Dark money group sues IRS over targeting, disclosure

Freedom Path was launched by backers of Utah Sen. Orrin Hatch and ran ads supporting Hatch and other Republicans in 2012. It said it suffered damages because the IRS flagged its application for extra scrutiny and disclosed its pending application to ProPublica.

A conservative non-profit sued the Internal Revenue Service Monday because the agency targeted it for extra scrutiny and disclosed the group's application for tax-exempt status to ProPublica.

The group, Freedom Path, was launched by backers of Utah Sen. Orrin Hatch and ran ads supporting Hatch and other Republicans in 2012.

Freedom Path is one of dozens of social welfare non-profits, also known as "dark money" groups, that have dumped hundreds of millions of dollars from anonymous sources into direct election ads and indirect ads that criticize or praise certain candidates since the Supreme Court's Citizen United ruling in 2010.

The groups are allowed to spend money on election activity, as long as they promise that social welfare, and not politics, is their primary purpose. The non-profits don't have to report their donors, raising concerns about possible corruption.

Freedom Path's lawsuit, filed in federal court in Dallas and sparked in part by IRS revelations last year that it targeted conservative non-profit applications for a harder look, claims that the group suffered damages from responding to the IRS requests for more information on its application to be recognized as a tax-exempt social welfare non-profit.

Freedom Path, formed in 2011, was one of many conservative groups with applications flagged by the IRS, using key words like "Tea Party" or "Patriot" or phrases like "limited government." Since the IRS' May 2013 admission that it targeted the groups, several Tea Party groups have also filed lawsuits that some experts have given little chance of prevailing.

In its lawsuit, filed against the IRS and agency officials, Freedom Path also said it was damaged by the IRS releasing its pending application to ProPublica.

In November 2012, the IRS sent ProPublica nine pending applications of conservative groups, in response to a ProPublica request for applications of 67 different non-profits. Applications are supposed to be confidential until the IRS recognizes a group. Despite a Treasury Department and congressional investigations, no one has publicly determined why the pending applications were mailed.

As part of the damages claimed by Freedom Path, the group said it "suffered actual damages in the form of legal fees associated with its communications with Defendant IRS and ProPublica, as well as public relations costs associated with the news articles resulting from the disclosure."

After redacting financial information, ProPublica published Freedom Path's pending application, along with those of five other groups that understated their planned political activities.

In its application to the IRS, Freedom Path checked "no" to the IRS question asking whether it planned to spend money to influence elections. It said it planned to spend 90 percent of its effort on doing "public education and outreach programs intended to inform the general public about current issues that may impact them, and to promote certain non-partisan causes." Freedom Path also said it would spend 10 percent of its effort on giving out grants.

In its lawsuit, Freedom Path downplays what it initially said in its application, saying that allegations it misstated its activities on tax documents "are unfounded."

The IRS still hasn't recognized Freedom Path as a tax-exempt non-profit, the lawsuit says.

An IRS spokesman told ProPublica that the IRS does not comment on pending litigation and federal law prohibits the IRS from discussing any particular taxpayer situation or case.

Lloyd Hitoshi Mayer, an expert in non-profit tax law at the University of Notre Dame law school, said that Freedom Path's biggest chance to prevail in its lawsuit was for its claim about the disclosure of its pending application.

Another group sued the IRS over releasing its pending application to ProPublica, but ProPublica never published that application because the group told the IRS it planned to spend money on politics.

Since the Supreme Court's Citizens United ruling, many new groups have exploited gaps between the IRS and the Federal Election Commission, which requires political committees to report their donors. ProPublica has documented extensively how some of these groups have managed to skirt the rules.

Freedom Path is a case in point, showing how the groups can tell the IRS one thing, then do another, and how closely some of the groups are associated with political operatives or certain causes. Freedom Path also illustrates why knowing who is behind a dark money group might be important to voters — before the election.

