BY: ROBERT MAGUIRE
The Federal Election Commission announced today that it has deadlocked along party lines on whether to further investigate whether a 501(c)(4) social welfare organization called Carolina Rising should have disclosed the donors that funded its political ads in 2014 or register as a political committee.
The deadlock ensures that the agency will drop the matter.
The complaint against the group was filed in October 2014 by the North Carolina Democratic Party, but focused only on whether Carolina Rising should have disclosed the donors funding two ads that ran shortly before the election that year. The FEC's Office of General Counsel said no, noting that there was no proof that Carolina Rising had received the funds "for the purposes of furthering" the ads, which is the criteria that triggers donor disclosure for a 501(c) nonprofit.
The FEC's three Republican commissioners agreed with the OGC's conclusions. But the two Democrats and one independent on the commission voted to find reason to believe that Carolina Rising failed to "organize, register, and report as a political committee" and failed to disclose its donors, based on significant information that was not considered in the original complaint or the OGC's analysis.
Commissioners Ann Ravel and Ellen Weintraub pointed to the fact that the group spent $4.7 million on pro-Tillis ads, which amounted to a full 97 percent of its overall expenditures that year -- meaning that, as a social welfare organization, it did almost nothing other than run candidate ads. In addition, they cited a TV clip of the group's president at the Tillis victory party, wearing a Tom Tillis hat, saying "$4.7 million. We did it."
"As we have seen before, when this Commission leaves a vacuum by failing to enforce clear law," Ravel and Weintraub wrote, "new organizations rush in to fill the void, knowing that they will suffer no consequences."
Carolina Rising and setting
Among politically active nonprofits that use the tax code as cover for anonymous donors to spend millions of dollars influencing elections, Carolina Rising stands out as one of the most clear-cut apparent offenders of the rules that prohibit these groups from engaging in too much political activity and excessively benefiting a private party -- in this case, Tillis and the GOP.
The 501(c)(4) social welfare organization was formed by a Republican political operative, Dallas Woodhouse, just months before the 2014 midterm elections in North Carolina, a state that would see unprecedented amounts of money spent in its Senate race.
In the final months of the election, the new group spent almost all of its funds on ads supporting Tillis, then the speaker of the state Senate, in his successful bid to unseat incumbent Democratic Sen. Kay Hagan. On Election Day, Woodhouse went on live TV from the floor of the Tillis victory party, wearing a Tillis hat, saying that his group had spent $4.7 million to get Tillis elected.
Nonprofit "social welfare" organizations like Carolina Rising are not supposed to devote more than 49 percent of their resources to politics and don't have to disclose their donors to the public. But over the years, as the Supreme Court has loosened campaign finance regulations and as the FEC and the IRS have largely stood down from policing these groups, they have become vehicles for hundreds of millions of dollars in political spending at the state and federal level. As tax-exempt nonprofits, the groups are supposed to benefit the public broadly and not any person or specific group of people, like a political party or candidate for office.
As the Center for Responsive Politics reported last year, Carolina Rising did both to a spectacular degree. Within months of its founding in March of 2014 by Woodhouse -- who has since gone on to be executive director of the North Carolina GOP -- it had spent millions on glowing ads supporting one candidate in one race, Thom Tillis.
Because they were framed as issue ads, lacking the "magic words" calling on voters to support Tillis or oppose Hagan, only the spots that ran within 60 days of the election had to be reported to the FEC. Carolina Rising reported spending $3.3 million to the commission -- though that alone made up 70 percent of the group's total outlays. Another $1.5 million was spent by the group in August, more than 60 days out from the election.
With a mailbox at a Custom Postal store in a Raleigh stripmall as its only address, Carolina Rising performed no significant, demonstrable social welfare activity.
And once the election was over, the organization appears to have ceased to have any significant operations. Its website was updated just twice in 2015, and the phone number on the site has been disconnected.
Despite being the principle name listed on the group's now-expired charitable registration at the N.C. Secretary of State's office, as well as on the group's incorporation records, Woodhouse told CRP in an email that he was no longer affiliated with Carolina Rising. Another board member, Lorri Pickens, said in an email that she left the Carolina Rising board in October 2014, just before the election.
When pressed as to who could provide updated tax returns for Carolina Rising, Woodhouse referred us to a lawyer at Parker Poe in Raleigh and asked not to be contacted further regarding Carolina Rising "as I have long left this organization and and not involved in anyway." In a response to CRP, Steve Long at Parker Poe said he would "obtain the Form 990 from Carolina Rising" and "forward it" next week.
The statement of reasons signed by the FEC's two Democratic commissions, Ann Ravel and Ellen Weintraub, called groups like Carolina Rising the "latest but not the last innovation in shrouding campaign funds from public view." They further said the FEC "is rarely handed a plainer admission" about a group's actual activities than Woodhouse's admission on live TV from the Tillis victory party.
Steven Walther, an independent commissioner who usually sides with the Democrats, did not sign on to the letter, but he did vote in favor of requiring Carolina Rising to disclose its donors.
It would have taken a majority vote of the six-member commission to move forward with a full investigation.
The all-too-fitting kicker to this story, though, is that if the FEC had decided to act against Carolina Rising and require it to register as a political committee, its main benefactor would be revealed to be Crossroads GPS, another politically active nonprofit that doesn't disclose its donors. In other words, even in the best case scenario, the FEC would have told the public what CRP has already reported, rather than the true identity of Carolina Rising's funders.
But it's the IRS that is charged with ensuring that nonprofits like Carolina Rising actually provide a social welfare value to the general public. The tax agency is responsible for evaluating the activities of nonprofits, but it rarely denies or revokes the exempt status of prominent politically active nonprofits. The liberal watchdog group CREW filed a formal complaint with the IRS in October 2015 highlighting the issue of private benefit in connection with Carolina Rising's spending in the 2014 midterms.
When we asked former head of the IRS exempt organizations division Marc Owens last year about Carolina Rising and private benefit, he referred to it as a "private benefit slam dunk," saying that the group "was formed to support Mr. Tillis, and they did that."
If the IRS does decide to revoke Carolina Rising's status, the decision will not be public, and the only penalty the group will likely face will be to pay corporate income tax on its revenues. But if Carolina Rising no longer exists, there won't even be that slap on the wrist.