Advocacy Groups Waiting for Nonprofit Status Allowed to Hide Donors’ Names

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March 10, 2011; Source: Washington Post | Don't have your nonprofit status yet, but you are an advocacy group that wants to spend money on elections and still keep your donors' names secret? No problem. Under a quirk in the federal tax law, a group that hasn't yet been designated by the IRS as a nonprofit can operate as though it is one – and enjoy the all the same benefits – while it waits for formal approval.

That rule even applies to the want-to-be nonprofit advocacy group American Crossroads GPS. The group, which describes itself as a social welfare organization, and claims it is eligible for nonprofit status, spent some $17 million to influence the outcome of last year's midterm elections. It didn't have to disclose names of donors because the application it submitted to the IRS for nonprofit status is pending.

According to the Washington Post, the tax code permits interest groups "to form as nonprofits and keep donor rolls private as long as politics is not their 'primary purpose' which typically means that no more than half of their budget is spent on election activity." Critics, however, charge that American Crossroads purposely took advantage of the long lag time for the IRS to approve nonprofit status so it could spend millions on the recent elections without revealing donors' names.

A spokesman for American Crossroads dismisses charges that it is gaming the system for political purposes. Jonathan Collegio says any group that submits its application to the IRS for approval of nonprofit status should expect a delay due to a backlog and that "reading anything into it beyond a typical procedural issue is irresponsible." Do you agree? Is this just a case of a long wait for approval or something more deliberate?—Bruce Trachtenberg

  • Chris Craig

    There’s no conspiracy. I filed a C4 application for a client on August 15, 2010 and got a Determination letter in 3 1/2 weeks. I filed another on Septmber 15, 2010 (approx. the same time as mer. Crossroads) and I am still waiting (as they are).