Lawyer Chris Gober, who's helped launch several conservative social welfare non-profits, formed Freedom Path in January 2011. Gober, Mark Emerson and J. Scott Bensing were on the group's board of directors. Emerson, a long time Republican operative, once worked to elect Hatch as the leader of the Utah Republican Party. Bensing is a Republican consultant who once worked with Hatch on the National Republican Senatorial Committee.

Although Freedom Path's donors are confidential, other records released after the 2012 election give clues of who was behind the group. Tax returns from the pharmaceutical industry's leading trade association, the Pharmaceutical Research and Manufacturers of America, or PhRMA, show that it gave $1 million in 2011 and 2012 to Freedom Path.

Freedom Path received a total of almost $1.58 million those two years, tax returns show. That means that about 63 percent of the group's revenue during that time came from PhRMA.

Hatch has been a long time supporter of PhRMA. PhRMA has been a long time supporter of Hatch.

The fact that PhRMA was Freedom Path's biggest supporter was not disclosed until PhRMA listed the donations in its tax filings — the first was released months after Hatch won a primary in which Freedom Path ran $300,000 worth of ads directly supporting the senator. Initially, a more conservative candidate was thought to have a chance at winning the party's slot.

Freedom Path also spent another $160,000 on an indirect TV ad praising Hatch, Utah Republican Sen. Mike Lee and Republican presidential candidate Mitt Romney that was reported to the FEC. In its lawsuit, Freedom Path said the IRS deemed the ad to be political, but argues that the ad wasn't.

The group also spent an unknown amount on an ad in early 2012 urging the repeal of the Affordable Care Act and telling people to call Hatch and tell him to "keep leading the fight!" That ad didn't have to be reported to the FEC. In its lawsuit, Freedom Path again says the IRS deemed the ad to be political, but argues that it wasn't.

On its 2012 tax return, Freedom Path said it spent almost $740,000 to "educate the public through research, polling, advertising, website and issue advocacy communications about public policy issues."

It's not clear what Freedom Path did that didn't benefit Hatch, Lee, and Romney.

Freedom Path is a "front group set up to protect Orrin Hatch," Russ Walker, who worked for a super PAC supporting Hatch's leading opponent, told the Center for Public Integrity in late 2012.

( Freedom Path's website currently offers advice on home renovations, listing "handyperson tips and info.")

The Freedom Path lawsuit also challenges the test used by the IRS to determine whether advertisements are considered political, saying that it is "unconstitutionally vague and ambiguous" and conflicts with an earlier Supreme Court ruling on issue advocacy groups.

That test, known as the "facts and circumstances" test, basically means that if an ad walks and talks like a political ad, it's a political ad. It has long been criticized by some campaign finance watchdogs, liberals and conservatives for being too vague. Others say the test gives the IRS the leeway to use common sense to determine whether a particular ad qualifies as election intervention.

Experts said it was unlikely that Freedom Path would prevail in its lawsuit. Many IRS rules on nonprofits rely on subjective, facts-and-circumstances tests, said Marcus Owens, a lawyer who used to run the IRS Exempt Organizations' division.

"The question is whether that sort of economic transaction — the speech — should be exempt from tax," he said, adding that freedom of speech was not the issue in the case. "The speech can occur. That's the key thing here, the speech can occur."




Tata-SIA and Air Asia in the last lap!

Domestic airlines still do not want to have any serious competition from "outsiders" and are scared that Air Asia and Tata-SIA will be able to perform better and possibly take away their business

The Court case filed by Bharatiya Janata Party (BJP) leader Dr Subramanian Swamy will be actually heard today (1st May) against both Air Asia and Tata-Singapore International Airlines (SIA). Dr Swamy has contended that foreign direct investment (FDI) in fresh start-ups is not permitted and his stand was that civil aviation ministry only allowed foreign airlines to invest in existing domestic airlines, and not in new enterprises like Tata-SIA!


