Dark-money groups fudge IRS reports

Nonprofits have ways to hide details of their spending practices

In 2019, a dark-money nonprofit called the “Center for Popular Progressive Values and Democracy” transferred nearly $10.3 million to another nonprofit: “Keep Our Constitution Clean.”

On its tax return, the Center told the Internal Revenue Service that it had hired Keep Our Constitution Clean as a contractor and paid it for “consulting” services.

But Keep Our Constitution Clean, the group behind an effort to make it harder for Floridians to amend the state Constitution, apparently didn’t do any consulting for that money.

On its own tax return, Keep Our Constitution Clean told the IRS that virtually all its funding came from contributions and grants. And a lawyer for the group told the Orlando Sentinel that the money it received from the Center was a contribution — not a payment for services.

“In regards to Center for Popular Progressive Values and Democracy, our [tax return] properly classified this as a contribution,” said Jason Zimmerman, an Orlando attorney at GrayRobinson who serves on Keep Our Constitution Clean’s board of directors.

It’s an important distinction. That’s because a nonprofit like the Center for Popular Progressive Values and Democracy must identify nearly every organization to which it contributes — but only a handful of the contractors it pays.

By classifying expenses as payments rather than contributions, a nonprofit can hide more details about how it is spending its money.

“It’s furthering the dark-money aspect of it,” said Philip Hackney, a law professor and expert on nonprofits at the University of Pittsburgh.

An ongoing Sentinel investigation into the role of dark money in recent elections has identified several instances of such discrepancies in the IRS filings of dark-money groups — which must be careful not to spend too much directly on political activities or else risk triggering rules that would force them to disclose their donors.

The president of the Center for Popular Progressive Values and Democracy is Richard Alexander, who tax, bank and campaign finance records indicate also leads several other dark-money entities involved

in Florida politics — including the nonprofit that provided $550,000 to promote mysterious “ghost” candidates in key state Senate elections last year.

Alexander, 41, who lives in Alabama, has not responded to repeated requests for comment.

It is illegal to falsify nonprofit tax returns, which are signed under penalty of perjury. But while the IRS regularly acts against nonprofits for glaring violations — such as failing to file a return at all — Hackney said penalties for errors are rarer and their severity depends in part on whether the IRS deems those discrepancies accidental or intentional.

“We’d have to be able to show that it was material to how the IRS thought about the organization,” Hackney said.

‘It’s unusual’

Most dark-money groups are organized as so-called “social welfare” nonprofits and do not have to disclose their donors.

They do, however, have to disclose the organizations that they donate to themselves. In general, they must identify every organization to which they contribute at least $5,000.

But the rules are different when it comes to paying contractors. Dark-money nonprofits only have to identify five contractors at most — even then it is only those that are paid more than $100,000 in a year.

Altogether, the Center for Popular Progressive Values and Democracy said on its 2019 tax return that it paid at least $100,000 to 29 contractors. But it only had to name five of them.

And Keep Our Constitution Clean wasn’t the only one of those contractors that doesn’t appear to have done any contracting.

The Center said its secondhighest-paid contractor was another nonprofit: “Floridians for Affordable Reliable Energy,” which worked alongside Florida’s big utility companies to fight a proposal to de-monopolize the state’s electricity markets.

But on its own tax return, Floridians for Affordable Reliable Energy said all of its revenue came from contributions and grants.

It’s not clear whether Floridians for Affordable Reliable Energy ever did any consulting at all. Joe Gibbons, a former Democratic state legislator from South Florida who chaired Floridians for Affordable Reliable Energy and electronically signed the group’s tax return, did not respond to repeated phone calls and text messages.

Meanwhile, another nonprofit called “Coalition for Against Electricity Deregulation,” told the IRS on its own tax return that it used Alexander’s group, the Center for Popular Progressive Values and Democracy, as a contractor — paying the Center $7,660,000 in 2019 for “consulting and education” services.

But the Center told the IRS that all of its revenue came from contributions and grants.

The president of Coalition Against Electricity Deregulation is Stephanie Egan. That’s the name of Richard Alexander’s sister, an elementary school teacher in Tuscaloosa County, Alabama. The 2019 tax returns for the Center and the Coalition were both prepared by the same Jacksonville CPA on the same day in November 2020.

Experts say it’s rare to see nonprofits reporting transactions in conflicting terms — especially organizations linked as closely as Center and Coalition.

“It is unusual,” said Lloyd Hitoshi Mayer, a law professor and nonprofit expert at the University of Notre Dame. “Usually when one organization makes a grant to another one, they are consistent in how they report it.”

Mayer said it’s possible operatives using dark-money nonprofits might classify an expense as a payment to a contractor rather than a contribution to another entity in order to make it look less like a political activity — and thus less likely to attract scrutiny from an auditor.

Rather than civil or criminal penalties, the bigger risk for dark-money nonprofits is that the IRS could decide that their political activities are extensive enough that they must disclose their donors.

But that would require the IRS to discover the errors in the first place. Mayer said the agency has given dark-money nonprofits less scrutiny in recent years, in part because it is understaffed and in part because it is wary of being accused of intervening in partisan politics.

“If the IRS was well-resourced and not politically scared, it would be concerned about this,” Mayer said. “But the IRS is very poorly resourced right now, as we painfully know from how long our tax returns take to get processed. And it is politically scared — gun-shy, I think, is a fair expression.”

‘I don’t know anything about it’

Contradictory tax returns aren’t the only error the Sentinel has found while probing dark-money groups in Florida.

For instance, Keep Our Constitution Clean said on its tax return that it donated $975,000 in 2019 to a small nonprofit in Iowa called “Morning in America Fund.” But Morning in America has never raised more than $50,000 in a year, according to its tax returns.

When the Sentinel initially asked Keep Our Constitution Clean about the discrepancy, the group characterized it as a minor accounting issue. But then the Sentinel contacted Morning in America Fund — which said that it never received a penny from Keep Our Constitution Clean.

Morning in America Fund “has no record of ever receiving a donation from that organization, nor a donation of that amount from any source,” said Bill Gustoff, a Des Moines, Iowa-based attorney who represents Morning in America Fund.

Asked again about the discrepancy, Keep Our Constitution Clean said it had made a mistake. Instead of making a donation to a nonprofit in Iowa, Keep Our Constitution Clean had paid a company in Wyoming called “Morning in America II LLC” — a petition-gathering business run by Tim Mooney, a longtime Republican strategist.

Mooney was involved in at least two constitutional amendment petition drives in Florida during the 2020 elections: Keep Our Constitution Clean’s proposal to make it harder to pass future constitutional amendments, and another proposal, sponsored by “Florida Citizen Voters,” to make it illegal for non-citizens to vote — even though that was already illegal.

(Voters rejected the Keep Our Constitution Clean amendment but approved the Florida Citizen Voters one.)

Both petition drives were used to undercut an effort to open up competition in Florida’s retail energy market through an amendment campaign ardently opposed by the state’s existing utility companies, which stood to lose their regional monopolies.

The Florida Citizen Voters campaign was financed in part by another dark-money nonprofit called “Count My Vote Florida.” Tax records show the organization is led by another GOP strategist and longtime collaborator with Mooney named Chuck Warren.

Yet in a brief phone interview, Warren said he had nothing to do with Count My Vote Florida and could not answer questions about it — even though records show that the IRS mailed correspondence for the organization to Warren at the Phoenix-based consulting firm he runs.

“I don’t know anything about it,” Warren said.

He did not respond to any follow-up questions.