How Nonprofits Spend Millions on Elections and Call it Public Welfare

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Yet many social welfare groups have interpreted the IRS guidelines to mean they can report what the FEC considers to be electioneering communications as "education," "lobbying" or "issue advocacy" on tax filings.

Consider the  American Action Network, which reported spending  $25.7 million on its 2010 tax return.

The group told the IRS the bulk of that money,  $17 million, went for lobbying and only $5 million went to political activity. But that same year, it told the FEC it spent more than $19 million on ads.

 Details in FEC filings offer some additional clues. The American Action Network reported $4 million in independent expenditures for 2010. Those ads clearly should be reported to the IRS as political spending, experts say. The group also reported $15.4 million in electioneering communications to the FEC — the only category on its 2010 tax form large enough to cover this amount is lobbying.Conston, the American Action Network's spokesman, declined to explain the discrepancy, saying that the group had complied with all applicable laws.

Many of the electioneering communication ads are no longer accessible online. ProPublica found nine that remain public. These cost more than $4.4 million, FEC records show.

Most criticized Democrats in vulnerable districts for supporting then-House Majority Leader Nancy Pelosi or health care reform. One focused on Nevada Rep. Dina Titus, showing a woman talking to a friend on Skype about the Democratic congresswoman.

"Apparently, convicted rapists can get Viagra paid for by the new health bill," the woman said. Later, she added, "I mean, Viagra for rapists? With my tax dollars? And Congresswoman Titus voted for it."

At ProPublica's request, Ellen Aprill, a law professor and the John E. Anderson chair in tax law at Loyola Law School in Los Angeles, reviewed the ads to assess whether they fit the IRS definition of political spending.

Criticizing particular lawmakers or candidates makes it likely that the IRS would see such ads as attempts to influence elections, rather than as issue advocacy or lobbying, Aprill said.

"Not simply saying this is bad legislation, but these people hurt you — with the implication, 'Don't send them back to Congress,'" she said.

Even in cases in which it seems clear that nonprofits have not met reporting requirements for political spending, groups sometimes stop operating before regulators can take action. The  Commission on Hope, Growth and Opportunity paid for a series of ads in 2010 that cost an estimated $2.3 million, according to CMAG.

One portrayed a cartoon dance line featuring Obama, Pelosi and an interchangeable Democrat, depending on where the ad ran. "Folks in Washington are living it up," it said. The ad urged viewers to "join" the Republican challenger.

Still, the group reported no spending to the FEC. In its 2010 tax return, it said it put at least  $4.6 million — 96 percent of its total expenditures — into advertising, yet insisted it spent  nothing to influence elections.

The Commission on Hope, Growth and Opportunity now appears dormant. Calls and emails to the group went unanswered.

"They are, of course, the best example of one of the problems with this: You can go into business and violate the law and then go out of business," said Melanie Sloan, the executive director of the  Citizens for Responsibility and Ethics in Washington, which filed complaints against the group with the IRS and FEC. "And what's ever going to happen about that? There's no consequence.

Grants to Other Nonprofits Flow Into Politics

One way 501(c)(4) groups appear to fulfill their social welfare obligation is by making grants to other groups that share their tax status. Yet since the recipients also funnel money into politics, it's possible the grant money is ultimately spent on ads or other election-related activities.