Take the article posted below from OpenSecrets. While the names of the two organizations seeking 501C(4) status sound very conservative, information discovered about both reveal they are about as progressive as they come, and in their case, we could say they come and go repeatedly.
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Shape-Shifting by Liberal Dark Money Groups Seems Meant to Confuse
IRS employees who sent overly detailed questionaires to some groups applying for tax-exempt status in recent years used words like “tea party” and “patriot” to try to filter out those that planned to be heavily involved in politics (a big no-no).
As it turns out, not only was that improper; it’s not even very effective. For instance, two liberal groups that have faded in and out of the political scene mysteriously and repeatedly over several years bear names that few would associate, at first glance, with progressive causes: Citizens for Strength and Security, and Patriot Majority.
As it turns out, not only was that improper; it’s not even very effective. For instance, two liberal groups that have faded in and out of the political scene mysteriously and repeatedly over several years bear names that few would associate, at first glance, with progressive causes: Citizens for Strength and Security, and Patriot Majority.
As we’ve laid out in our Shadow Money Trail stories over more than a year, tax-exempt 501(c)(4)s are hard to track: They don’t have to disclose their donors, they don’t have to file tax forms until nearly a year after the close of their fiscal years, and those tax forms require very little detailed information.It’s far worse when the paper trail is full of dead ends — by design.
Here’s what we’ve learned about the evolving identity of the first group, Citizens for Strength and Security:
- 2009: A liberal 501(c)(4) group, Americans for Stable Quality Health Care (ASQHC), is established, raising and spending nearly $47 million that year. Included in that is a grant to another 501(c)(4), the Foundation for Patients Rights, which had no other source of income.
- 2010: Foundation for Patients Rights is terminated. It gives what’s left of its funds to an arm of ASQHC that is not a 501(c)(4), but a 527 group. And it’s not called ASQHC, but Citizens for Strength and Security Action Fund. It’s housed at a different address from the first organization, but is run by the same consultants.
- 2011: Citizens for Strength and Security, the 501(c)(4), shuts down, having spent more than $50 million on “media buys” in 2009 and 2010.
- Also 2011: The consultants who ran the 527 create a new 501(c)(4): Citizens for Strength and Security Fund (no “Action”). CSSF then starts a super PAC simply called Citizens for Strength and Security.
Through it all, the various groups seemed to have many of the same addresses and board members in common.
Here’s another way to look at it:
To elaborate: In its first year, Citizens for Strength and Security (then ASQHC) raised $47 million with a staff of only two people. The pair — who appear to have been employees of the consulting firm Hilltop Public Solutions — worked an average of two hours a week. They drew no salary from the group, but two firms that share an address with Hilltop – SA Productions and Data and S&B Public Solutions LLC — were paid more than $3.4 million for “issue advocacy” and “coalition management” in 2009 and 2010.
In 2009, the vast majority of ASQHC’s spending went toward media production and airtime — with at least $40 million being paid to the shadowy consulting firm Waterfront Strategies, a unit of the big media firm GMMB, which did work for President Obama’s campaign, among others. Waterfront was one of twelve contractors, other than SA Productions, to receive at least $100,000 from ASQHC. Since tax-exempt groups are required to list only their top five contractors, we don’t know who else is on the list.
One of the only non-advocacy expenditures made by ASQHC came in the form of a $1.24 million grant to another “social welfare” organization called Foundation for Patients Rights — not to be confused with Center to Protect Patient Rights. That grant made up the entirety of FPR?s 2009 revenues, and most of that money ($1.1 million) subsequently went right out the door as spending on ?media.? (FPR never filed any reports with the FEC, but it’s possible the organization ran “issue ads” that it didn’t have to report to the election agency.)
The Foundation for Patients Rights terminated the following year, after only 15 months in existence — entirely funded by ASQHC’s grants. But before shutting down, it spent more than $800,000 on ?ads and production.” It also gave $180,000 to ASQHC’s union- and industry-backed 527, not its 501(c)(4) — the latter being where all the money had come from to begin with. The “Health Care” component of the groups’ name was gone by this time, though. The 527 receiving the money was called Citizens for Strength and Security. Grantor and grantee shared the same address — a UPS store in Washington, D.C.
Thus, money that had begun in a social welfare group’s account wound its way through another 501(c)(4) and ended up with an arm of the originating group that had fewer restrictions on its political spending. And in fact, the CSS 527 raised and spent close to $10 million, most of it in 2010. One of its top contributors was the Democratic Governors Association, which gave it $3.3 million that year.
