September 29, 2008

Today, Ethics Watch requested that the Internal Revenue Service (IRS) launch an immediate investigation of four non-profit organizations: American Future Fund (AFF), Coloradans for Economic Growth (CEG), Freedom’s Watch, and Western Skies Coalition (WSC).  The request presents evidence that these four organizations might have spent more of their total resources on actions that influence elections in Colorado rather than on social welfare activities, in violation of their federal tax-exempt status.

AFF, CEG, Freedom’s Watch and WSC are each registered as tax exempt organizations pursuant to section 501(c)(4) of the Internal Revenue Code.  According to federal tax law, a 501(c)(4) is exempt from federal income taxation if it operates primarily to promote social welfare.  501(c)(4) organizations must devote at least half of their resources and efforts to activities that promote the common good, general welfare, civic betterment or social improvement of a particular community.  The law clarifies that promotion of social welfare does not include direct or indirect participation in political campaigns on behalf of a candidate.

According to Ethics Watch’s research, it appears that more than half of the activities engaged in by AFF, CEG, Freedom’s Watch and WSC have been partisan, non-educational activities that provide benefit to various conservative candidates for state and federal public office in violation of statutory requirements for 501(c)(4) organizations. 

“Each of these organizations have paid considerable money to purchase television ads attacking U.S. Senate candidate Mark Udall and candidates running for the state legislature,” said Chantell Taylor, director of Colorado Ethics Watch.  “Based on our research, it appears that the organizations are primarily engaged in political activities and need to show where, how and what they are doing to promote the welfare of the community at large.  If they do not, they can and should lose their tax exempt status.”

According to Ethics Watch’s complaint, these organizations have spent up to $400,000 on attack ads against specific candidates in Colorado races and other states, while focusing minimal resources on educational activities that promote social welfare.  None of these organizations appear to have filed reports with the IRS.  In addition, Freedom’s Watch violated federal public disclosure requirements by refusing to provide tax-exemption and annual reporting information upon request.