energy policies. Crossroads GPS spent $1.7 million to run the ad in six states. Crossroads GPS has also funneled millions of dollars to conservative organizations, and along with American Crossroads, the groups have pledged to spend $300 million to defeat President Obama.

Crossroads GPS and similar groups exploit a legal loophole with issue ads. The groups cannot legally advocate for the election or defeat of a candidate, so issue ads simply attack a candidate's views or policies. The Crossroads GPS ad criticizing Obama's energy policy, for example, asks viewers to, "tell Obama to ... work to pass better energy policies," but does mention voting against him.
In a letter to the IRS, Democracy 21 and the Campaign Legal Center wrote that Crossroads GPS is, "engaging in substantial spending to influence elections" and is therefore not eligible for its tax-exempt 501(c)(4) status.

"It is essential that the IRS act to stop the farce that Crossroads GPS is a 'social welfare' organization," said Democracy 21 President Fred Wertheimer. "Karl Rove and Crossroads GPS are thumbing their nose at the American people. They are injecting secret, million dollar and multi-million dollar contributions into federal elections in direct conflict with the basic right of citizens to know the donors financing campaign expenditures to influence their votes."

Crossroads GPS's application for its status as a nonprofit social welfare organization is still pending with the IRS, and if it is found in violations of the tax rules, the group could face fines, according to the Campaign Legal Center.

The Campaign Legal Center and Democracy 21 also asked the IRS to crack down on the pro-Obama group Priorities USA, the pro-GOP group American Action Network and Americans Elect, a group that has gained ballot access in states across the country to run candidates for president. All of these groups enjoy tax-exempt, 501(c)(4) status.

A spokesperson for Crossroads GPS deferred questions to the spokesperson for rival group Priorities USA, which supports President Obama's re-election but also files as a tax-exempt social welfare organization.

Super PACs and their 501(c)(4) counterparts came into existence as political operatives for both parties sought to exploit the Supreme Court's now infamous 2010 Citizens United vs. Federal Election Commission (FEC) ruling, which allowed corporations and outside organizations to spend unlimited amounts of money supporting or opposing political candidates.

Secret donors pour millions of dollars into Crossroads GPS

Original Link:

By Matea Gold

Crossroads GPS, a conservative nonprofit group that is one of the most prominent critics of President Obama, raised nearly $77 million in its first 19 months from a small cadre of secret donors, including two dozen who wrote checks of $1 million and more.

The organization, founded in part by GOP strategist Karl Rove, received two single donations worth $10 million each between June 1, 2010 and the end of 2011, according to newly filed tax documents the group released Tuesday. It is impossible to know who gave the money, as the group simply listed each individual contribution and left blank the areas on the form for the names and addresses of the donors.

Crossroads GPS reported the identity of the donors to the IRS, as required, but does not have to reveal them publicly.

As a 501(c)4 social welfare organization, Crossroads GPS cannot make political activity its primary purpose, unlike its sister "super PAC," American Crossroads. Both are able to accept unlimited donations from both individuals and corporations.

Together, the two groups have emerged as the most muscular new players in the political landscape, aiming to spend $300 million this year to promote conservatives and defeat Obama.

Graphic: A look at super PAC spending during the primaries

As a tax-exempt group, Crossroads GPS ostensibly faces more limits on its political activity, but it is free to run so-called “issue ads” that stop short of calling for the election or the defeat of a candidate.
Earlier this month, Crossroads GPS spent $1.7 million to run one such ad in six presidential swing states attacking Obama’s energy policy.

Campaign finance reform advocates argue that the organization is essentially a political player hiding behind its tax status. Democracy 21 and the Campaign Legal Center on Tuesday repeated their calls to the IRS to investigate Crossroads GPS’s tax status, as well as that of several others, including the conservative group American Action Network and Priorities USA, a tax-exempt group affiliated with a pro-Obama super PAC.

