Exempt from tax, busy in politics Empower America, founded by Kemp, seeks electoral clout

A Washington think tank set up by Republican vice-presidential candidate Jack Kemp is among a growing number of political groups trying to use tax-exempt status, once reserved for groups like the Lions Clubs and Rotary chapters, to gain influence over voters.

Known as Empower America, the organization has emerged as a driving force behind the Republican presidential nominee Bob Dole's message of racial inclusion, rock-bottom taxes and homespun values. Empower America's co-founder Bill Bennett, the former education secretary and best-selling author, was just named a national vice chairman of the Dole campaign this week.


Once certified as civic groups by the Internal Revenue Service, Empower America and other similar nonprofit organizations can evade more stringent rules of the Federal Election Commission that limit how much money candidates may accept from a single contributor. And they duck laws that require political organizations to disclose where their money comes from and where it goes.

"It's the great untold story of the 1996 campaign," said Gregory L. Colvin, a San Francisco lawyer, author and expert on nonprofits. "The news media are mainly focused on what the candidates and the campaigns are doing, but not on groups that are going to influence the election."


Tony Trimble, Empower America's lawyer and a Republican operative from Minnesota, insists that his organization is an intellectual conclave that's "open to anybody who wants to join." And he's disturbed that the IRS has failed to recognize it as such.

"The IRS, whether for internal political reasons or policy reasons, is apparently giving it a higher level of scrutiny," Trimble said. "I have to say we are surprised it has taken this long."

A review of Empower America's activities during the past three years, while it waits for the IRS ruling, shows partisan activity.

For example, Empower America has boasted on the Internet that it ran 88 radio ads in New Hampshire promoting a flat tax in the months leading up to the Republican presidential primary there.

At the time, Empower America co-founder Malcolm S. "Steve" Forbes Jr. was gearing up to run for president on a flat tax platform.

The group's incorporation papers say its purpose is "to advance a conservative reform agenda" by educating the public on such heady topics as government policy, global strategy and leadership. The group calls itself a nonprofit in corporate filings and elsewhere, leading media organizations to refer to it as a tax-exempt group.

Since 1989, according to FEC records, its board and staff have made personal contributions of more than $1.8 million to Republican candidates and committees nationwide, and less than $50,000 to Democrats.

A spokeswoman for Kemp said he has taken a leave of absence from the group since joining the Republican ticket and would not comment on Empower America.


"It doesn't have anything to do with this campaign," said Kim McCrery, Kemp's deputy press secretary. "Questions about their legal status and financing should be directed to them."

No advocating for candidates

Tax-exempt groups generally are prohibited from advocating for or against particular candidates in federal elections. It amounts to taxpayer-subsidized propaganda that could skew the process favor the biggest bankroll, tax experts say.

But Congress has only armed the IRS with a loose set of guidelines to enforce this mandate. Critics charge that the law -- Section 501C(4) of the U.S. Tax Code -- has been left intentionally vague.

Pioneered by conservative-leaning groups more than a decade ago, the strategy is now being pursued by organizations from the Christian Coalition and the National Rifle Association to those on the left -- among them the AFL-CIO and the National Abortion and Reproductive Rights Action League.

"They're functioning as shadow campaigns," said Lisa E. Rosenberg of the Center for Responsive Politics, an election monitoring organization.


Few have matched Empower America's level of sophistication.

Records show that the group is a private corporation engaged in fund-raising, training politicians in conservative ideology at paid "candidate schools" and running a computer-driven phone bank that transmits quotes to conservative radio talk shows nationwide.

It also has amassed a mailing list of contributors that it rents to campaigns through private list brokers. Royalties have generated almost $500,000 in profit for Empower America over the past three years, records show.

While Empower America claims to be politically neutral, federal campaign finance records leave little doubt about the sympathies of its members.

Records show that members of the board, staff and others have given Empower America more than $18.6 million since 1993 -- bankrolling the travel and public speaking schedules of Kemp, Bennett and their fellows.

Among founding members are former Reagan administration U.N. ambassador Jeane Kirkpatrick; former Republican presidential candidate Lamar Alexander; and four Republican governors, three of whom were named as potential running mates to Dole.


Since they set up shop in a downtown Washington office suite in 1993, the group has been lambasting Bill Clinton and praising Republican leaders through a stream of radio advertising, Internet polemics and newsletters -- all the while withholding their federal taxes as a nonpartisan, nonprofit educational organization.

"The Clinton Administration has been squandering American credibility, power, reputation and respect in the world," Empower America says in its summer 1996 newsletter. "We are a good deal less strong than we were when Bill Clinton was inaugurated."

Trimble, Empower America's attorney, insists this is "nonpartisan commentary."

"It wasn't criticism of Clinton himself, it was criticism of a policy based on liberal thought," he said. "How can you talk about public policy without talking about the people who formulate and espouse it?"

As as long as the attack is not coupled with an endorsement of an alternative candidate, Trimble said, it is "fair comment." And Empower America always has been careful to avoid using party designations like "Republican" or "Democrat" in couching its "nonpartisan" appeals.

