Dark money group paid IRS penalty and shut down following CREW complaints
It appears the IRS may have actually taken action against a dark money group. In June 2018, CREW filed an IRS complaint against Freedom Vote, Inc., a politically-active nonprofit formed in 2010. The complaint requested that the tax agency investigate whether the nonprofit group was operated primarily to influence political campaigns in violation of its tax-exempt status and if the group violated federal law by failing to disclose more than $1 million it spent to run an ad targeting the Ohio Senate race in 2016. In a previous complaint filed against the group in 2016, CREW also questioned the group’s political spending during the 2014 election.
Almost exactly a year after CREW filed its most recent complaint, the politically active nonprofit, which was organized under section 501(c)(4) of the tax code, filed its final tax return with the IRS as the group officially terminated its existence on May 31, 2019. On the final page of the tax return, Freedom Vote revealed that before shutting down it paid $23,096 to the IRS for what it described as “tax, penalty, interest.”
Freedom Vote’s tax return does not offer any details on what it was penalized for. It is also unclear exactly how the money was apportioned among those three descriptions, but the payment accounted for roughly a quarter of the money Freedom Vote spent while winding down.
If the IRS did penalize Freedom Vote for the extensive political activity detailed in one or both of CREW’s complaints, it would represent an extremely rare instance of the IRS cracking down on a social welfare nonprofit over its efforts to influence elections. Last year, ProPublica’s Maya Miller reported that “the IRS’ attempts to police this class of nonprofits have almost completely broken down.”
Nonprofits like Freedom Vote are allowed to spend money on elections, but it cannot be their primary activity, which is commonly defined as not dedicating more than 50 percent of total spending to politics. They also must report information about their political campaign activity to the IRS on their tax returns. Since these groups are not required to disclose their contributors, they are commonly referred to as “dark money” groups when they spend money to intervene in elections. The Center for Responsive Politics recently noted that dark money groups have “flooded elections with $963 million in outside spending” since the Supreme Court’s Citizens United ruling a decade ago.
Freedom Vote was established as a nonprofit in Ohio in 2010 less than six months after the Citizens United ruling. Politico reported that it was formed “with the express purpose of raising money to help pay for the type of turnout operations traditionally underwritten by the [Republican National Committee].”
According to its first two tax returns, which cumulatively cover the 2010 election, Freedom Vote spent heavily on what it called “issues education” and “voter registration efforts.” It did not report any political activity to either the IRS or the Federal Election Commission (FEC). During that period, Freedom Vote, which does not disclose its donors, received hundreds of thousands of dollars in grants from dark money groups that supported Republican candidates in 2010. The group’s fundraising and spending dropped significantly over the next two years and it did not report any political expenditures.
During the 2014 election, however, Freedom Vote reported to the FEC that it spent $174,607 on independent expenditures supporting then-House Speaker John Boehner (R-OH) in his primary election. All of the spending occurred during Freedom Vote’s 2013 tax year, covering October 1, 2013 to September 30, 2014, when the nonprofit told the IRS it spent $284,754 overall. As CREW noted in its first IRS complaint, that meant that political activity accounted for 61 percent of Freedom Vote’s total spending, apparently making politics the group’s primary activity.
Freedom Vote spent even more money on politics during the 2016 election. Between December 29, 2015 and October 5, 2016, Freedom Vote contributed $1.975 million to Fighting for Ohio Fund, a super PAC supporting Sen. Rob Portman (R-OH) in his reelection efforts. Freedom Vote’s contributions, the true source of which are unknown, accounted for roughly 20 percent of the super PAC’s total funding during the 2016 election.
On its 2015 tax return, covering October 1, 2015 to September 30, 2016, Freedom Vote acknowledged the $1.7 million in super PAC contributions it made during that time period as political activity as well as a little more than $44,000 in additional political spending that it did not detail. The acknowledged political spending alone accounted for 48.8 percent of Freedom Vote’s total spending that year.
The super PAC contributions were not the only way Freedom Vote backed Portman during the election though. During June and July of 2016, Freedom Vote also paid to run an ad on Ohio television stations attacking Portman’s opponent, former Ohio Gov. Ted Strickland. Freedom Vote never made the ad publicly available online, but CREW obtained a copy of the ad that aired on a Cincinnati television station in June 2016.
In the ad, Freedom Vote criticized Strickland for job losses in Ohio while he was in office, claiming, “If you assembled everyone who lost their job under Strickland, you’d have Ohio’s third largest city.” The ad then referred to Strickland’s Senate candidacy, saying he now “wants to bring his job-killing policies to Washington” while flashing an image of the U.S. Capitol. The ad closed by suggesting Strickland should not be allowed to go to Washington as a senator, arguing that “we can’t afford more lost jobs.”
Freedom Vote did not report any of its ad spending to the FEC as independent expenditures or to the IRS as political activity on its 2015 tax return, so the exact amount spent to run the plainly political ad is unclear. CREW, however, analyzed ad buying contracts on file with the Federal Communications Commission and collected by the Center for Responsive Politics, estimating that the nonprofit spent more than $1 million to run ads in June and July 2016.
Freedom Vote did report on its tax return that it spent $1,121,077 on “issue advocacy” during its 2015 tax year, an amount that appears to account for the anti-Strickland ad buy and provides a minimum estimate of how much was spent on the ads. Combining that minimum ad cost estimate with the amount Freedom Vote acknowledged to the IRS as political activity suggests that political spending constituted at least 80.1 percent of the group’s total spending that year. As a result, Freedom Vote appears to have operated primarily to influence political campaigns in violation of its tax-exempt status.
As a rule, the IRS does not disclose information about how it substantively responds to complaints against tax-exempt organizations. But Freedom Vote’s termination in the wake of CREW’s complaints and its disclosure that it paid “tax, penalty, interest” to the IRS suggests that the IRS may have taken some kind of action against the group for its apparent violations.
CREW also filed a complaint with the FEC regarding Freedom Vote’s failure to report its anti-Strickland ad spending as independent expenditures and its failure to register as a political committee despite exhibiting a major purpose of influencing elections. The FEC, which has lacked a quorum necessary to take many actions since September 2019, keeps its enforcement matters confidential until they are concluded. CREW has not yet been informed that the complaint against Freedom Vote has been resolved.