“It is essential that the IRS act to stop the farce that Crossroads GPS is a ‘social welfare’ organization,” Fred Wertheimer, president of Democracy 21, said in a statement. “Karl Rove and Crossroads GPS are thumbing their nose at the American people. They are injecting secret, million dollar and multi-million dollar contributions into federal elections in direct conflict with the basic right of citizens to know the donors financing campaign expenditures to influence their votes.”
Crossroads GPS spokesman Jonathan Collegio said the group carefully hews to its nonprofit role, saying it only spends “a portion of its resources on political activity that furthers its social welfare mission.”

He said its donors “are individuals and businesses that support its vision of lower taxes and smaller government.”

“Environmental groups and labor groups have been airing ads promoting their causes and targeting politicians for years, but the brunt of Wertheimer’s criticism focuses on conservative groups engaging in the same activity,” Collegio said.

In 2010 and 2011, Crossroads GPS spent at least $43 million on media, according to its tax documents. It also doled out nearly $16 million in grants to an array of conservative organizations, including $4 million to Grover Norquist’s Americans for Tax Reform and $2.75 million for the Center for Individual Freedom, a group that was originally launched more than a decade ago by former tobacco industry executives who sought to counter government restrictions on smoking. After getting involved in an eclectic range of causes over the years, the center emerged as a player in the 2010 midterm elections, spending at least $2.5 million on negative ads against about 10 Democratic members of Congress.

The fund-raising success of Crossroads and its super PAC counterpart was reflected in the robust compensation paid to the groups’ president, Steven Law, a former general counsel of the U.S. Chamber of Commerce and deputy secretary of the Department of Labor. Over the 19-month period, Law earned $1.09 million in salary and bonuses from the two groups, the tax records show.

Secret Donors Dominate 2012

Original Link:


"Nearly all of the independent advertising being aired for the 2012 general-election campaign has come from interest groups that do not disclose their donors, suggesting that much of the political spending over the next six months will come from sources invisible to the public," writes Dan Eggen in the Washington Post. The secret money groups like Crossroads GPS, Americans for Prosperity, and others have launched the first salvo in the general election with giant ad buys and no requirement to disclose their even bigger funding sources.

With Newt Gingrich ready to end his presidential campaign, CNN looks at what the pro-Gingrich super PAC will do with its remaining $5 million in Adelson money. Perhaps it could be used to bail out one of Gingrich's many bankrupt non-profits to put him back to work.

One of the most maddening things in covering campaign finance is that the Senate insists on filing their disclosures on paper and not electronically. Back in the late 1990s they exempted themselves from electronic filing by writing a little loophole into the bill that mandated e-filing for the House, presidential candidates, and PACs. Why is this annoying? Instead of being able to download the campaign finance information as a spreadsheet or in raw data formats you have to download a PDF file that has been printed off of a computer and then rescanned onto a computer often making some pages illegible. It's absolutely outrageous that the Senate still does this and today the Senate Rules Committee held a hearing on a bill to fix it. The bill has existed in one form or another since 2003, but has been blocked by secret holds and other maneuvers emanating from the office of Senate Minority Leader Mitch McConnell. Over at the Center for Responsive Politics, former FEC communications director Bob Biersack discusses the odd opposition to the bill.
One conservative non-profit backing Sen. Dick Lugar in his tough primary fight is using a similar argument that the pro-Romney super PAC made when it was crushing Newt Gingrich and Rick Santorum in the Republican presidential primary. Also notable, the non-profit arm of a super PAC connected to House Majority Leader Eric Cantor is dropping into Indiana to support Lugar's reelection bid. This could earn back some brownie points from GOPers in Washington after Cantor angered them with a $25,000 donation to an anti-incumbent super PAC.

The Fix asks whether voters who hate super PACs so much will wind up voting against them.
University of Kansas assistant professor Felix Meschke finds that companies that make large political contributions have stocks that underperform.

The Obama campaign is banking on big union contributions to underwrite the Democratic convention, writes Bloomberg.
The Federal Election Commission (FEC) has a big day tomorrow with a number of advisory opinions to sort through.

