Majority Forward, the top liberal non-disclosing outside spender in the 2016 election, reported to the IRS that it spent more than $1.4 million influencing elections from June 2015 through May 2016. That spending accounted for 40 percent of the group’s total expenditures in its first year of existence, which was low enough to keep electoral politics from being the nonprofit’s primary activity.

The most interesting part of Majority Forward’s initial tax return, however, wasn’t the amount the group admitted spending on politics, but the fact that it included issue advocacy in its definition of political activity. By reporting issue advocacy as political spending, Majority Forward set a precedent it may find difficult to follow when it files its next tax return, which will cover its spending during the height of the 2016 election.

A section 501(c)(4) “social welfare” organization like Majority Forward cannot have politics as its primary activity, which is generally evaluated by whether more than half of its spending is dedicated to participating in elections. Between June 2016 and May 2017 (the group’s fiscal year), Majority Forward spent more than $14.4 million on independent expenditures and contributions to super PACs, according to reports filed with the Federal Election Commission (FEC). As a result, the dark money nonprofit will need to show that it spent more than that on non-political activity to protect its tax-exempt status when filing its next IRS return. This tax status is significant because it allows the group to keep its contributors secret.

A common tactic politically active nonprofit groups use to offset their political spending is also paying for  “issue” ads that mention candidates but do not expressly advocate for their election or defeat and are not run close enough to elections to trigger reporting requirements. Even though the ads are candidate-focused, the groups often do not acknowledge the spending as political, and instead treat them as non-political social welfare spending on their tax returns. This allows them to claim they spent less on politics and more on social welfare than many political observers would conclude they did.

In its first year of existence, Majority Forward did not report any political spending to the FEC. Yet on its first tax filing, covering June 2015 through May 2016, the group told the IRS it spent more than $1.4 million on political campaign activities. In explaining what constituted its political activity, Majority Forward volunteered that expenditures it made for “issue advocacy” were aimed at influencing elections:

On the tax return, Majority Forward did not explicitly list what expenditures to “educate voters on candidates’ views” it was referring to, but they likely included roughly $350,000 spent on a spate of digital ads the group ran in April 2016 criticizing Senate Majority Leader Mitch McConnell (R-KY) and  several then-vulnerable Senate Republicans over their treatment of Judge Merrick Garland’s nomination to the Supreme Court. Majority Forward cited the Garland-focused campaign as an example of the “non-partisan issue advocacy” the group would engage in on their application for tax-exempt status.

Majority Forward’s acknowledgment that this type of spending is political, at least for tax purposes, is both surprising and welcome. As CREW has noted, even though the FEC does not require these ads to be reported, the IRS uses different criteria to assess what constitutes political activity, applying a multi-factor assessment that can capture some communications that do not trigger FEC disclosure. This doesn’t mean every issue ad is de facto political: IRS guidance says that each communication should “be considered in context before arriving at any conclusions” about whether the communication constitutes political activity. Yet many groups only tell the IRS about political expenditures that have already been disclosed to the FEC or state election bodies.

When it prepares to file its next tax return, Majority Forward may be tempted to backtrack on the more expansive definition of its own political activity. Since the group didn’t have much other publicly reported political spending to balance out in its 2015 tax year, it could report its issue advocacy as political and still comfortably claim that politics was not its primary activity. But Majority Forward has a lot of spending to offset in order to claim that less than 50 percent of its expenditures between June 2016 and May 2017 were dedicated to politics.

According to FEC reports, Majority Forward spent more than $10 million on independent expenditures benefiting Democratic candidates in the 2016 election. The group also contributed more than $4.3 million to super PACs in its 2016 tax year. This means that in order to balance just FEC-reported political spending, Majority Forward will need to show it also spent more than $14.4 million on non-political activity.

During that time period, Majority Forward also spent millions on issue ads that were never reported to the FEC. In late August and early September of 2016, for instance, the nonprofit spent at least $2.4 million on ads arguing that then-Sen. Kelly Ayotte (R-NH) wanted to privatize Medicare. Since the ads urged viewers to contact Sen. Ayotte about her position on Medicare but did not advocate for or against electing her, they were not required to be reported to the FEC as independent expenditures. The ads also aired right before the opening of the FEC’s pre-general electioneering communications window, avoiding another form of disclosure. As Robert Maguire of the Center for Responsive Politics observed at the time, “The careful timing will make it easier for Majority Forward to claim, when it files its tax returns with the IRS, that the spending shouldn’t count against its primary purpose as a social welfare organization.” Yet these are very similar to the kinds of ads Majority Forward told the IRS were political in its first tax return.

In addition, since the 2016 election, Majority Forward has also spent millions on issue ads addressing politicians in states that are expected to have competitive Senate elections in 2018. The ad buys were announced in April 2017 and late May 2017, meaning some or all of the spending will need to be reported on the group’s fiscal year 2016 tax return.

It would certainly help Majority Forward’s math if it claimed all of this issue spending was not election-oriented. But this is where the precedent set by the fiscal year 2015 tax return comes in. Since Majority Forward used a broad definition and included its issue advocacy in its political expenditures, a change to a narrower reading of such spending for its fiscal year 2016 return would be conspicuous.

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