The Internal Revenue Service is under fire from both parties for improperly targeting certain groups for additional scrutiny because their names included keywords such as “Tea Party” and “patriot.” But the challenge of addressing the skyrocketing numbers of “social welfare” groups registering for tax exempt status could be lessened by fixing the broken disclosure laws for political advertisers.

Since the Supreme Court’s controversial 5 to 4 ruling in the Citizens United v. FEC case in 2010, the IRS has seen a more than 100 percent increase in the number of groups applying for 501(c)(4) status — the section of the federal tax code that governs non-profit groups dedicated to social welfare — from 1,500 in 2010 to 3,400 in 2012.

Not all 501(c)(4) engage in political activity of any kind — the United States Chess Federation, for example, is a fairly apolitical group. Political 501(c)(4) groups are required to adhere to certain rules, including that they not be “primarily engaged” in electioneering activity. In a failed attempt to sort out which groups were apolitical and which needed additional scrutiny, the IRS reportedly tried a variety of ineffective screening methods, including flagging “patriot” groups as well as groups that focused on making “America a better place to live.”

As long as it is not their primary purpose, Citizens United allows (c)(4) groups to spend unlimited funds on “independent expenditure” ads aimed at swaying voters and the deadlocked Federal Election Commission allows these groups to avoid any disclosure of who bankrolls these advertisements. And since the 2002 law governing political advertisements came before the ruling, it does not adequately address the specific issue of disclosure for independent expenditure ads.

Because of this loophole, groups seeking to influence elections through campaign ads groups and to avoid having to make their donors public have often registered as (c)(4)s, rather than as super PACs (tax-exempt groups which can also raise and spend unlimited amounts on “independent expenditures,” but must make public all large donors). After bankrolling super PACs in the 2012 elections, mega-donors including millionaire investor Foster Friess and billionaire casino mogul Sheldon Adelson have vowed to keep future political spending secret, by giving to opaque 501(c)(4) committees instead. And good government groups have demanded the IRS investigate whether (c)(4)s like Crossroads GPS, the Commission on Growth, Hope and Opportunity, and the American Future Fund are really just super PACs in disguise.

The guidelines for what is and is not an acceptable level of political activity for a (c)(4) has never been clear — a vague “primary purpose” test — and has been little enforced. With limited staff and resources, even before massive furloughs forced by the sequester, the IRS has proved ill-equipped to monitor which (c)(4)s are really (c)(4)s and which ones are pretenders.

Congressional Republicans have thus far blocked efforts to require disclosure of political ad spending by (c)(4) groups. The proposed DISCLOSE Act and the Follow the Money Act would help bring parity to the disclosure rules goverrning independent campaign ads, without impeding on the legitimate activity of (c)(4)s. But if groups like Crossroads GPS were required to disclose the major donors behind their $70 million-plus campaign ad spending, there would be little incentive for them to masquerade as social welfare groups.

If Congress simply treated all spending on independent campaign advertisements uniformly — allowing voters to know who was really speaking and to evaluate the speech accordingly — the IRS would not have to use these clearly imperfect tests to decide what is and isn’t a legitimate 501(c)(4).

Note: ThinkProgress is a project of the Center for American Progress Action Fund (CAPAF), which has been recognized by the IRS as a 501(c)(4) organization. CAPAF does not endorse candidates, nor does it fund “independent expenditures” or any other kind of candidate-related advertising.

Karl Rove

The letter, sent on December 20, 2012, notes that, “in accordance with § 57-49 of the Code of Virginia, [Crossroads GPS] should register with our office.” It states that Virginia law requires “all organizations that intend to solicit for a charitable purpose in Virginia to register or apply for an exemption from annual registration, if applicable, prior to any charitable solicitation activity in Virginia.”

Read the letter:

Charitable groups that raise any money in Virginia are required to pay an annual fee ($325 for groups raising over $1 million annually), provide basic information about their operations, and sign statements affirming that no funds “have been or will knowingly be used, directly or indirectly, to benefit or provide support, in cash or in kind, to terrorists, terrorist organizations, terrorist activities, or the family members of any terrorist.”

A Department spokeswoman told ThinkProgress in November that should Crossroads GPS ignore this letter, Virginia law “provides for both civil and criminal penalties” if the group can be shown to have made such solicitations.

