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Group files IRS complaint against Wisconsin Club for Growth

A donor to the Wisconsin Club for Growth included the line "Because Scott Walker asked" in the memo line.

The conservative group at the center of Gov. Scott Walker’s political operation during the 2011 and 2012 recalls may have flouted IRS rules by providing a private benefit, a former agency administrator said Wednesday.

The comments came the same day a Wisconsin group filed a complaint with the Internal Revenue Service alleging the Wisconsin Club for Growth violated federal law when it operated as a fundraising and campaign hub for Walker and Senate Republicans facing recall.

The complaint from the nonpartisan Wisconsin Democracy Campaign comes in the wake of a report by the Guardian US, an arm of the British newspaper, which published leaked documents last week providing the clearest picture yet of how the group operated.

The Wisconsin Supreme Court last year quashed a secretive John Doe investigation into whether the group violated Wisconsin campaign finance laws. The U.S. Supreme Court is scheduled Monday to consider whether to hear the case.

The state investigation did not involve the question of whether the group’s activities violated federal law.

Marcus Owens, former director of the IRS’ exempt organizations division, said in an interview that the facts presented by the Guardian demonstrate “pretty unequivocally” the Wisconsin Club for Growth was operating for the private benefit of the Republican Party and Scott Walker, which “is not appropriate behavior for a 501(c)(4) which has to be operated for a public benefit.”

“There’s a fair body of law that’s built up that a 501(c)(4) can’t simply have as a significant activity the furtherance of a particular political party or a particular political candidate,” Owens said. “And that’s clearly what happened here with huge sums of money involved.”

He noted a 1989 case in which the IRS successfully revoked tax-exempt status from a school for training Republican political operatives. Also Bill Clinton’s Democratic Leadership Council had its tax-exempt status revoked in 2002, though it was not required to pay back taxes because a federal judge found it didn’t misrepresent itself when it originally applied to the IRS.

The Wisconsin Club for Growth filed as a tax-exempt 501(c)(4) “social welfare” organization in 2011 and 2012, telling the IRS that it spent “$0” for political purposes. Unlike political campaign committees, such groups can accept unlimited donations and do not have to disclose their donors. According to IRS rules, they are allowed to engage in political activity so long as it’s not their primary focus.

“Given the intricate, elaborate, and time-consuming work that Wisconsin Club for Growth was doing in 2011 and 2012 to run this secret and coordinated fundraising, strategizing and advertising campaign, it is abundantly clear from the emails released in The Guardian story that engaging in political campaign activity was the primary activity of Wisconsin Club for Growth, in violation of the IRS regulations,” the WDC complaint states.

In 2014, the liberal Center for Media and Democracy filed a complaint with the IRS leveling similar allegations. That complaint came after court documents from the John Doe case were briefly posted on a federal court website, revealing the investigation found Walker campaign advisers discussing how to use the Club as a hub for raising millions of dollars in undisclosed contributions and disbursing it to dozens of conservative political groups. The status of that complaint is unknown as the IRS does not comment on investigations.

The emails released last week include an Aug. 18, 2011, email from top Walker aide Keith Gilkes explaining: “Our efforts were run by Wisconsin Club for Growth and operatives RJ Johnson and Deb Jordahl, who coordinated spending through 12 different groups. Most spending by other groups was directly funded by grants from the Club.”

Also, in a May 4, 2011 email from Walker to Republican strategist Karl Rove, Walker wrote: “RJ helps keeps in place a team that is wildly successful in Wisconsin. We are running 9 recall elections and it would be like 9 congressional markets in every market in the state and twin cities.”

The emails show how Walker raised millions of dollars for the Club by soliciting funds from some of the country’s wealthiest people. Part of the sales pitch was that the source of the funds wouldn’t be disclosed. Secret donations came from a lead industry billionaire and mining company that stood to benefit from Republican-backed legislation.

Lawyers representing the Club did not respond to a request for comment. In 2014, Club lawyer Andrew Grossman said the Center for Media and Democracy was “trying to silence political speech.”

“If they want to waste their money on filing a frivolous complaint for a blip of news coverage, that’s their business,” Grossman said. “The Wisconsin Club for Growth is proud of its record of speaking out on the issues that matter to Wisconsin.”

In an affidavit included in the recent John Doe leak, Club director Eric O’Keefe stated that “the Club paid for advertisements that advanced its pro-liberty, fiscal responsibility, pro-Act 10 beliefs during 2011 and 2012. None of the advertisements expressly urged voters to vote for or against any candidate.”

The IRS declined to comment on the complaint, citing federal law that bars the agency from commenting on individual tax cases.

The agency’s scrutiny of political activities by tax-exempt groups came under fire a few years ago.

After the U.S. Supreme Court’s 2010 Citizens United decision, which allowed corporations to make independent political expenditures, the amount that tax-exempt groups spent on elections surged, leading to calls for IRS intervention. However, tea party groups complained they were being unfairly targeted for political reasons.

A May 2013 audit of the IRS found the agency had inappropriately scrutinized certain groups based on their names, rather than suspicion of any wrongdoing.

Lloyd Mayer, a Notre Dame Law School professor and expert on nonprofit law, said he doesn’t expect the IRS would investigate Wisconsin Club for Growth because of the intense scrutiny the agency has been under since the tea party scandal. Owens, the former IRS administrator, agreed saying, “their ability to conduct audits has been generally degraded and they seem to be shying away from these high-profile political examples.”

Mayer said while the agency might investigate an egregious violation, this case doesn’t necessarily rise to that level because the group will argue it wasn’t engaging in express advocacy. Mayer also said the group might counter the private benefit argument by noting it hasn’t always aligned with Republicans.

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