That same year, 2010, Americans for Stable Quality Care changed its name to Citizens for Strength and Security Action Fund and filed its first spending reports with the FEC — using the M St. address of another group, Patriot Majority USA (about which we’ll have more later). It reported $1.4 million in spending to the FEC, but the group told the IRS it spent $9.3 million on ?media buys and production expenses? — most of it going once again to Waterfront Strategies. (As before, some of it may have been used for issue ads not reported to election authorities, but the IRS doesn’t require detailed spending reports.)
Like other (c)(4)s, CSS Action Fund can keep its donors’ identities secret. But one surprising benefactor has come to light: the Pharmaceutical Research and Manufacturers Association. Its $2.5 million grant – first reported by the Center for Public Integrity – made up about 19 percent of CSS Action Funds’s total revenues in 2010.
In 2011, CSS Action Fund shut its doors. But the same year, a 501(c)(4) called Citizens for Strength and Security Fund (minus the “Action”) set up shop at the old Foundation for Patients Rights address — which a recent Frontline documentary revealed to be a UPS store. And its board members are the same as those of the old CSS 527, Lora Haggard and Jeremy Van Ess. The latter is connected with Hilltop. The new (c)(4) went on to fund its own super PAC, called simply Citizens for Strength and Security.
The new (c)(4) group had a new address and a new employer identification number (the IRS assigns a unique EIN to every distinct organization that has employees) but it was still linked to figures close to the old organization. Its mission, too, was the same, except for the deletion of “health care” from the description — the Affordable Care Act having already been signed into law.
Neither of the two 501(c)(4) groups in the Citizens for Strength and Security family appear to have sought exempt status from the IRS — or if they did, they don’t appear to have received it, something that would have been highly unusual. Still, more than $60 million flowed through these organizations, much of it going into the political arena.
Patriot Majority
Citizens for Strength and Security is not alone in the process of surreptitious rebirth. Another liberal group, Patriot Majority USA — some of whose activities OpenSecrets Blog first reported last year — has been engaged in a similar evolution, employing some of the same tactics that seem designed to mask the doings of the complicated constellation of organizations known as Patriot Majority.
The network includes multiple 527s, a super PAC, and a 501(c)(4). Its 501(c)(4) arm has been killed off twice, each time rising anew.
The first iteration of the group, Patriot Majority for a Stronger America, began as the 501(c)(4) ?Midwest Alliance for Better Government? in 2006. It shut its doors in 2009. Meanwhile, though, another (c)(4), American Alliance for Economic Development, had been formed in 2008 with the same employees — none of whom drew a salary — at the same address. (It was also the same address that Citizens for Strength and Security Action Fund, the group discussed above, would use in later FEC filings.)In 2010, American Alliance changed its name to Patriot Majority USA. Then, as OpenSecrets Blog reported last year, Patriot Majority USA gave large sums of money to two politically active, liberal 501(c)(4)s — America Votes and VoteVets. Both of these groups then gave large grants to Patriot Majority’s own political 527 account. In essence, money appears to have gone from Patriot Majority USA’s nondisclosing social welfare account through two other social welfare groups, ultimately making its way into Patriot Majority’s 527 account.
In 2011, Patriot Majority USA began using a P.O. box as its mailing address, then filed a termination report. The same year, another 501(c)(4) called Patriot Majority USA — housed at that very same P.O. box, boasting the same board, and even listing the terminated Patriot Majority USA as an affiliate — filed its initial tax return. It would be Patriot Majority USA version 3.0 that would end up being the first to report to the FEC making direct, political expenditures — rather than passing the money first through a super PAC or 527.
The latest iteration of Patriot Majority USA was very active in the 2012 campaign season, telling the FEC it spent $7 million on ads. Yet despite the fact that it is not supposed to be primarily a political organization, it doesn’t appear to have done much since the elections. Its YouTube page has not been updated in the six months since early November, and its homepage — which, structurally, has been virtually unchanged through the last two versions of the organization — has been stripped down to bare-bones auto-updating content such as a sidebar of “this day in history” facts.
IRS Oversight
No one affiliated with Patriot Majority or Citizens for Strength and Security responded to our repeated requests to explain why they engage in this complicated process of reincarnation and money shuffling. We tried all of the phone numbers listed on the Citizens for Strength & Security documents, and we contacted Hilltop Public Solutions. Nobody would comment. Craig Varoga, who has overseen the Patriot Majority groups, also did not respond to calls or emails. (Varoga is not anxious to be found; year after year, he lists “no@email” in the email address field on IRS forms for his organization.)