Karl Rove

The non-partisan Citizens for Responsibility and Ethics in Washington (CREW) filed complaints Thursday with both the Federal Election Commission (FEC) and the Federal Bureau of Investigation (FBI) alleging that Karl Rove and his secretive Crossroads GPS violated election law and may have engaged in a criminal conspiracy to do so.

Under campaign finance law and FEC regulations, 501(c)(4) groups, like Crossroads GPS, can raise unlimited funds from wealthy individuals and corporations without having to disclose their donors. The only time donors to these secretive groups must be disclosed is when donors give more than $200 explicitly “for the purpose of furthering an independent expenditure.”

According to CREW, Rove expressly asked for and received millions of dollars in contributions specifically to fund an independent expenditure effort in support of unsuccessful Republican Ohio Senate nominee Josh Mandel:

Federal law requires any outside group that makes an independent expenditure to disclose the donors who contributed to pay for such ads. Groups like Crossroads GPS normally evade this law by claiming none of their contributions were earmarked for a specific purpose. At an August 2012 fundraiser, however, Rove said an anonymous donor gave Crossroads GPS $3 million specifically for the Ohio Senate race, and told Rove it was a “matching challenge” dependent on the group raising another $3 million for the race. Crossroads GPS ended up spending $6.36 million on independent expenditures in the Ohio race, but did not disclose any donors in nine reports the group filed with the FEC.

CREW also notes that, in a 2011 letter to the FEC, Crossroads GPS said that it “understands the applicable reporting regulations” and that, should it receive “any contributions that are required to be reported,” it would do so as required. Given this, CREW argues, the violations “were deliberate” and “are subject to criminal as well as civil penalties.”

The Rove comment in question was reported in Bloomberg Businessweek in September. That article quoted Rove as saying a donor told him “I’ll give ya’ $3 million, matching challenge,” and that “Bob Castellini, owner of the Cincinnati Reds, is helping raise the other $3 million for that one.” Crossroads GPS would end up spending just over $6 million on the Ohio Senate race.

Tara Malloy, senior counsel at the Campaign Legal Center, told ThinkProgress that if the allegations are true, it “seems reasonable to assume the main contributor gave for the purpose of furthering that expenditure or at least that these allegations warrant an FEC investigation.” But, she notes, the three Republican appointees on the deadlocked six-member Federal Election Commission often block enforcement efforts of this type and have previously noted a difference between contributions furthering independent expenditures in general — and contributions specifically furthering a particular independent expenditure. Even if Rove raised the money to fund independent expenditures in the Ohio Senate race, that interpretation of the rule would require proof that he discussed with them the exact ads before the donation.

Still, she observed, “The allegations are troubling… One would hope the FEC might investigate this matter.”

Crossroads GPS may also be in hot water for its apparent failure to register as a charity in Virginia, as required by law.

When Karl Rove’s Crossroads Grassroots Policy Strategies (GPS) formed in 2010, it established its official address in Warrenton, VA, and registered with the Internal Revenue Service a tax-exempt 501(c)(4) “social welfare organization.” It apparently did not, however, register as a charitable organization with the Commonwealth of Virginia, as appears was legally required.

According to state code, non-profit groups that intend to solicit contributions must first register with the Virginia Department of Agriculture and Consumer Services Office of Charitable and Regulatory Programs. Groups must pay an annual fee ($325 for groups raising over $1 million annually), provide basic information about their operations, and must sign statements affirming that no funds “have been or will knowingly be used, directly or indirectly, to benefit or provide support, in cash or in kind, to terrorists, terrorist organizations, terrorist activities, or the family members of any terrorist.”

The Virginia law explicitly exempts political campaign committees that are “required by state or federal law to file a report or statement of contributions and expenditures.” Crossroads GPS has consistently kept its contributors secret as it has raised and spent tens of millions of dollars against Democratic candidates.

While the group’s federal tax filings and registration with the District of Columbia indicate that it is a Virginia corporation — and Crossroads GPS did apparently register with the state’s corporation commission — the Office of Charitable and Regulatory Programs confirmed to ThinkProgress that no entity named Crossroads GPS or Crossroads Grassroots Policy Strategies has ever registered to solicit contributions in Virginia. Additionally, no entity with the tax identification number listed on Crossroads GPS’s tax filings has ever registered with the agency.

A spokesman for Crossroads GPS did not respond to a ThinkProgress request for comment.