Tax-exempt Political Groups in New York are Not Exempt from Inquiry

As reported earlier by New York Times, New York Attorney General Eric Schneiderman is in the process of expanding his inquiry into the finances of tax exempt political groups who are spending millions of dollars in the 2012 election. A US Supreme Court ruling in 2010 paved the way for spending in political campaigns by Super PACs. However, Super PACs need to file monthly disclosures, and this discourages corporations many of who direct cash toward nonprofits.

The New York Attorney General is requesting tax returns and other financial documents from roughly two dozen nonprofit groups including both conservative and liberal groups. Sources close to the inquiry reported that letters had been sent to four Republican organizations including Crossroads GPS, Americans for Tax Reform Foundation, American Action Network, and American Future Fund.

Crossroads GPS is run by a former aide of George W. Bush, Karl Rove. Former Senator Norm Coleman runs American Action Network, Republican Grover Norquist runs Americans for Tax Reform Foundation and American Future Fund is run by Iowa based strategist Nick Ryan.

Four liberal groups also received letters from the Attorney General including Priorities USA Action, American Bridge 21^st Century Foundation, Patriot Majority USA, and America Votes. Two former aides to President Barack Obama founded Priorities USA Action.

The inquiry made by the Attorney General shows increasing scrutiny of nonprofits which qualify under the US tax code as social welfare organizations. Their status allows them to raise millions of dollars while keeping their donors secret as long as most of the money they spend do not directly support or oppose a political candidate. Such “issue advocacy ads” cannot use the name or likeness of a political candidate and are expected to educate the public on broad issues.

However, many nonprofits have political action committees affiliated with them and such political action committees can raise unlimited funds.

In New York, the state law requires charities doing business in the state to file annual reports with the charities bureau of the Attorney General, and also provide an Internal Revenue Service form if the solicited amount exceeds $ 25,000 or more in contributions. The Attorney General has the power to subpoena the documents if the charities bureau does not receive the requested information.