Help us populate our list of campaign videos. Send any notable TV, radio or web ads that you see to Fundrace. Send your submissions to
Committee: Priorities USA Action & League of Conservation Voters
Candidate Opposed: Mitt Romney
Spot: "Mitt Romney: Big Oil's $200 Million Man"
Market: Colorado and Nevada.
Buy: $1 Million.

Committee: Crossroads GPS
Candidate Opposed: Tim Kaine
Spot: "Similarities"
Market: Virginia.
Buy: Part of $1.2 million buy.
Committee: Crossroads GPS
Candidate Opposed: Jon Tester
Spot: "Remember"
Market: Montana.
Buy: Part of $1.2 million buy.
Committee: Crossroads GPS
Candidate Opposed: Claire McCaskill
Spot: "Quote Leadership"
Market: Missouri.
Buy: Part of $1.2 million buy.
Committee: Crossroads GPS
Candidate Opposed: Shelley Berkley
Spot: "Hole"
Market: Nevada.
Buy: Part of $1.2 million buy.
Committee: Republican National Committee
Candidate Opposed: Barack Obama
Spot: "A Tale of Two Leaders"
Market: Unknown.
Buy: Undisclosed.
Committee: Barack Obama for President
Candidate Opposed: Mitt Romney
Spot: "Mitt Romney versus Reality: Student Loan Edition"
Market: Unknown.
Buy: Undisclosed.
Committee: Richard Mourdock for Senate
Candidate Opposed: Dick Lugar
Spot: "Too Long"
Market: Indiana.
Buy: Undisclosed.
Committee: Jon Tester for Senate
Spot: "Montana Beef"
Market: Montana.
Buy: Undisclosed.
Committee: Scott Walker for Governor
Candidate Opposed: Tom Barrett
Spot: "Taxer"
Market: Wisconsin.
Buy: Undisclosed.
Committee: David Dewhurst for Senate
Spot: "Conservative Businessman"
Market: Texas.
Buy: Undisclosed.
These numbers represent spending by independent groups, like super PACs and non-profits, to support or oppose a particular candidate for the presidency in 2012. Fundrace will update this spending daily to help show which candidates are gaining from the proliferation of independent groups in this coming election.
Newt Gingrich (R), $13,017,772 to support, $18,885,161 to oppose.
Rick Santorum (R), $7,548,235 to support, $20,923,379 to oppose.
Mitt Romney (R), $3,317,306 to support, $7,630,170 to oppose.
Rick Perry (R), $4,167,697 to support, $1,404 to oppose.
Ron Paul (R), $3,748,218 to support, $214,158 to oppose.
Jon Huntsman (R), $2,453,204 to support, $0 to oppose.
Barack Obama (D), $298,856 to support, $1,071,699 to oppose. (+$54,356)
Herman Cain (R), $501,717 to support, $954 to oppose.
Gary Johnson (R), $518 to support, $0 to oppose.
The American Foundations Inc., $85,223 to oppose Paul Coble for Congress in North Carolina's 13th District.
The American Foundations Inc., $8,144 to support George Holding for Congress in North Carolina's 13th District.
Jobs, Opportunity, And Freedom PAC, $23,115 to support Brad Mitzefelt for Congress in California's 8th District.
YG Network Inc., $104,628 to support Dick Lugar for Senate in Indiana.
Club for Growth Action, $209,292 to support Scott Keadle for Congress in North Carolina's 8th District.
Club for Growth Action, $171,258 to oppose Jon Bruning for Senate in Nebraska.
Majority PAC, $7,500 to oppose Dick Lugar for Senate in Indiana.
Club for Growth Action, $196,422 to support Richard Mourdock for Senate in Indiana.
Club for Growth Action, $617,848 to oppose Dick Lugar for Senate in Indiana.
American Action Network, $332,614 to oppose Richard Mourdock for Senate in Indiana.
Restore America's Voice, $4,000 to oppose Barack Obama for President.
Americans for Growth, Opportunity, And Prosperity, $5,924 to oppose Gary Moore for Congress in Kentucky's 4th District.
Americans for Growth, Opportunity, And Prosperity, $5,924 to oppose Alecia Dawn Webb-Edgington for Congress in Kentucky's 4th District.
Americans for Growth, Opportunity, And Prosperity, $15,006 to support Thomas Massie for Congress in Kentucky's 4th District.
Restore America's Voice, $50,356 to oppose Barack Obama for President.
Virginia Poultry Growers Cooperative Inc PAC, Hinton, Va., Treasurer: Susan L. Hottel.
Libertarian Action Super PAC, Austin, Texas, Treasurer: Robert C.W. Benedict Jr. (Super PAC)
Liberty Through Grassroots Efforts Super PAC, Marquette, Mich., Treasurer: Brian Charles Peterson. (Super PAC)
End The Gridlock, Washington, D.C., Treasurer: Michael Tucker. (Super PAC)
Nebraska United, Alexandria, Va., Treasurer: Chris Marston. (Super PAC)
SC-07 Fund, Springfield, Va., Treasurer: Robert F. Carlin.
Stonewall Democrats of Ventura County, Oak View, Calif., Treasurer: K. Bradley Hudson.
Winning Our Liberty And Future (WOLF) PAC, Ball Ground, Ga., Treasurer: Destin Chase Murphy. (Super PAC)

