Follow the Money and TakeAction! Part 2

[Note:  the reNEW.mn website is no longer available.  The URL redirects to TakeAction's website.  To see the content, enter the reNEW.mn URL into archive.org's Wayback Machine.]

In Part 1 of this series, I introduce TakeAction Minnesota, a politically progressive local non-profit.  TakeAction, through its reNEW Minnesota Campaign project was active in 2010, electing Mark Dayton as Minnesota's 40th Governor.  TakeAction and reNEW exclusively support Democrat party-related causes (or as we style it in Minnesota, the DFL, Democrat-Farmer-Labor party).

Here is one of the photos that rotates on reNEW’s homepage:

The caption reads,

“Governor Elect Mark Dayton thanks TakeAction Minnesota's members for their work during the election at TakeAction's Annual Leadership Awards Dinner on November 19^th [2010]. We are BOLDER TOGETHER.”  (emphasis in the original)

In this Part 2, I examine some of the official government documents available that tell the story of TakeAction and the 2010 election for Governor.  As you recall from Part 1, TakeAction consists of linked 501(c)(4) and 501(c)(3) (“the Education Fund) non-profit corporations.  The joint organization is managed by Dan McGrath, the man widely credited with leading the campaign to defeat the Voter ID constitutional amendment on last November’s ballot.

Tax forms don’t usually make for “can’t put it down” reading, but the IRS Form 990’s filed by TakeAction and the TakeAction Education Fund certainly qualify.

In 2010, the 501(c)(3) entity (“TakeAction Minnesota Education Fund”) spent $1,023,484, more than the organization took in, by $207,938.[1]  This deficit left the organization with net assets of a negative $79,435.[2]

The Education Fund’s IRS Form 990 lists two related entities:  the (c)(4) corporation mentioned on the website, but also a “527” entity called TakeAction Minnesota PAC.[3]  All three share the same St. Paul business address.

During 2010, the Education Fund engaged in three transactions with the 501(c)(4) entity.[4]  It leased “facilities, equipment, or other assets” from the (c)(4) in the amount of $63,869.  It reimbursed the (c)(4) for expenses in the amount of $936,829.  Finally, it shared paid employees in the amount of $1,216,411.  Note that the flow of funds went from the “charitable” (c)(3) to the “social welfare” (c)(4).  No transactions directly between the (c)(3) corporation and the 527 PAC are listed. 

We’ll come back to inter-company money flows in a moment.  But first a little information on the 527 corporate form.

A 527 organization is an entity organized under Section 527 of the Internal Revenue Code.  It can range from an individual candidate’s committee, to a Political Action Committee (PAC), to a political party.  Like a 501(c), its income is considered tax exempt.  Unlike a 501(c), it may engage directly in political campaigns.  Also, unlike a 501(c), it must disclose the names of its donors if it engages in political campaigns.  Finally, unlike a 501(c)(3), donations to the entity are not tax deductible to the donor.

Controversy over these differing disclosure rules has already touched a similar organization in Minnesota.  Like TakeAction, the Alliance for a Better Minnesota (ABM) is a politically progressive organization with a 501(c)(3), a 501(c)(4) and a state political action committee component and other related entities such as WIN Minnesota.  In a February 2012 profile of ABM, Minnesota Public Radio (MPR) reported that,

“[C]ampaign finance documents make clear where ABM gets cash to support it political spending.  But the transparency goes only so far.  The law does not require ABM or WIN Minnesota to disclose who gives to its non-profit operation…Increasingly, ABM is using its non-profit arm for advocacy in non-election years; radio ads that targeted Republicans for causing last summer's government shutdown [2011] are one example.”[5]

Beyond transparency is the issue of tax deductibility.  As the 501(c)(3) TakeAction Minnesota Education Fund discloses, “charitable contributions by donors are tax deductible.”[6]