Trimble stressed in a lengthy interview that Empower America has also been "scrupulous" in avoiding overt political activities that might jeopardize its tax exemption application, such as sharing its money with candidates or political action committees.


He said that Empower America is seeking 501C(4) status less to avoid taxes -- which would be substantially reduced by its sizable business deductions -- than to create an "impression" in the mind's of potential donors.

Colvin, the expert on nonprofits, calls this the "halo effect" of tax-exempt status.

"There's clearly an image aspect," Trimble agreed. "It gives a donor out in Rhode Island or Colorado an assurance that their donation will be used to promote a certain idea or set of issues. And they can decide for themselves whether you're adhering to that mission or not. You're out there for public inspection in a way that a private corporation is not."

Empower America did not hold itself to that standard last week.

'A private entity'

Citing the group's legal status as "a private entity," chief financial officer Sheldon Groner refused to release basic financial records and correspondence that tax-exempt groups are required to make public by the IRS.


The organization also refused to itemize money it has paid to Kemp.

McCrery, Kemp's campaign spokeswoman, said the candidate would disclose all his sources of income within 30 days from his nomination, as required by law.

Empower America's corporation papers list Kemp as an unpaid co-founder and board member, but Trimble said he has traveled widely at the group's expense to speak out on such subjects as a flat tax and the policies of the Clinton Administration.

Experts on tax law say that the new breed of nonprofits are becoming increasingly common. Meanwhile, the law itself has become so muddled that it is difficult for enforcement agencies to police their activities.

Now, such groups as the Sierra Club and the U.S. Chamber of Commerce are getting in the act.

"Everybody's jumping in this year," said Colvin. "Some of it is quite legal, some is illegal and some is in the middle. A lot of these people are creating test cases."


The ground is fertile.

Over the past decade, a series of court opinions have gradually eroded laws that limit electioneering by non-profits on grounds that it's a First Amendment right. And in the absence of a clear cut law from Congress, these decisions have filled the void.

A sharply divided U.S. Supreme Court, for example, declared in 1986 that nonprofits can speak out for or against candidates -- as long they don't use money from corporate or union donors to do it, and as long as they don't coordinate their activities with a candidate or political party.

Demonstrating a flair for ingenuity, the nonprofits have fashioned from this decision new ways to help their friends and punish their enemies.

Two popular devices are voter guides and candidate score cards. Printed by the thousands in the months leading up to an election, they assign scores to candidates based on their public statements or voting record on a single issue. The scoring leaves little doubt who voters should favor at polling time, while skirting the rule against directly supporting the candidate's campaign.

"We're going to see a tremendous number of voter guides on religious issues, environmental, reproductive rights," Colvin said. "There are no FEC limits on this kind of expenditure, if done properly. But many of them give you enough information to line up the issues with the candidates."


Said Gail M. Harmon, a tax and election law attorney in Washington: "That's very similar to what the unions do when they go after the freshmen [Republicans]. They say 'Representative X voted to cut your Medicare, but we're not political. We're talking about Medicare.' "

Such gambits can be a political liability if they are exposed, experts agree, because they may make voters recoil.

Dole last year closed down a think tank he founded called the Better America Foundation amid criticism that he was using its ++ secret funding sources to buy advertising that burnished his image.

When he agreed to release a list of contributors, it turned out to be a cadre of corporate heavy hitters.

Kemp also was forced to shut down a think tank he set up. While running for Congress in Buffalo in 1984, his campaign fund made an illegal $18,366 loan to a think tank he had founded called Campaign For Prosperity -- breaching the wall between his nonprofit foundation and his more overtly partisan campaign committee.

The group was quickly disbanded and later paid a $2,750 fine to the FEC, records show.


Democrats new to game

To date, no Democratic-leaning organization has run into similar problems, tax experts say, mainly because they are relatively new to the game. But conservative Christian groups -- a cluster of mainly anti-abortion leagues -- have complained that they are being singled out for selective enforcement while the IRS and FEC ignore clear political rhetoric from the African-American churches.

The best known recent example in which a nonprofit is alleged to have stepped out of bounds is the case of the Christian Coalition.

Founded in 1989 by religious broadcaster Pat Robertson, the group was sued in July by the FEC for allegedly coordinating with Republican candidates when it distributed millions of voter guides.

Like Empower America, the Christian Coalition has not paid taxes in seven years, pending a ruling by the IRS on its application for tax-exempt status.

Trimble, Empower America's attorney, is quick to distinguish his organization.


"It's a completely different situation from the Christian Coalition," he said. "I see no evidence that EA has engaged in any partisan activity, which is one reason, frankly, that I'm so surprised it has taken the IRS this long."

Domenic J. LaPonzina, a spokesman for IRS regional headquarters in Baltimore, where Empower America's application is being handled, said a corporation's financial records aren't public until they have been formally given tax exempt status.

In the interim, he said, companies like Empower America are free to file 990 tax returns and behave like a tax-exempt nonprofit if they choose. But they must be prepared to pay back taxes if the IRS rules against them.

In the case of Empower America -- with millions in contributions flowing in from well-heeled donors nationwide and a mere $277,000 in potential liability -- "that wouldn't be a problem," said Trimble, the group's lawyer.

Pub Date: 8/31/96