On this Tuesday's Hardball, Chris Matthews spoke to The Huffington Post's Dan Froomkin and National Memo's Joe Conason about Karl Rove's group, Crossroads GPS and their potential violations of FEC rules and their more obvious violations of the stricter IRS rules on how anyone claiming 501(c)(4) privileged tax status is allowed to spend their money.
May 8, 2012

On this Tuesday's Hardball, Chris Matthews spoke to The Huffington Post's Dan Froomkin and National Memo's Joe Conason about Karl Rove's group, Crossroads GPS and their potential violations of FEC rules and their more obvious violations of the stricter IRS rules on how anyone claiming 501(c)(4) privileged tax status is allowed to spend their money.

Froomkin wrote about this in his article at The Huffington Post: IRS To Take On Karl Rove? Tax Laws Could Take A Bite Out Of Secret Political Spending :

Top Republican political strategist Karl Rove's method of secretly funneling unlimited contributions from big donors was so hugely successful in the 2010 campaign that Democrats are now trying to copy it. But his model may yet end up backfiring spectacularly.

In one scenario, groups like Rove's Crossroads Grassroots Political Strategies could find themselves subject to massive fines, ranging as high as 35 to 70 percent of the money they received in secret donations.

In another scenario, their deep-pocket donors could be hit by a 35 percent tax on their contributions.

Rove may well have found a way around the nation's federal election laws. But now the key question is whether the Internal Revenue Service is willing to be assertive. Because if it is, then just like with Al Capone, it could be the IRS that gets him.

In Crossroads GPS's solicitations for money, the group describes itself as a tax-exempt 501(c)(4) organization, and due to a controversial loophole in federal campaign finance rules, the names of donors to those organizations do not have to be disclosed publicly.

But contrary to popular belief, Rove's group has not formally attained 501(c)(4) status. The group's application, requesting the IRS to classify it as a "social welfare" group, is still pending.

And while the designation is typically not much more than a formality -- organizations routinely call themselves (c)(4) groups before they've been formally approved -- tax and campaign finance experts contacted by The Huffington Post said the IRS could well deny Crossroads GPS's application. Read on...

Here's a press release from The Campaign Legal Center on the matter as well: April 17, 2012 - IRS Urged to Curb Crossroads GPS Abuse of Tax Status in Wake of Secret $10 million Contribution to Run Attack Ads:

In a letter sent to the IRS today, Democracy 21 and the Campaign Legal Center again called on the agency to investigate and take appropriate enforcement action against Crossroads GPS for its apparent misuse of a privileged tax status. The letter specifically calls attention to a secret $10 million dollar contribution to the 501(c)(4) group to run attack ads that The Washington Post recently brought to light.

Political operatives are increasingly turning to the 501(c)(4) tax status to hide their donors from the public despite the fact that they are not “social welfare” organizations but are primarily dedicated to supporting and opposing candidates and are poised to spend hundreds of millions of dollars on election advertising this year.

“The continued refusal by the IRS to reign in scofflaws abusing a privileged tax status has only encouraged even more blatant disregard for the law by these groups and their anonymous funders,” said J. Gerald Hebert, Executive Director of the Campaign Legal Center. “A secret ten million dollar contribution to run attack ads shows pure contempt for the law, the agency’s willingness to enforce it, and the public’s right to know who is funding our elections. The IRS must do its job and enforce the law even in the face of political pressure to let the scofflaws continue.”

More there and as they noted: To read the full letter, click here.

Transcript below the fold.

MATTHEWS: Welcome back to HARDBALL.

We have been tracking the dirty, angry money out there that`s infesting our political system this year especially, and here`s a perfect example, a $10 million contribution to Karl Rove`s group Crossroads GPS. Think about it. However, unlike most political contributions, the group is under no obligation to disclose who gave that $10 million, or even if it was a single individual or some corporation who gave it. It doesn`t have to say.