Nonprofit experts contacted by OpenSecrets Blog could not think of a practical motivation for their actions. “It?s hard to tell what is going on here,” said Marcus Owens, former head of the Internal Revenue Service’s Exempt Organizations division, “but starting and terminating organizations makes it more difficult for the IRS to identify who did what when.”
Ellen Aprill, professor of tax law at Loyola University in Los Angeles, speculated that the groups might have feared they’d violated a tax rule and decided it was better to dissolve “either to be good going forward or, if we were to take a cynical, Machiavellian view, to continue to ignore rules by operating briefly and then dissolving to do the same thing again.”
What we do know is that the IRS is not an agency built for political oversight or transparency, and these groups could very well be using the agency’s weaknesses as an added layer of cover for their activities.The IRS’s primary legal responsibility is to protect information, rather than disclose it, and that is reflected in almost every aspect of the nonprofit infrastructure. Groups are not required to get the agency’s blessing to claim 501(c)(4) status, and if they don’t they aren’t included in the IRS summary data listing all the tax-exempt organizations it oversees. Annual tax filings are submitted long after they are relevant; even after they’re filed, the IRS doesn’t provide them — nor any of the relevant data — online or in machine-readable format.
On the rare occasion that an organization’s exempt status is revoked or denied, little to nothing about it is public. As we described in part five of our recent Shadow Money Magic report, the IRS doesn’t tell the FEC or the public that the group might be required to disclose its donors. Rather, most groups could simply pay their federal income taxes and fade away, except in cases of prominent organizations like Crossroads GPS — which applied for exempt status nearly three years ago and has yet to receive it. (This week a Crossroads spokesman told the Los Angeles Times that his group may have been a victim of the IRS’ heightened scrutiny of conservative groups.) Denial letters are made public only after they are scrubbed of all identifying information. Furthermore, formal denials are often unnecessary because, according to Lois Lerner, IRS Director of Exempt Organizations, “many organizations withdraw their application for exemption when they learn that a denial is forthcoming.”
For its part, Citizens for Strength and Security doesn’t appear to ever have sought exempt status for either of its 501(c)(4) incarnations. Patriot Majority USA, on the other hand, applied for, and received, exempt status at least twice, according to its most recent letter granting exempt status, obtained by OpenSecrets Blog. In that letter and the accompanying documents, Patriot Majority USA acknowledged that it had “substantially similar activities and goals” as the old Patriot Majority USA, which it refers to in the filing by its previous name, Alliance for Economic Development.In the document, it also explains that it had no intentions of hiring employees, opting instead to depend on “a large base of volunteers who will be responsible for contributing to, developing, and disseminating the organization’s message.” At the time it filed its first annual filing, the organization boasted about $2.9 million in revenues, but no volunteers.
In the course of their evaluation of Patriot Majority USA’s request for exempt status, IRS staffers don’t appear ever to have inquired about Patriot Majority USA’s previous two iterations, and the third incarnation was granted exempt status once again, after a wait of only three months. That was in 2011, a time when many other organizations waited far longer to receive approval as IRS staffers screened (often inappropriately) applicants for hidden political agendas. Ironically, this group’s application sailed through though its name contained the word “patriot,” one of the terms the IRS supposedly looked for, according to the Treasury Department’s Inspector General for Tax Administration.
However, in a final twist, it now appears that the IRS might have revoked the tax exempt status of the last two versions of Patriot Majority USA. The IRS data that includes listings of all exempt organizations no longer contains records for the group. Washington, D.C.’s Corporations Division still lists Patriot Majority as “active,” and there are few other explanations for its absence from the list. “It could mean that their status was revoked after an audit and for cause,” tax attorney Owens says.
But that’s between Patriot Majority USA and the IRS. The public won’t be told anything, and the FEC won’t be notified. The donors behind the millions spent by Patriot Majority in the 2012 election will remain safely on the dark side of Section 6103 of the US Code.
Reporting intern Janie Boschma contributed to this post.
We would like to extend an invitation to our Campaign Management Workshop on Saturday June 1 at 9:30 a.m. (also at the Albuquerque Marriott). We all agree the information discussed on Thursday’s Issues That Unite event is very important, take that knowledge and equip yourself with the tools to run a successful operation. 
