How to Not (and Maybe How To) Make Money Off of Tax-Exempt Political Organizations
According to court documents, from 2016 through at least April 2017, Tunstall, Reyes, and Davies operated two PACs – Liberty Action Group PAC and Progressive Priorities PAC – that solicited contributions from the public via robocalls and radio and internet advertisements. The two PACs represented that the contributions would be used to support the presidential nominees of the two major political parties, respectively. Instead, the co-conspirators used the funds to enrich themselves and to fund additional fraudulent solicitations. Specifically, the two PACs raised approximately $4 million in contributions during the 2016 election cycle and subsequent months.
The penalties for this deception? A sentence of 10 years in prison, a sentence of 7 years in prison, and a sentence of 5 years of probation. Additional coverage: CNN.
As previously discussed in this space, the N.Y. Times recently had a lengthy story about five other tax-exempt political organizations that reportedly raised almost $90 million while only spending $800,000 on actual political activity. Yet that story indicates the four of those organizations still in existence have so far survived IRS scrutiny of their operations in the form of examinations that began a year or so ago. It remains to be seen whether this high profile coverage will lead to more critical IRS, and perhaps DOJ, attention.
I have not done a deep dive into the documents detailing the finances of either set of groups, but the key difference may be that the money flowing out of the tax-exempt section 527 organizations has to at least arguably go to outside vendors for actual services rendered, even if those services are mostly generating additional fundraising appeals. Of course the fact that those vendors have financial connections to the individuals who also run the tax-exempt organizations sets off alarm bells, but that fact by itself does not make the payments illegal. And the organizations also have to be careful what is actually said in the irappeals for donations, as making specific promises to potential donors that are not kept is also problematic.
This last point is demonstrated by the recent sentencing of two individuals involved in the tax-exempt section 501(c)(4) organization “We Build The Wall” fundraising effort to 51 and 37 months in prison, respectively. The court also ordered that those individuals pay millions in restitution. In that case, one individual promised that he would “not take a penny in salary or compensation” and that “100% of the funds raised…will be used in the execution of our mission and purpose.” In fact, the individuals involved directed for their personal benefit and use hundreds of thousands of dollars out of the more than $25 million raised.
Lloyd Mayer