Karl Rove group spends big in Election 2010, but is it legal?

GOP strategist Karl Rove is sending big money to Republicans in close Election 2010 races. But two campaign watchdogs are asking the IRS to investigate his tax-exempt 'social welfare' group.

Karl Rove, the veteran GOP strategist who helped put George W. Bush in the White House, is looking to become a big player in Election 2010, helping to fund Republican candidates thought to have a chance of unseating Democrats.

According to some, he’s operating outside of the rulebook.

Tuesday, two groups conceived of by Mr. Rove and Ed Gillespie, another Republican strategist and former Republican National Committee chairman, announced a huge $4.2 million ad buy in eight contested Senate races, Politico reported. To date, the two groups – American Crossroads and Crossroads GPS – have spent about $18 million on campaigns, most of it on ads. [Editor's note: The original paragraph has been modified to accurately describe the relationships of Rove and Gillespie to American Crossroads and Crossroads GPS.]

It’s not just the spending that is gaining attention, but the way the groups are doing it.

Crossroads GPS is set up as a 501(c)(4) organization, which means it doesn’t have to disclose who its donors are. The promise of anonymity enables it to raise much larger sums of money. American Crossroads, a 527 group, does have to disclose its donors. But the majority of funds spent by the Crossroads groups so far have come from unnamed sources, and Tuesday, two nonpartisan campaign-finance watchdog groups challenged the legality of their spending, asking the IRS to investigate Crossroads GPS.

Under IRS rules, 501(c)(4) groups are considered tax-exempt “social welfare” groups, that are allowed to spend on campaigns as long as they limit it to less than half of their total spending and their primary purpose is “the promotion of social welfare” – a distinction that is anything but clear.

In their letter to the IRS, Democracy 21 and the Campaign Legal Center – both nonpartisan, nonprofit groups based in Washington – asserted that Rove’s group has crossed over that line into too much campaign work.

"While the abuses of 501(c)(4) tax designation for no-fingerprint political attack ads seems rampant in this election cycle, the most blatant certainly appears to be Crossroads GPS," said J. Gerald Hebert, executive director of the Campaign Legal Center, in a statement. "The group makes almost no effort at all to hide the fact that it was created principally to impact the 2010 elections, and to take money from those interested in contributing to their efforts but doing so anonymously."

In the 2004 election, those same groups went after several pro-Democratic 527 groups for violating campaign-finance laws. But this time around, most of the complaining is from Democrats, who haven’t kept pace with the GOP when it comes to spending by third-party groups – often the largest and most important spending in an election, since it has fewer restrictions. They say that Rove’s group is just the most prominent of a growing number of pro-Republican groups that are operating improperly, and allowing too much influence from anonymous donors.

Compounding the issue is the Supreme Court’s “Citizens United” decision, which paved the way for corporations and unions to give unlimited amounts of money to such groups.

A Washington Post story yesterday reported that interest groups are spending five times as much as they did in the last midterm election, and that more than half of it is coming from undisclosed donors, compared with less than 10 percent in the 2006 election.

A spokesperson for Crossroads GPS called the allegations “baseless,” and noted that liberal groups also spend plenty of “undisclosed campaign money.”

The most recent media buy by the Crossroads groups is targeting Senate races in Colorado, Florida, Illinois, Kentucky, Missouri, Nevada, Pennsylvania and Washington. And more is likely to come. Rove and Gillespie set a goal of raising $50 million – between both groups – by the election.