Likewise, the 501(c)(4) TakeAction Minnesota entity also discloses that “charitable contributions by donors are tax deductible” to its organization.[7]  It discloses elsewhere that “TakeAction Minnesota brings together members to screen and endorse candidates.”[8] In 2010, the 501(c)(4) spent $1,683,497 on its activities.[9]

On its 2010 Form 990, the 501(c)(4) lists four transactions with related entities.[10]  It lists the same $936,829 amount, but it classifies the transaction as “sharing of paid employees” with the 501(c)(3) Education Fund.  It lists a second transaction with the Education Fund in the amount of $86,655, classified as reimbursement paid by the 501(c)(3).  There is no third transaction with the Education Fund listed.  Regardless of the inconsistencies between the two returns, it is clear that the flow of funds was from the 501(c)(3) to the (c)(4).

The other two related-entity transactions were between the 501(c)(4) and the 527 political action committee.  One transaction in the amount of $114,775 reflects the sharing of paid employees.  The second transaction in the amount of $10,486 reflects a reimbursement of expenses by the 527.

Putting the two returns together, it appears that substantially all of the charitable 501(c)(3) entity’s spending goes toward supporting the shared employees of the three related organizations.

For information on the activities of the 527, I reviewed records on file at Minnesota’s Campaign Finance and Public Disclosure Board.  In 2010, the TakeAction PAC took in $82,700.[11]  Its six donors are all disclosed, including names, addresses, and dollar amounts.  It lists as expenditures $118,458, including $117,299 in reimbursements to the (c)(4) for “admin services including office space, payroll, fax, copier, internet.”[12]  It made two small, in-kind donations, one to Margaret Anderson Kelliher, a DFL candidate for Governor.[13]  It made a $500 cash donation to the DFL state party and donated more than $4,000 worth of staff services to the DFL state party.[14]  Finally, the PAC made more than $16,000 in independent expenditures on behalf of various DFL candidates, in two instances, using TakeAction (c)(4) as a vendor.[15]  The amounts of these transactions are in addition to the amount shown above for reimbursements.

For 2010, the Campaign Finance and Public Disclosure Board lists a fourth TakeAction entity:  the TakeAction Political Fund.  This fund is not mentioned on either tax return, even though the Fund’s filing with the Board lists Dan McGrath as its head and the same address as the other entities.[16]

The TakeAction Political Fund took in $9,500 in cash.[17]  Both of its donors are disclosed, including names, addresses, and dollar amounts.  In addition to the cash donations, the Political Fund lists $39,740 of in-kind donations from the TakeAction (c)(4).[18]  This in-kind donation was on behalf of a number of candidates for the Minnesota House and Senate and Mark Dayton, candidate for Governor.[19]  In fact, most of the spending by the Fund (combined cash and in kind) went to support Mark Dayton’s campaign.  Since the in-kind donation came from the (c)(4), none of the original donors were disclosed:  not to the Board, not on the IRS Form 990, or anywhere else.

Furthermore, unlike with the relationship between the (c)(4) and the PAC, the resources between the (c)(4) and the TakeAction Political Fund flowed in the opposite direction.  Resources went from undisclosed donors to the (c)(4) to support DFL political candidates at the independent expenditure Political Fund.

If you believe, as I do, in the fungibility of money, I can take this one step further.  Undisclosed donors to the (c)(3) can get a tax deduction for their contributions, knowing that some portion of their money will flow onwards to the (c)(4) where some portion of that will be used to support independent expenditures on behalf of DFL candidates.

Likewise, undisclosed and tax deductible contributions to the (c)(3) are used primarily to pay for support staff for all three types of organizations.  Under the fungibility principal, the support of common staff frees up cash to be used by the 527 PAC to donate to the DFL state party.

Let’s return for a moment to Part 1 of this series, where we included the reNEW blog post of TakeAction employee Liz Xiong.  As she sits on the phone in November 2010 and shills for the candidacy of Mark Dayton, just whom is she representing?  Does she work for the (c)(4) as part of the reNEW project?   Is she helping to make an in-kind donation to the Political Fund?  Is she helping to make an in-kind donation to the state DFL?  Is she part of the admin costs reimbursed by the PAC?  The mind quickly boggles with all of the possibilities.  Only her timesheet would tell.

