CREW Asks IRS to Investigate Nonprofit for Political Activity

July 13, 2018

The Honorable David J. Kautter
Acting Commissioner
Internal Revenue Service
1111 Constitution Ave., N.W.
Washington, DC 20224

Re: Complaint against Go West Virginia, Inc.

Dear Acting Commissioner Kautter:

Citizens for Responsibility and Ethics in Washington (“CREW”) respectfully requests the Internal Revenue Service (“IRS”) investigate whether Go West Virginia, Inc. (“Go West Virginia”), a nonprofit organization exempt from taxation pursuant to section 501(c)(4) of the Internal Revenue Code (“Code”), is operated primarily to influence political campaigns in violation of the Code.¹

In 2016, Go West Virginia contributed $463,000 to a political organization, and that expenditure accounted for 69.9% of its total spending during the year. Similarly, over the course of the entire 2015-16 election cycle, political spending accounted for 59.3% of Go West Virginia's total spending. As a result, political activity apparently is the group's primary activity.

Go West Virginia, Inc.'s Political Activity

Go West Virginia is a nonprofit corporation established in 2013 and incorporated in Delaware.² During the five weeks leading up to the 2016 election, Go West Virginia made four contributions totaling $463,000 to Grow WV Inc. (“Grow WV”), a federal independent expenditure-only committee, commonly known as a super PAC.³ These expenditures were in addition to $15,000 that Go West Virginia contributed to Grow WV in September 2015.⁴ Super PACs such as Grow WV are organized and operated primarily for the purpose of making independent political expenditures, and thus are political organizations under section 527 of the Code.⁵

The ties between Go West Virginia and Grow WV run deep. First, both organizations share the same address, a post office box in West Virginia.⁶ Second, the groups share key personnel. Mark Scott serves as the president of Go West Virginia and the treasurer of Grow WV.⁷ In addition, both entities share Eric Lycan as their counsel.⁸ Third, Go West Virginia is a significant contributor to Grow WV. In 2016, Go West Virginia's contributions accounted for more than half of Grow WV's total fundraising for the year.⁹ Go West Virginia also contributed $355,000 to Grow WV in 2014, providing roughly a quarter of the super PAC's total funding that year, and Go West Virginia's $15,000 contribution to Grow WV in 2015 accounted for three quarters of the super PAC's total 2015 funding.¹⁰

As a super PAC, Grow WV is organized for the purpose of making independent political expenditures, and indeed, it spent significant funds on political ads in West Virginia state and federal elections. As detailed above, a sizable portion of those funds came from Go West Virginia. In October and November 2016, Grow WV spent $397,032 on television advertising, with about half of these expenditures disclosed as spending for “nonfederal candidate(s).”¹¹ This effort included ads criticizing Stephen Skinner, a candidate for the West Virginia state senate.¹² Grow WV may have also spent funds on additional television ads that supported or opposed political candidates. A document on file with the Federal Communications Commission shows a purchase request by Grow WV for ads about “Republican State Senate Candidates.”¹³ In addition, Grow WV spent $75,000 on print advertising and $219,003 on direct mail in October and November 2016, again disclosing some of the expenditures as for “nonfederal candidate(s).”¹⁴

In addition to its state-level spending, Grow WV spent $38,968 on federal independent expenditures opposing presidential candidate Hillary Clinton and $2,500 on federal independent expenditures supporting West Virginia Rep. Alex Mooney.¹⁵ Grow WV also contributed $14,000 to Growth & Opportunity PAC, Inc., another federal super PAC.¹⁶

In 2016, Go West Virginia spent a total of $661,829.¹⁷ Of that total, $463,000 or 69.9% was spent contributing to Grow WV. As detailed above, the contribution to Grow WV funded political campaign activity. Thus, political campaign activity appears to have been Go West Virginia's primary purpose in 2016. When Go West Virginia's spending is viewed across the entire 2015-16 political cycle, the same conclusion holds. Go West Virginia contributed an additional $15,000 to Grow WV in 2015 out of $143,999 in total expenditures.¹⁸ Thus, for that period, contributions to super PAC Grow WV accounted for 59.3% of Go West Virginia's total expenditures.

Political Activity Under Section 501(c)(4)

Section 501(c)(4) provides tax-exempt status to organizations “not organized for profit but operated exclusively for the promotion of social welfare.”¹⁹ IRS regulations interpret the statute to mean a section 501(c)(4) organization must be “primarily engaged in promoting in some way the common good and general welfare of the people of the community.”²⁰ The regulations further provide that “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office” does not promote social welfare.²¹

The IRS has not further defined the “primary activity” standard, and provides only that all the facts and circumstances are to be taken into account in determining the “primary activity” of a section 501(c)(4) organization.²² Internal IRS training materials, however, assert section 501(c) organizations (other than section 501(c)(3) charities) “may generally make expenditures for political activities as long as such activities, in conjunction with any other non-qualifying activities, do not constitute the organization's primary activity (51%).”²³

Contributions to political organizations are direct or indirect participation or intervention in political campaigns. “Contributions to political campaign funds . . . clearly violate the prohibition on political campaign intervention” for section 501(c)(3) organizations,²⁴ and prohibited political intervention for section 501(c)(3) organizations constitutes political activity for section 501(c)(4) groups like Go West Virginia.²⁵ Accordingly, Go West Virginia's contributions to the Grow WV constitute political campaign activities.

Violation

26 U.S.C. § 501(c)(4)

Even under the IRS's misinterpretation of section 501(c)(4), and certainly under the plain language of the statute, Go West Virginia's political activity in 2016 and in the 2015-16 election cycle exceeded the amount permitted. Go West Virginia spent 69.9% of its total expenditures on political activity in 2016 and 59.3% of its total spending on political activity in 2015-16, apparently violating the organization's tax-exempt status.

Conclusion

Based on the publicly available information, Go West Virginia's activities do not comport with its claimed status as a section 501(c)(4) tax-exempt organization. Therefore, the IRS should investigate Go West Virginia and, should it find that Go West Virginia has violated its tax-exempt status, take appropriate action, which may include revoking its section 501(c)(4) status, imposing any applicable excise taxes under section 4958 for excess benefit transactions, and treating Go West Virginia as a taxable corporation or a section 527 political organization.

Thank you for your prompt attention to this matter.

Sincerely,

Noah Bookbinder
Executive Director
Citizens for responsability and ethics in washington
Washington, DC

Encls.

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