Could Corporations Take Tax Breaks on Political ‘Dark Money’?

Original Link:

By Justin Elliott

Tax experts say it's possible that businesses are aggressively interpreting the law to wring a tax advantage out of their donations to dark money groups.

The Supreme Court’s 2010 Citizens United decision [1] opened the way for unlimited corporate spending on politics and has led to the proliferation of nonprofit political groups that do not have to disclose the identities of their donors. But corporations may be getting another benefit from anonymous donations to these groups: a break on their taxes.

It all starts with the so-called social welfare groups that have become bigger players [2] in the political world in the wake of Citizens United, which knocked down restrictions on campaign activity by such groups.
Tax experts say it's possible that businesses are using an aggressive interpretation of the law to wring a tax advantage out of their donations to these groups.

It’s almost impossible to know whether that’s happening, partly because the groups — also known by their IRS designation as 501(c)(4)s — aren’t required to disclose their donors. (That’s why the contributions have been dubbed “dark money [2].”)

This state of affairs is not entirely new; social welfare groups have long been involved in politics. In 2000, for example, the NAACP National Voter Fund, which is a social welfare group, ran hard-hitting ads [3] just days before the election criticizing George W. Bush for his opposition to hate-crime legislation. What’s new is the scale of such groups' election involvement, which has expanded dramatically in the wake of Citizens United and helped feed the increasing flood [4] of money in elections.

The most prominent of a new crop of these groups is the Karl Rove-affiliated Crossroads GPS, which raised $43 million for the 2010 midterm elections and is expected to become an even bigger force this year. It has pledged to raise and spend $300 million with its sister super PAC, American Crossroads. Democrats also are expanding their use of these groups, led by the pro-Obama Priorities USA, which raised $2 million last year.

Precisely because they offer anonymity, such groups may be attractive vehicles for companies that want to spend money electing a favored candidate or pushing an issue. In 2010, Target generated [5] a national backlash after giving $100,000 to a Minnesota group that ran ads supporting a candidate who opposed gay marriage. Liberal activists seized on the donation after it was revealed in state filings. If Target — or any other public or private corporation — gave to Crossroads GPS or Priorities USA, the public would never know.

Companies also may be deducting from their taxes the undisclosed donations to these groups.
"There has always been this suspicion, but I can't prove it," says Frances Hill, a tax law professor at the University of Miami who first floated [6] the concept in a brief mention in The New York Times earlier this month. “It could be put into the advertising budgets, which for many companies are very large dollar amounts."