As I mentioned in Part 1, I am neither a tax attorney nor a CPA.  Likely, all of what is described above is well within the letter of the law.

In that case, we need to change the law.  Tax deductible contributions should not be able to free up resources for direct political engagement.  Clearly more disclosure is needed, as I identified a number of gaps in the record above.

Either that or the Republicans need to become much more clever about they way they go about funding their efforts. 

Where does TakeAction's money come from?  We'll find out in Part 3.

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[1] See IRS Form 990 filed by TakeAction Minnesota Education Fund, filed November 15, 2011. Part 1.

[2] Ibid., Line 22.

[3] IRS Form 990 filed by TakeAction Minnesota Education Fund, filed November 15, 2011. Schedule R, Part II.

[4] IRS Form 990 filed by TakeAction Minnesota Education Fund, filed November 15, 2011. Schedule R, Part V, page 3.

[5] Minnesota Public Radio, “DFL-backed organizations set sights on winning Legislature,” February 21, 2012.  (TakeAction Minnesota is also mentioned.  See http://minnesota.publicradio.org/display/web/2012/02/20/dfl-alliance-for-a-better-minnesota-legislature

[6] IRS Form 990 filed by TakeAction Minnesota Education Fund, filed November 15, 2011.  Schedule D, Part XIV, Supplemental Information, Part X-FIN 48 Footnote (continued), page 5.

[7] See IRS Form 990 filed by TakeAction Minnesota, filed November 15, 2011.  Schedule D, Part XIV, Supplemental Information, Part X-FIN 48 Footnote (continued), page 5.  However, under Schedule C, Part III-A, question 1 (“Were substantially all (90% or more) dues received nondeductible by members?”), the box is checked “Yes.”

[8] IRS Form 990 filed by TakeAction Minnesota, filed November 15, 2011.  Schedule C, Part IV Supplemental Information, Part 1-A, Line 1—Direct and Indirect Political Campaign Activities, page 3. 

[9] IRS Form 990 filed by TakeAction Minnesota, filed November 15, 2011.  Part 1, Line 18. 

[10] IRS Form 990 filed by TakeAction Minnesota, filed November 15, 2011. Schedule R, Part V, page 3.

[11] See TakeAction PAC’s Report of Receipts and Expenditures for Political Committees and Political Funds, filed February 3, 2011, Schedule A1-CR, page 5.

[12] TakeAction PAC’s Report of Receipts and Expenditures for Political Committees and Political Funds, filed February 3, 2011, Schedule B1-EXP, page 9.

[13] TakeAction PAC’s Report of Receipts and Expenditures for Political Committees and Political Funds, filed February 3, 2011, Schedule B2-CAN, page 11.

[14] TakeAction PAC’s Report of Receipts and Expenditures for Political Committees and Political Funds, filed February 3, 2011, Schedule B2-PTY, page 13.

[15] TakeAction PAC’s Report of Receipts and Expenditures for Political Committees and Political Funds, filed February 3, 2011, Schedule B3-IND, page 17.

[16] See TakeAction Political Fund’s Report of Receipts and Expenditures for Independent Expenditure Committees and Independent Expenditure Funds, filed February 3, 2011, cover page.

[17] TakeAction Political Fund’s Report of Receipts and Expenditures for Independent Expenditure Committees and Independent Expenditure Funds, filed February 3, 2011, Schedule A1-IR, page 5.

[18] TakeAction Political Fund’s Report of Receipts and Expenditures for Independent Expenditure Committees and Independent Expenditure Funds, filed February 3, 2011, Schedule A1-UA, page 9.

[19] TakeAction Political Fund’s Report of Receipts and Expenditures for Expenditures for Independent Expenditure Committees and Independent Expenditure Funds, filed February 3, 2011, Schedule B3-IND, page 17.