That`s because Crossroads GPS calls itself a social welfare organization, unlike its sister group, American Crossroads, also run by Karl Rove, which is a super PAC. But here`s the wrinkle.

The IRS says social welfare groups must be operated exclusively to promote social welfare and cannot make political activity its primary focus. Well, that`s a tough argument for Crossroads GPS to make, since the vast majority of its ads are attacks by name on Democratic candidates.

Here`s one that goes after President Obama by name.


NARRATOR: Typical Washington. Obama says spend more and promises jobs. Obama donors and insiders line up for handouts.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The true engine of economic growth will always be companies like Solyndra.

NARRATOR: Mr. President, we need jobs, not more Washington insider deals.


MATTHEWS: Well, Crossroads GPS would call that an issue ad, but who exactly believes that?

Dan Froomkin is senior correspondent for The Huffington Post and does a great job. And Joe Conason is editor in chief at NationalMemo.com.

I want to start with Dan, who has got us into this issue.

I just looked at the law, and it clearly says if you spend this money on advertising in a campaign, in opposition to any candidate, and here`s Rove out there spending his GPS money against people like Tim Kaine, Bill Nelson, all these names in all these ads, directly in violation of the tax classification of these so-called non-profits. How is he getting away with it?

DAN FROOMKIN, THE HUFFINGTON POST: Well, what they`re -- they`re trying to sort of define what they`re doing by the FEC`s rules. The FEC The Federal Election Commission has these notoriously hair-splitting rules about what`s a political ad and what isn`t.

And by FEC rules, you actually have to use one of the magic words, elect or vote or don`t elect and don`t vote.


MATTHEWS: You mean dumping all over a candidate isn`t opposing them?

FROOMKIN: As long as the end, you say something like call them and tell them to stop eating live puppies, or tell them to stop supporting Obamacare, by FEC rules, it is not technical a campaign ad.

Now, that`s a definition that only an FEC lawyer could love.

MATTHEWS: What about the IRS? Aren`t they tougher?

FROOMKIN: The IRS theoretically has a more commonsense approach and looks at something with what they call facts and circumstances. And their rules seem very clear. But the question is whether they will do anything about that.

MATTHEWS: You know, let me go -- let`s go over to Joe Conason.

Joe, your view about this generally, because you think about this as much as I do, about our democracy and keeping it somewhat democratic, lowercase D, where people actually count more than the big-money people.


Look, anybody who looks at this understands that the FEC has failed to enforce any reasonable standard for -- for these rules for many, many years. It`s a political operation. It`s staffed -- and the commissioners are Democrats and Republicans. And the Democrats protect Democrats, the Republicans protect Republicans, and it`s the easy because of the nature of the commission to have a stalemated vote.

So they never really investigate anything with any vigor. The IRS is a different story. And I find it hard to believe, frankly, Chris, that the IRS is going to fall for Karl Rove`s story that this is a social welfare organization. And hopefully they will decide that they ought to audit his group and see where they`re actually spending the money, not take their word for it, and what that money is going for, and then see whether it falls within the rules, because I suspect it won`t.

And I suspect that if they do find that, then the donors who gave a $10 million contribution anonymously are going to find that Rove`s promises that their names would never be revealed may in fact be wrong.

MATTHEWS: Well, also, it would seem to me that, without going into sort of mind-reading, that he`s telling these people if you give -- these are right-wing people, businesspeople -- if you give this money, you will defeat Democrats.


MATTHEWS: That`s why they`re giving the money.

FROOMKIN: Well, sure. And he`s also promising that...

CONASON: Of course.

FROOMKIN: ... they if you give them money, they won`t -- that nobody will ever know who they are.

MATTHEWS: Well, that`s number two.

Let`s take a look at some of these ads from Crossroads GPS. It`s the Karl Rove operation, going after Democrats, in this case, Tim Kaine is running for Senate, Ben Nelson -- this guy stopped running. He was going to run for reelection from Nebraska. And Jon Tester is still running for reelection from Montana as a senator. Let`s watch.