This is where the aggressive interpretation of the tax code would come into play.
Corporations are allowed wide latitude in deducting business expenses from their taxes — everything from workers’ salaries to marketing expenses of all kinds. But one thing they’re explicitly barred from deducting is political expenditures.

As the law [7] puts it, companies are not allowed to deduct money spent on “intervention in any political campaign” or “any attempt to influence the general public, or segments thereof, with respect to elections, legislative matters, or referendums.”

But tax experts say a company could argue that money given to “social welfare” groups isn’t political spending at all and that the donations are instead “ordinary and necessary” business expenses.
The company might argue, for example, that ads by a social welfare group would favorably influence opinion on a public policy issue that affects the company’s business. Thus, say, an oil company would claim a business expense deduction on a donation to a social welfare group that was running ads criticizing President Obama’s policies on domestic drilling.

The company also would have to argue that the money wasn’t being used by the groups on political expenditures. So, it comes down to where the IRS draws the line on defining a political expenditure, and whether ads run by such groups as Crossroads GPS or Priorities USA cross the line.

Defining a political expenditure is a matter of intense dispute. The IRS has historically looked at various factors [8] in assessing nonprofit spending, such as whether an ad mentions a candidate for public office or is aired close to an election. But wiggle room remains.

"It's a smell test,” says Lloyd Hitoshi Mayer, a Notre Dame professor who specializes in election and tax law. Donor corporations’ lawyers “could take the position that unless an ad is express advocacy, it's not across the line for tax purposes." Under this argument, an ad praising Obama’s stance on foreign policy wouldn’t be classified as political unless it explicitly told viewers to “vote for Obama.”

The social welfare groups themselves also have an interest in classifying their work as issue-based or educational since they risk losing their tax status if their primary purpose is political campaign activity [9]. Campaign-finance reformers have been pressing [10] the IRS to crack down on the new social welfare groups that, they argue, are abusing their tax status.

"The organizations themselves may be arguing that their expenditures are not political, they are issue advocacy. If you accept that characterization, you would get a deduction,” says Marcus Owens, a partner at Caplin & Drysdale and former director of the IRS’ Exempt Organizations Division.
Crossroads GPS and Priorities USA did not respond to requests for comment about the proportion of their work that they classify as political. The proportion matters because if corporations are, in fact, deducting donations as business expenses, they cannot deduct the part of the donation that was used for political purposes.

So, where does all this leave us? If a company gave $1 million to Crossroads GPS or Priorities USA and claimed the donation was a business expense, that would be $1 million of the company’s revenue not subject to taxes. If the company was paying a 30 percent tax rate, that would mean savings of $300,000.

But this is entirely hypothetical because we can’t be sure whether this tax strategy is occurring. First, the social welfare groups don’t reveal their donors. So, we don’t know which companies to ask about the deduction issue. And if companies are taking the deduction, it would be detailed in tax returns that are confidential.

Read the Tax Returns From Karl Rove’s ‘Dark Money’ Group

Original Link:

By Kim Barker

One of the most talked-about "dark money" groups of the election released its tax returns yesterday, showing it raised almost $77 million [1] from fewer than 100 donors over 19 months. Most of the money spent in its first year went directly to political ads or grants to other groups.

The returns are the first glimpse showing how much money has been raised by Crossroads GPS, launched by GOP strategist Karl Rove in mid-2010.

By choosing to include the number of donors and the amounts of some of its larger donations, including one of $10.1 million in the first year and another of $10.1 million in the last seven months of 2011, the group was somewhat more transparent than the IRS requires.

Still, Crossroads GPS [5], also known as Crossroads Grassroots Policy Strategies, retained plenty of mystery — namely, their donors' identities.

There are no donor names, no clues as to whether they are individuals, companies or trade groups, and no hint as to whether there are repeated donors from year to year.

Nonprofits like Crossroads GPS, classified by the IRS as "social welfare" organizations, are not required to disclose their donors, even if those organizations spend money on political ads. That is why they are sometimes referred to as "dark money" groups.

