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Why Is the IRS Fighting Efforts to Unmask Karl Rove and U.S. Chamber Political Money Laundering?

The IRS is fighting the whistleblower instead of pursuing the alleged criminals.
 
 
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An IRS whistleblower lawsuit that attempts to finger an overseas non-profit affiliated with the U.S. Chamber of Commerce as a dark money conduit that put tens of millions into Karl Rove’s hands during the 2010 elections may soon die in an obscure federal court—unless the judge allows evidence-gathering over the IRS’s objections.

Robert Jacobson, a Tuscon, Arizona physician who brought the lawsuit, believes that a nonprofit created by the State Department in conjunction with the U.S. Chamber to build a much-ridiculed exhibition at the 2010 Shanghai Expo in China had another purpose—diverting large slices of the $70-plus million in donations to Rove for campaigns to retake the House. The idea was that money from GOP-friendly corporations and even the Chinese government would evade oversight by flowing through barely regulated nonprofits.

“I took it to U.S. Tax Court to do discovery,” Jacobson said this week (discovery is the legal term for gathering evidence). “We were in the midst of doing informal discovery, which is the process the IRS has to avoid trials. The [tax agency’s] chief counsel hates whistleblowers… They have a routine to kill whistleblowers.”

Suffice it to say that federal courts have ruled,and the Supreme Court has affirmed, that the IRS doesn’t have to pursue whistleblowing investigations if it finds there is no penalty money to be collected. Jacobson filed his case against Shanghai Expo three years ago. Between 2008 and 2012, the IRS received 33,064 whistleblower complaints and made 630 awards, recouping $1.46 billion and paying $180.1 million in awards, it reported to Congress. Last year, the IRS concluded that since the Shanghai Expo nonprofit had disbanded there was no point in pursuing a further investigation.          

Jacobson, who is a physician working with pro-bono lawyers and a filmmaker, Mina Chow, has been filing motions to keep the whistleblower lawsuit alive and let his team do its own investigation under Tax Court supervision. He knows that the IRS is more than reluctant to assess and label nonprofits as political front groups. But that is exactly why the Chamber and Rove’s team chose this political money laundering route, he said.

“I’m arguing that these crimes were so egregious that to ignore them is to become complicit in them,” Jacobson said. “The IRS had an obligation as a law enforcement agency to investigate the claims—felonies that they had abetted in some way.”

Jacobson is due back in Tax Court on January 6 to respond to an IRS motion for a summary judgment to dismiss his suit. He is hoping that an administrative law judge—who is not yet named—will step outside established precedents and allow discovery to continue, including using federal subpeonas to trace the Expo’s multi-millions in donations.

“The IRS has moved for summary judgement to dismiss my case,” he wrote in an email. “My chances are slim, given unfortunate precedents agreed to by the Tax Court under pressure from the IRS. I would like to obtain coverage for my actions, which culminate six years of observing the perpetrators in action—aided and abetted by the Chinese government and ironically, an unwitting Secretary of State Clinton, who raised the essential nut, $75 million, required for the scheme to work.”   

The 2010 Shanghai Expo

What happened at the Expo unfolds on several levels. In the first instance, the event was a great embarassment for the State Department. Then-Secretary Hillary Clinton had to support what the business press said was a shoddy exhibition that was officially sanctioned by her department, even though it was initiated under Bush. According to Jacobson, in 1998, Bill Clinton’s State Department first used the vehicle of a State Department-sponsored nonprofit for the Expo in Lisbon, Spain, as a way for lawmakers to go to Europe via a corporate junket that evaded federal campaign finance and lobbying reports.

In 2010, this same precedent was in play for Shanghai, Jacobson said, but Rove’s strategy was to use the overseas nonprofit to raise and funnel mega-millions from GOP-friendly corporations into his campaigns supporting House candidates. Under federal nonprofit law, donors’ identities do not have to be disclosed—which appeals to businessmen who want anti-regulatory officials in power but don’t want to offend consumers.

Rove’s link to the project was via one of his best friends, former Bush Undersecretary of Commerce, Frank Lavin, Jacobson said. Lavin chaired the Expo’s steering committee, he said, which put him atop the fundraising pyramid. “Frank Lavin was the expert at raising money and Karl Rove was the expert at spending it,” Jacobson said.

“I’m not in Tax Court by chance,” he said. “The issue is to expose the racket in Shanghai that happened in 2010,” which “has serious implications for the future.”

In the 2012 presidential cycle, nonprofits that were front groups for political campaigns became the vehicle for hundreds of millions of dollars in political messaging that crossed the line from discussing issues in general to campaigning to defeat or elect candidates. A quarter-billion dollars was raised and spent by nonprofits affiliated with the libertarian industrialist Koch brothers in this manner. At the start of the 2010 midterm season, Rove boasted of raising and spending $200 million.

In late November 2013, the IRS proposed new rules to close this loophope by tightening the definition of political activities by nonprofits in elections. That proposal was attacked by the GOP, saying it infringed on First Amendment rights, just as the party attacked the IRS earlier in 2013 when it questioned whether many Tea Party chapters were genuine nonprofits boosting causes and not political campaigns backing specific candidates.

Jacobson believes what unfolded in Shanghai will resurface in the 2014 midterms unless the government draws a courageous hard line.    

“The most crucial aspect of this is the enforcement of laws that would prevent this from happening again,” he said, noting that “someone with principle” would have to “pivot” and take a stand to uphold the law. Since that’s not happening at the IRS, Jacobson is pinning his hopes on an as-yet-unnamed federal Tax Court administrative law judge.

“There is no money in this for me… only the pursuit of justice,” he claimed. “I want to see these creeps in prison. I want Hillary to answer for her role. I want the tax system to be reformed… Imagine, the IRS covering for felons, perjurers and actual transgressions of the U.S. Constitution. But it does.”

Steven Rosenfeld covers national political issues for AlterNet, including America's retirement crisis, the low-wage economy, democracy and voting rights, and campaigns and elections. He is the author of "Count My Vote: A Citizen's Guide to Voting" (AlterNet Books, 2008).