When Republican Senate hopeful Adam Laxalt was Nevada’s attorney general, he was responsible for enforcing the law. Now, a watchdog alleges that his nonprofit violated federal regulations governing charities, and is asking the IRS to revoke the group’s tax status.
On Tuesday, End Citizens United filed a complaint against Laxalt’s “dark money” group Americans for Public Trust, alleging that the organization broke the rules after running hundreds of thousands of dollars worth of—in the complaint’s words—“unsupported and misleading” political attack ads.
As a so-called “social welfare” charity organized under section 501(c)3 of the tax code, APT is “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.” Ironically, the spots cited in the complaint attempt to expose alleged corruption associated with Democratic politicians and liberal dark money.
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In a statement, Tiffany Muller, president of End Citizens United, called the ads the “height of hypocrisy.”
“APT exists for one reason and one reason alone: to help the Republican Party win elections. It’s the height of hypocrisy for this GOP group to launch false political attacks about corruption and unethical behavior, while inappropriately receiving tax benefits as a charitable nonprofit,” Muller said. “This organization is run by political operatives and Adam Laxalt, a Republican politician with a history of trouble with the law, so it should come as no surprise that they would try to skirt the rules. Abusing their non-profit status for self-serving political purposes is a corrupt, shady tactic and they must be held accountable. The IRS should immediately investigate their tax-exempt status.”
The IRS limits 501(c)3 activity to “religious, charitable, scientific, testing for public safety, literary, or educational purposes,” and stipulates that if groups stray beyond those lines, they risk losing their tax-exempt status.
APT—whose executive director, Caitlin Sutherland, is former research director for the National Republican Congressional Committee—received its tax-exempt status in May 2020, as “exclusively for charitable and educational purposes.”
In a statement, Sutherland dismissed the End Citizens United complaint as "baseless" and "only meant to muzzle our successful efforts to inform the American people of the influence dark money and the Arabella Advisors network has had on the Biden administration and Senator Whitehouse."
To date, APT has spent about $1.8 million on ad buys, according to data cited in the complaint. But more than $482,000 of that, according to ECU, went toward promoting a thinly veiled partisan misinformation operation. At the time of the ads, the APT’s “about us” page only featured two people—Sutherland, and Laxalt, as outside counsel. The group’s incorporation documents with the state of Virginia claim that its purpose is to “restore trust in government by exposing corruption and unethical behavior.”
But Laxalt’s name on that mission might raise eyebrows.
Laxalt, a far-right firebrand currently leading the polls for a key swing seat, sought to undermine faith in the government-verified results of the 2020 election, and is already stoking fears of a “rigged” 2022 contest. He’s also had plenty of his own encounters with law enforcement, including over involvement in an alleged pay-to-play scheme while he was attorney general. (Laxalt was never charged and denies all wrongdoing.)
Last year, Laxalt’s group ran a series of attack ads targeting Democratic politicians. According to the complaint, those ads pushed a number of false claims, including about President Joe Biden’s school re-opening policies and the influence that outside spending groups wield over longtime dark money critic Sen. Sheldon Whitehouse (D-RI).
IRS rules prohibit social welfare organizations from promoting false claims under the guise of “education.”
One of the APT ads, which ran last February, was part of what a GOP operative called a “highly coordinated effort” to highlight Biden’s dark money ties. The video accuses some of his top staff of “cashing in.”
“Liberals spent a record amount of dark money to elect Biden. Now, they are cashing in. Ron Klain led a top dark money group; now, chief of staff. Gina McCarthy, from dark money to climate adviser. Canceling the Keystone pipeline, killing good union jobs,” the ad says.
It also poses the question of “why won’t Biden re-open the schools?”
“Teachers unions and their dark money,” the ad claims.
However, the complaint says, the commercial and the associated website do not offer evidence to justify the conclusions that Biden revoked Keystone construction plans because of McCarthy’s influence, or that teachers unions and their funds forced his hand on reopening. The only article cited about the unions comes from the nonpartisan Center for Responsive Politics, and it only mentions that the groups supported Biden. The article does not imply any undue influence.
This, according to the complaint, amounts to misinformation and violates the IRS “methodology test” for determining the viability of educational materials.
The second ad targeted in the complaint is the broadside against Whitehouse. That ad, ECU says, breaks IRS rules because it is not factual and uses “inflammatory and disparaging” language.
“Sheldon Whitehouse has a dirty little secret,” the ad begins—a phrase it would go on to invoke twice more in 30 seconds. The spot dings Whitehouse as a “hypocrite” for “harping” on the “supposed evils” of groups funded with major anonymous donations, while enjoying “millions of dollars’ worth” of support from liberal dark money groups.
However, the complaint notes that the only citation is, again, the Center for Responsive Politics. And yet, the ad does not appear to cite an article. Instead, it appears to cite the CRP’s aggregated outside spending totals for Whitehouse’s last election cycle, 2018. Far from “millions,” the CRP page reveals he enjoyed less than $50,000 from those groups.
The complaint notes that in calling Whitehouse a “hypocrite” and emphasizing his “dirty little secret,” the ad deploys the type of disparaging language that the IRS has previously found violated requirements for educational messages.
And the IRS standards for “educational” communications are distinct and unique.
According to federal rules, a “significant portion” of a 501(c)3 group’s communications cannot be factually unsupported, or distorted—otherwise, the rules say, they may be flagged as propaganda. These ads also cannot make “substantial use” of inflammatory and disparaging terms, or rely more on “strong emotional feelings” than “objective evaluations.”
The Daily Beast shared the complaint with Ciara Torres-Spelliscy, Brennan Center fellow and nonprofit law expert at Stetson University College of Law, who said that if the accusations hold water, Laxalt’s group would appear to be in violation of IRS rules.
“All 501(c)3s are barred from intervening in partisan politics. Any 501(c)3 that does so risks losing their tax exempt status,” Torres-Spelliscy explained. “If the allegations are accurate, this looks like something beyond the power of a 501(c)3.”
She added, however, that such activities would be legal from most 501(c)4 groups. Notably, the two other groups joining APT in the February anti-Biden blitz—Judicial Crisis Network and Heritage Action for America—are both registered with the IRS as 501(c)4s.
Still, even with these purportedly educational ads crossing many lines, the arguments in the complaint may find a tough audience.
That’s because even if ECU’s arguments hold on the merits, there’s also a practical concern. The IRS is woefully overburdened and understaffed. And reform advocates and academics have often criticized the agency for its lack of action in this specific regulatory area.
Last week, The Washington Post reported that the revenue agency is still working through a backlog of 24 million returns. In response to the jam, the Post reported, the IRS “is considering suspending tax collections and excusing some penalty enforcement.”
The Daily Beast reached out to the Laxalt campaign but did not receive a reply.