Yesterday, two campaign-finance watchdog groups [6] again called for the IRS to investigate the tax status of Crossroads GPS. Critics have complained that the group and others like it use the IRS social-welfare status as a fig leaf to be able to hide the names of donors. The IRS says a social-welfare nonprofit, or 501(c)4, must have social welfare as a "primary purpose" but has never defined what that means. Most groups interpret this to mean social-welfare nonprofits can spend up to 49 percent of their money on politics.

Crossroads GPS spokesman Jonathan Collegio responded to critics by sending an email message with the subject line "Snarky comments" that pointed out that some of the group's critics are nonprofits that also don't disclose their donors. In another email, he compared what the group does to how environmental and labor groups have operated for decades.

Although similar nonprofits engaged in politics in past elections, their use exploded in 2010, particularly in tandem with super PACs, taking advantage of federal court rulings that paved the way [7] for a new role for outside-spending groups in elections.

The IRS doesn't comment on individual groups but is expected to give more scrutiny [8] to politicking social-welfare nonprofits this year, considering the major role the groups are expected to play in the election. Together with its affiliated super PAC, American Crossroads, Crossroads GPS hopes to raise $300 million, primarily to help defeat President Barack Obama and to elect Republicans to Congress.

Crossroads GPS reported 64 donors [9] in its first year, between June 2010 and May 2011, including four who gave $10.1 million, $5 million, $4.5 million and $4 million. There were 32 donors [10] in the last seven months of 2011, including two who gave $10 million and $4.3 million. It's unknown whether any of them were repeat donors.

Between June 2010 and May 2011, Crossroads GPS spent about $42.3 million [11], including about $15.9 million directly for political ads [12] and another $15.9 million on grants [13] to 12 like-minded nonprofits and trade groups.

The $15.9 million that Crossroads GPS gave in grants coincided with the midterm 2010 elections. The money included $500,000 to the American Action Network [14], the conservative nonprofit that once shared an office with Crossroads GPS and American Crossroads, and $4 million to Americans for Tax Reform [15], formed by anti-tax activist and GOP heavy hitter Grover Norquist.

Federal Election Commission records show that these groups, as well as five other grant recipients of Crossroads GPS [13], spent money on political ads, directly or indirectly [16], in the 2010 election cycle. The grant money that groups received from Crossroads was earmarked for non-political activities [17].

In its 2011 filing, which covers the last seven months of the year, Crossroads GPS reported spending almost $22.4 million [18], including $1.7 million [19] on political ads, including this anti-Obama ad [20]. It gave only one grant, of $50,000 [21], to a charity called the Ethics and Public Policy Center. The organization describes itself [22] as "D.C.'s premier institute dedicated to applying the Judeo-Christian moral tradition to critical issues of public policy."

Super PACs and the law of intended consequences

Original Link:

By Georgia Logothetis

As a percentage of the total voting population, campaign donors are a rare breed. In October of 2011, President Barack Obama's campaign passed the 1 million donor mark for his reelection campaign (he had some 3 million donors in 2008). Even if one were to add up the total number of donors from all the presidential campaigns this cycle, the number would be minuscule compared the hundreds of million eligible voters.

Whittle down that number to those who actually bankroll the majority of campaign funds with max out checks and bundling and the number gets even smaller. Whittle that number down to those who are substantially bankrolling Super Pacs and we're down to, as Ari Berman has pointed out, the .0000063 percent:
Those are the 196 individual donors who have provided nearly 80 percent of the money raised by super PACs in 2011 by giving $100,000 or more each.
Most Super Pac donors also max out to a candidate's political campaign. That's the way the system is crafted. That's the way it's supposed to work.

For all the mouth-agape horror at the avalanche of money that's blanketed the 2012 election campaign in the wake of the Supreme Court's Citizens United decision, no one can seriously claim surprise that America's modern political system has finally been fully exposed for the plutocracy that it really is. The laws of that political system are such that money begets power, which begets money, which in turn begets power again...on and on in an ever-expanding cycle whose sphere of influence grows while the number of players remains relatively constant.

