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Complaint: CREW: IRS: Investigate the American Action Network: 3/8/11

Complaint: CREW: IRS: Investigate the American Action Network: 3/8/11

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Published by CREW
On March 8, 2011, Citizens for Responsibility and Ethics in Washington (CREW) asked the Internal Revenue Service (IRS) to investigate whether the American Action Network (AAN) has violated tax law. While AAN - chaired by former Republican Senator Norm Coleman - is organized as a tax-exempt organization under section 501(c)(4) of the tax code, it spent tens of millions of dollars persuading Americans to vote against Democratic congressional candidates in the 2010 elections.
On March 8, 2011, Citizens for Responsibility and Ethics in Washington (CREW) asked the Internal Revenue Service (IRS) to investigate whether the American Action Network (AAN) has violated tax law. While AAN - chaired by former Republican Senator Norm Coleman - is organized as a tax-exempt organization under section 501(c)(4) of the tax code, it spent tens of millions of dollars persuading Americans to vote against Democratic congressional candidates in the 2010 elections.

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Published by: CREW on Mar 08, 2011
Copyright:Public Domain

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CREW
I
citizensforresponsibilityandethicsinwashington
March8,
2011
Douglas
H.
ShulmanCommissionerInternalRevenueService
1111
ConstitutionAve.,N.W.Washington,DC20224Re:ComplaintAgainstAmericanActionNetwork,Inc.DearCommissionerShulman:CitizensforResponsibilityandEthicsinWashington("CREW")respectfullyrequestsanInternalRevenueService("IRS")investigationintowhethertheAmericanActionNetwork,Inc.,("AAN"),anon-profitorganizationexemptfromtaxationpursuanttosection
SOl
(c)(4)oftheInternalRevenueCode("Code"),isoperatingwiththeprimarypurposeofinfluencingpoliticalcampaignsinviolationoftheCode.
1
DespitethefactthatAANtoldtheIRSonlyaminorportionofitsactivitieswouldbepolitical,AANextensivelyparticipatedinpoliticalcampaignsthroughoutthe2010campaigncycle.Becauseoftheseriousnatureofthetaxlawviolations,theIRSshouldconsiderrevokingAAN'stax-exemptstatusand/orimposeappropriateexcisetaxesandpenaltiesontheorganization.Underthelaw,section
SOl
(c)(4)organizationssuchasAANmustbeprimarilyengagedinthepromotionofsocialwelfare,"whichdoesnotinclude"directorindirectparticipationorinterventioninpoliticalcampaignsonbehalfoforinoppositiontoanycandidateforpublicoffice.:"TheCodedoesnotstatepreciselywhatconstitutespoliticalactivity,butsomeactivitiesunquestionablyarepolitical,suchasexplicitlyadvocatingtheelectionordefeatofacandidateforpublicoffice."Forotheractivities,theIRScurrentlyappliesafactsandcircumstancestesttodeterminewhetheranorganizationhasintervenedinapoliticalcampaign.
5
1
CREWsubmitsthisletterinlieuofForm13909;acopyisbeingsenttotheDallasoffice.226U.S.C.§SOl(c)(4);Treas.Reg.§1.S01(c)(4)-1(a)(2)(i)("anorganizationisoperatedexclusivelyforthepromotionofsocialwelfareifitisprimarilyengagedinpromotinginsomewaythecommongoodandgeneralwelfareofthepeopleofthecommunity").
3
Treas.Reg.§l.S01(c)(4)-1(a)(2)(ii).WhiletheSupremeCourt'slandmarkdecisionin
CitizensUnitedv.FEC,
130S.Ct.876(2010)greatlyexpandedthetypesofpoliticalactivitiesinwhichsectionSO1(c)(4)organizationscouldengage,itdidnotaltertherequirementthatpoliticalactivitymaynotbetheprimaryactivityoftheseorganizations.
4
See
ElectionYearIssues,2002EOCPETextat349,388;
seealso
Rev.Rul.2004-6.
5
Rev.Rul.2007-41.
1400EyeStreet,
NW,
Suite450,Washington,D.C.20005
I
202.408.5565phone
I
202.588.5020fax
I
 