Led by Jet Air, IndiGo, Spice Jet and GoAir, through the Federation of Indian Airlines have been lobbying to prevent the launch of the above two airlines, claiming that the airline industry is estimated to have lost, so far, Rs53,311 crore from 2006-07 and the rupee depreciation has also added to their woes financially. How and why these carriers go about giving discounts is an altogether a different matter to write about.


Simply put, these airlines do not want to have any serious competition from "outsiders" and are scared that Air Asia and Tata-SIA will be able to perform better than themselves, and possibly take away their business. Their defence for giving discounts is to ensure full occupancy of their flights, particularly during lean periods. This is partially correct.


It would be interesting to see what would be their stand, if BJP comes to power at the centre? Will they stop and over-rule the approval process that has taken place so far, as far as Air Asia and Tata-SIA are concerned? This remains to be seen.


It may be recalled that, early in April, the civil aviation ministry issued a no objection certificate (NOC) for Tata-SIA. Earlier, the Home Ministry had given security clearance to Board members of this company. As usual, the Directorate General of Civil Aviation (DGCA) will have to give clearance for various operations manuals before issuing air operators permit (AOP).


The CEO, Phee Teik Yeoh has moved from Singapore International Airlines to Tata-SIA and all preparations are afoot for this airline to take to the sky, possibly in the third quarter of this year, when the festive season will commence in the country.


Air travellers in India can look forward to good service and at competitive rates when both airlines take to the sky and give value for money!


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Dr Anantha K Ramdas

2 years ago

It is now reported in the press that the Delhi High Court has set up a new bench to hear Dr Swamy's

Yes, we must all follow the our own laws strictly and abide by the
decision of the Hon'ble court.

Nitin Deshpande

2 years ago

No body is against a company providing better and efficient services to the customers. But all this can not take precedence over the law of the land and the national security of the country. We can no be myopic to these issue. When Dr. Swamy has ventured in to this I have no reason not to believe him that there is something which needs to be looked into, as he is doing himself. And after all its seeking a legal recourse let the Court pronounce on merits.

Bomb blasts at Chennai Central railway station, one killed

A woman was killed and at least 11 others were injured in a low intensity blast in one of the coaches of the Bangalore-Guwahati superfast express  at Chennai

At least one passenger was killed and 11 others were injured in two bomb blasts in two coaches of the Guwahati-Bangalore super-fast express (Train no 12509), minutes after it entered the Chennai Central railway station on Thursday. The police have detained a suspect in connection with the blasts.


Tamil Nadu DGP K Ramanujam said after the Railway Police registers the case into the explosion, the investigation will be taken up by a Special Investigation Team (SIT). "It is not a major blast. It is suspected that Chennai could not have been target of those who were behind the blast because the train was running late. Some other location could have been the target," he said.


The victim has been identified as Swati (22) from Guntur who was travelling from Bangalore to Vijayawada. Four passengers are said to be critical and have been admitted to the Government Hospital. Of the others injured, most have injuries on the legs, while one person has a neck injury.


The injured have been identified as Murali (37), Krishnapant, Soren Pant, Santh, Bijan Kumar (24), Uma, Abdul Khan(24), Shihabul Haque (22), Vimal Kumar, Hari (21), Altaf Khan admitted to Government Hospital.


Police say the explosion was reported shortly after the Guwahati Express pulled into platform no9 at the railway station at around 7.30am. The blast has damaged three coaches (S3, S4 and S5) of the train.


A team of National Security Guard (NSG) and explosive experts is likely to be sent to Chennai to join in the investigation into the blast. NIA team from Hyderabad is being rushed to the blast site.


Railway Board Chairman Arunendra Kumar said a dog squad, medical teams and RPF teams have reached the spot. "It seems the blast took place under a berth and one passenger has lost life in the blast," he said.


Tamil Nadu chief minister J Jayalalithaa has also ordered a CB-CID probe into the explosions.


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