Nonprofit's Exemption Was Granted Despite Record Fine, Big Political Spending

by Viveca Novak and Robert Maguire on April 14, 2014 2:49 PM

A conservative nonprofit that paid a record-setting fine in California for its part in a campaign finance scheme might never have sought formal recognition as a tax-exempt group had it not been demanded by a key architect of the money-shuffling operation.

The exemption -- the official imprimatur that gives a group status as a "social welfare" organization and lets it keep its donors identities out of public view --  was granted to Americans for Responsible Leadership on Oct. 22, 2013 after lengthy exchanges between its representatives and the IRS, according to documents obtained by OpenSecrets Blog.

The approval came even though by then -- about 13 months after the group put in its request -- IRS officials knew of ARL's involvement in a complicated effort by conservative groups to put big money into two California ballot initiative battles. In fact, in November 2012, ARL had reached a settlement with the state's Fair Political Practices Commission admitting it was not the true source of millions it had poured into the fights. "At $11 million, this is the largest contribution ever disclosed as campaign money laundering in California history," the FPPC said in a release on Nov. 5, 2012.

The IRS also was aware that ARL had spent almost $10 million advocating for or against candidates in the 2012 elections. In fact, it knew that 77 percent of the funds the group had spent in its short life had been used either for direct political advocacy or was connected to "campaign money laundering."

But for much of the time the IRS was weighing ARL's application, the agency itself was the focus of several investigations of the enhanced scrutiny it had given to applications from certain groups seeking exempt status -- the preponderance of which were conservative