Wednesday, April 25, 2012

What To Look For In Americans Elect Corporation's Upcoming IRS Form 990

 "Follow the money. Always follow the money," has been the First Law of political science since long before Deep Throat thus advised Bob Woodward in the 1976 classic, All The President's Men. Alas, miscreants know that too, and they have a powerful armamentarium at their disposal with which to cover their money's tracks. But there is one thing which stands forthrightly between organizations such as Americans Elect Corporation and the invisibility they crave: the Internal Revenue Service's Form 990. So here follows a brief tutorial on what to look for in AECorp's upcoming 2011 Form 990 filing, and how to find it. Over the next 20 days we'll outline one new tip every few days regarding how to read AECorp's tea leaves when it de-cloaks on May 15th(?).

Tip 1: Watch the Filing Date
Tip 2: Count the Arno's Share of the Loot

In exchange for their privileged tax-exempt status, non-profit organizations are required to annually file and make available for public inspection IRS Form 990, Return of Organization Exempt From Income Tax. In the IRS's own words: "Some members of the public rely on Form 990 or Form 990-EZ as their primary or sole source of information about a particular organization. How the public perceives an organization in such cases can be determined by information presented on its return. Therefore, the return must be complete, accurate, and fully describe the organization’s programs and accomplishments." 

Americans Elect Corporation is most definitely one of those organizations for which we rely on Form 990 as our sole source of information. Ever since activating its cloaking device in 2010 by re-organizing as a 501(c)(4) (essentially a Super-PAC), the inner workings of AECorp have been largely -- and, one must assume, intentionally -- invisible to the public eye. Form 990 is the only means we have to compare AECorp's words with its deeds. Does it talk the talk and walk the walk?

The very first thing we can learn from AECorp's 2011 Form 990, then, is this: is it eager to reveal its inner workings in a timely fashion, as any non-profit which is on the up-and-up would be, or does it drag its feet and delay and obfuscate? Is it proud of its efforts and eager to cast sunshine on them, or does it feel it has something to hide?

By IRS regulation, a non-profit's filing date for its Form 990 is the 15th day of the fifth month after the close of its fiscal year, or, in AECorp's case, May 15. But the IRS does allow a filer one automatic 3-month extension of its filing date if the filer wishes (which for AECorp would extend its filing date to August 15), with the possibility of a second 3-month extension (to November 15 in this case) given "reasonable cause for the additional time requested." Thus, if it wishes, AECorp could delay the filing (and thus the publication) of its eagerly awaited Form 990 until after its online 'convention' (currently scheduled for June 12, 2012), or even until after the the November 6th 2012 General Election. Americans Elect delegates, as well as voters in the General Election, have both the right and the responsibility to become as familiar as possible with the organization they're getting into bed with by casting their votes for it, so of course AECorp would be eager to file and publish in a timely manner, right?

Well, maybe not. If the past is prologue, the future doesn't look bright. Last year AECorp delayed the filing and publication of its inaugural 2010 Form 990 by the full six months allowed by law, citing the perhaps convenient excuse that "Organization has engaged an auditing firm to perform an annual audit of the organization's 2010 activities. The audit is not due to be completed until after Aug 15, 2011. The audit was delayed by the organization's efforts to retain a qualified auditor with the expertise to best serve the needs of the organization." AECorp thereby avoided public discussion of its finances, as revealed in its 2010 Form 990, until well after its web site roll-out, its initial publicity blitz, and the ramp-up of its efforts to recruit members, supporters, and media talking heads (by which time its PR operation had established full control of the airwaves).

Will AECorp play the same game again this year? Stay tuned. A skeptic might not be blamed for interpreting another delay as a cynical ploy to keep AE's own workings out of the debate until after it has accomplished its electoral goal (whatever that may be). And as we all watch the countdown clock with breathless anticipation, just remember this: if AECorp is interested in operating in a transparent fashion, as we might hope, there is absolutely nothing restricting it from filing and publishing its 2011 Form 990 early, rather than late. After all, first-round voting is already well under way. Don't we delegates have a right to know what we're getting into?

Personally, we're not holding our breath.

Americans Elect has a perilously fine line to walk on this issue, so watch for how it finesses a delicate question. 

In its inaugural 2010 Form 990, AECorp reported paying Arno Political Consultants (one of the premier, and also one of the most notorious, signatures-for-bucks companies) $731,586 while collecting 175,132 ballot access petition signatures, a whopping $4.18 per signature. That's way way above the $2.42 per signature average for eight other recent Arno petition drives as reported by BallotPedia.

So why is Americans Elect Corporation paying Arno so very richly? For 2010 we were willing to give AECorp the benefit of the doubt, allowing that the first year's unusually high tab might be attributable to start-up costs, which can artifactually inflate the apparent price-per-signature over a short initial period. But for 2011 that same excuse won't hold water a second time. If Arno's price-per-signature comes in anywhere near this high again, then that's an issue.

Indeed, it would be a very serious which could land Americans Elect Corporation and the Arnos in major hot water with the IRS. With respect to tax-exempt 501(c)(4) organizations such as Americans Elect, IRS regulations are commonly interpreted to assert that:

"1.     No part of the net earnings of a §501(c)(3) or §501(c)(4) organization may inure to the benefit of any private shareholder or individual or else tax exemption is forfeited.
2.     General Rule.
        a.     Prohibited inurement results when the private interests of persons with a financial stake in the activities of an organization are furthered.
        b.     Inurement is most likely to be found when the benefitted persons are insiders (officers, directors or employees) who exercise either control or substantial influence over the organization's revenue production or its disbursements.
        c.     Any amount of private inurement is grounds for revoking the exempt status of an organization. However, the harshness of this rule has been somewhat mitigated by the Excess Benefit Transaction rule, which allows the IRS to impose a fine rather than revoking exempt status."

It doesn't require much legal imagination to view Michael and Kellen Arno as having a "financial stake" in the activities of Americans Elect, given that their company, Arno Political Consultants, appears to be doing business exclusively with Americans Elect Corporation these days. And, certainly, paying the Arnos a rich premium over the going rate would look a lot like 'furthering their private interests.' Just as certainly, Michael and Kellen Arno in their official AECorp capacities as Ballot Access Advisor and National Field Director, respectively, have 'substantial influence over the organization's revenue production', since without ballot access and without member recruitment AECorp would have no small donor base to draw upon.

We are thus eager to learn from its upcoming 2011 Form 990 whether AECorp imperiled its tax-exempt status by continuing to grossly over-compensate Michael and Kellen Arno (from public donations, no less). Is it unreasonable to suggest that a 'grassroots' effort really shouldn't be turning insiders into multi-millionaires?

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