Speaking of plutocrats, this weekend, conservative pundit George Will defended the notion of Super PACs, claiming that clearly they don't wield the awesome power many claim because they haven't been able to produce a "king" in the Republican nomination process:
The Post, dismayed about super PACs, reports "a rarefied group of millionaires and billionaires acting as kingmakers in the GOP contest, often helping to decide, with a simple transfer of money, which candidate might survive another day." Kingmakers? Where's the king?If kingmaking refers to, say, Sheldon Adelson, the Las Vegas casino owner, keeping Newt Gingrich's candidacy afloat with large infusions to the super PAC supporting Gingrich, then kingmaking isn't what it used to be. Notice that the fellow with the most muscular super PAC, Mitt Romney, has failed to vanquish a singularly weak set of rivals. Might the power of political dollars be finite, and utility of the last dollar be less than that of the first? Who knew?
That's quite the silly argument Will presents, though not entirely unexpected given his track record. So Super PACs aren't influential because the GOP race is still in disarray because candidates like Newt Gingrich are still in the race because of ... their Super PAC? Or is Will claiming that Super PACs haven't made a "king" in the GOP primary, although the race he chooses to examine is one in which every major candidate has a Super PAC?
It's quite a testament to the modern state of campaign mud wrestling that you can throw a handful of billionaires in the ring and, surprise, surprise, you may have to wait for them to duke it out for a while. And that's not even factoring in the fact that Will's entire column misses the main issue: it's not about how competent campaigns and their PACs are in handling the millions that are thrown their way; it's that the mere fact that so few are allowed such disproportionate influence in campaigns is repugnant to our notion of fairness and democracy.

Justices Ruth Bader Ginsburg and Stephen Breyer, two of the four dissenting justices in Citizens United, indicated in late February that they would like to see Citizens United revisited:
Ginsburg references the current state of affairs in elections. She says, "in light of the huge sums currently deployed to buy candidates' allegiance" the Court should have the opportunity to explore whether Citizens United "should continue to hold sway."
I doubt that Justices Scalia, Roberts, Thomas, Alito and Kennedy didn't foresee that their ruling would result in a casino owner doubling down on Newt Gingrich's candidacy with repeated $10 million bets, or that Super PACs would raise more money from fewer donors than many previous presidential campaigns did in entire cycles. It was clear the moment the news broke that Citizens United didn't just change the letter of the law, it changed the entire atmosphere of our political process.
Lawrence Lessig points out that the myopic focus on reversing Citizens United is misguided:
Reversing this flood of political cash would be enough to satisfy most reformers, but not Lessig, who spoke last week at the Center for Public Integrity offices in D.C. Overturning the ruling "terrifies" him, he said, because "it imagines somehow that on January 20, 2010 – the day before Citizens United was decided – our democracy was fine and Citizens United broke it. But of course, the democracy was already broken."
It was against that context of broken campaign laws that the Supreme Court decided Citizens United. The Court knew that the decision would be act like a starter pistol for those who waited on the sidelines to take advantage of not just the laws involved in that case, but other laws which permitted secret donations and more. Bundlers raising half a million dollars each, corporations itching to explicitly take down candidates, and yes, the candidates themselves all knew the impact of the Court's decision on how campaigns are financed and how elections are won: it didn't just create new rules, it gave a nod of approval to stretching old ones to their limit.
Plutocracy 2012 is less of a surprise and more like the culminating act of the play chronicling the degradation of our political process, a dollar at a time. Playing out on the stage for all the world to see is a marionette democracy, where billionaires and millionaires manipulate puppet candidates to bob their heads up and down or left or right on command while the audience and the media sit in suspended disbelief about the lack of coordination between candidates and the groups that advocate (often verbatim) on their behalf.

It's a breathtaking spectacle. It's the greatest show on earth of power and control. And judging from the reluctance by either party to seriously and aggressively tackle true campaign finance reform, it looks like we'll be in for encore performances in untold election cycles to come.