DouglasH.ShulmanMarch8,2011Page2AANwasawarethat,asasection
SO
1(c)(4)organization,itsprimaryactivitycouldnotbeparticipationinpoliticalcampaigns.Nevertheless,areviewofAAN'sactivitiesdemonstratesthattheorganization'sprimaryactivityin2010wassponsoringexpressadvocacyindependentexpendituresandclearlypoliticalelectioneeringcommunications.
TheAmericanActionNetwork'sRepresentationstotheIRS
AANwasestablishedin2009,andsubmittedunderpenaltyofpeljuryanapplicationforrecognitionundersection
SO
1(c)(4)inFebruary2010.
6
Inalengthystatementinsupportofitsapplication,AANclaimeditsprimarypurposewastopromotesocialwelfarebyadvocatingforarangeofeconomicandnationalsecuritypolicies,andthatonlya"minorportion"ofitsplannedactivitieswouldbepolitical."Specifically,AANidentifiedseveralactivitiesthroughwhichitplannedtopursueitspurportedmission,includingpolicyadvocacy,citizenforums,townhallmeetings,collegetours,policyconferences,trainingprograms,newmedia,directlobbying,andpressandpublicoutreach."AANrepresentedthatwhileitplannedto"primarilyfocus"onlobbyingandeducationalefforts,a"minorportion"ofitsactivitiesmightbeclassifiedaspoliticalcampaignintervention."Thesepoliticalactivitiesincludedendorsingorcriticizingproposalsadvancedbypublicofficials,providingtrainingandmaterialstocandidatesforoffice,and"inunusualcases"distributingcandidatesurveys,voterguides,andvotingrecordsofofficialsandcandidates.
10
AANfurthertoldthe
IRS
that"[i]ncertaincases,andwithinthelimitsallowedbyfederaltaxlawandfederalandstateelectionlaws,itmayalsorunadvertisementsinsupportofcandidates."!'AANpromisedtoadoptappropriateinternalcontrolstoguaranteethatitspoliticalactivity"remainsaminoractivity,anddoesnotbecomeitsprimary
activity.t'"
AANrepresentedthatitexpecteditspoliticalcampaignactivitytobe20percentorlessofitactivity,andclaimedtheamountmightvaryfromyeartoyear.
13
6
See
Form1024,ApplicationforRecognitionUnderSectionSOI(a)("AANForm1024")(attachedasExhibitA).
?
See
StatementinSupportofApplicationforTax-ExemptStatus(ExhibitAtoAANForm1024)at1-2,4.
8
Id.
at2-4.
9
Id.
at4.
10Id.11
See
StatementinSupportofApplicationforTax-ExemptStatus(ExhibitAtoAANForm1024)at4.
12Id.
at
S,8-9.
13Id.
at
S.
 
DouglasH.ShulmanMarch8,2011Page3
In
furthersupportofitsapplication,AANsubmittedabudgetforthreefiscalyearsbetweenJuly2009andJune2012.14AANrepresenteditstotalexpensesforthe2010electioncyclewouldbenomorethan$2.4million-$715,640forJuly2009-June2010and$1.68millionforJuly201G-June2011.15AlthoughAANassertedinitsapplicationthatitmightrunpoliticaladvertisements,thebudgetitsubmitteddidnotidentifyanyexpectedexpensesrelatedtotelevision,radio,orinternetadvertising.16Basedonthesesubmissions,theIRSgrantedAAN'sapplicationforsection501(c)(4)statusonApril3,2010.17
TheAmericanActionNetwork'sPoliticalActivity
Contrarytoitsswornapplicationfortax-exemptstatus,AANextensivelyparticipatedinpoliticalcampaignsin2010,makingpoliticalactivityitsmajorpurpose,notjustaminorone.Asaresult,AANviolateditstax-exemptstatusundersection501(c)(4).WhiletheexactamountofAAN'stotalspendingonpoliticalactivityin2010cannotbeascertainedfrompublicdata,itunquestionablydwarfedtheorganization'stotalplannedexpendituresof$2.4millionfortheentire2010campaigncycle.
In
fact,withindaysofreceivingtheIRS'sapprovalofAAN'ssection501(c)(4)status,theorganizationacknowledgeditplannedfargreaterpoliticalactivityin2010thanitrepresentedonitsapplication.AANChiefExecutiveOfficer(andformerMinnesotaRepublicanSenator)NormColemanpubliclyannouncedthegrouphopedtobeactivein8-10Senateracesand25Houseracesin2010,andAANreportedlysoughttoraise$25milliontofundapoliticaladvertising"blitz.':"DaysbeforetheNovember
14
See
StatementofRevenueandExpenses(ExhibitCtoAANForm1024).
15
Jd.
AANfurtherprojecteditstotalexpendituresforJuly2011throughJune2012wouldbe$1.73million.
Jd.
16
Jd.
Foreachofthesethreeyears,morethanhalfofAAN'sexpensesweretobeconsumedbycompensationofofficersanddirectors,andothersalaries.
Jd.
AANfurtherrepresentedthatthebulkofthiscompensationwastobepaidtochiefexecutiveofficerNormColeman($250,000peryear)andpresidentRobCollins($200,000peryear).
See
OfficersandDirectors(ExhibitBtoAANForm1024).
17
See
LetterfromtheIRStoAAN,April3,2010(attachedasExhibitB).
18
See
PeterH.Stone,PartyAlliesRaisingMillions,
NationalJournal,
April16,2010(attachedasExhibitC).

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