AD NARRATOR: Tim Kaine has been part of Obama`s partisan cheerleader, applauding every idea.

TIM KAINE (D), VIRGINIA SENATORIAL CANDIDATE: This stimulus is critically important to put people back to work.

AD NARRATOR: As Virginia governor, Tim Kaine`s reckless spending turned a budget surplus into big deficit. Reckless spending, massive debt, no wonder Tim Kaine applauds Obama.

AD NARRATOR: What`s wrong with Washington? Look at the damage he did. Higher taxes, cutting medical spending, embarrassing Nebraska. Ben Nelson sold out to Obama when it counted most. Senator, it`s time to make it right.

AD NARRATOR: Remember this from Jon Tester?

SEN. JON TESTER (D), MONTANA: Washington has lost its way. And we need to set it right.

AD NARRATOR: But in Washington, Tester`s way is Obama`s way. Tester voted with President Obama 97 percent of the time.

Tell Jon Tester, Obama`s way is the wrong way for Montana. Tell him to say no to Obama`s proposed trillion dollar deficit.


MATTHEWS: Is there a place in hell for people who make those ads, Joe? Is there someplace like a Superman movie where they go spinning off into space in the space screen and you never tell them again, at least not until the sequel?

JOE CONASON, NATIONALMEMO.COM: You know, the most we can probably hope for, Chris, is civil penalties and leave the rest of it to the Almighty. But I think --

MATTHEWS: Do you any of those voice guys, they always have a grim voice. You know, "yes, this is about to die here," and then they have the black and white and the same newspaper clippings. It`s the same old M.O.

Go ahead. Your thoughts, Joe.

CONASON: Well, look, nothing is going to change about this until people rise up and decide that the politicians need to reform this system. And, you know, luckily, there is a sign that finally they`re going too far, and that this year, after the Republican campaign, with all the super PAC spending in the primaries, that people are disgusted at long last.

You and I both know, Chris, that for years now, most voters have paid very little attention to these reform issues. It just hasn`t been on the radar for them, either war or economy, something else. But this year, there seems to be some suggestion that people are paying attention now. There is a new poll that`s going to come out tomorrow from Democracy Corps and the Public Campaign Fund, and it`s going to show that this is a salient issue for a lot of voters this year.

MATTHEWS: I heard it`s coming.

According to this, Crossroads GPS` tax returns, just under 100 donors gave a total of $77 million between June 2010 and December 2011. That includes two donations that there were around $10 million. There were four other donations between $4 million and $5 million. According to the "L.A. York Times," by the way, two dozen donors gave at least $1 million.

And this is the question, Dan, I don`t know what your views are, but philosophically expound on them right now.

If you can run a series of ads and say, a state like North Carolina, which is going to be closer to Ohio, and you can just pound the air waves all the way through October, and you had the money to do that without even having your name show up, you`ve got a lot more power than a couple hundred voters, probably have a lot more power than several thousand voters.

DAN FROOMKIN, THE HUFFINGTON POST: Yes. At the congressional level, the money is going to be astonishingly effective, in terms of defining the candidate in terms of creating a public mode, in terms of -- and with secret money comes the chance for a corruption.

MATTHEWS: Payoffs.

FROOMKIN: It`s a big slush fund, basically.

MATTHEWS: You mean they might get in to see the winning candidate if they`ve given 10 million bucks.

FROOMKIN: Well, you know, it`s going to be secret to you and me, it`s not going to be a secret to the candidate who they gave money to.

MATTHEWS: That`s so right.

FROOMKIN: Bu, you know, Karl Rove always look like a genius until he doesn`t. You know, thing -- he tends to look really smart until everything collapses and disastrous --

MATTHEWS: You mean W. isn`t still seen as a successful president?


MATTHEWS: I thought he was. He was the architect. Anyway, he`s fair game.

Anyway, Dan Froomkin, thank you very much. And Joe Conason.

Can you help us out?

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