Damage control: Fox defends Rove's GOP slush fund from potential IRS audit

Fox's Megyn Kelly hosted Dana Perino to portray calls for an IRS audit of a Republican slush fund promoted by Karl Rove as a politically motivated “conspiracy,” ignoring that such calls have been issued by non-partisan organizations that called for similar audits of Democratic-leaning groups in 2004. They also furthered the bogus claim that the White House illegally accessed the tax information of Koch Industries.

Fox calls on Rove's current and former colleague to defend his group

Perino says call for investigation of Rove-linked group is Democratic “desperate measure,” part of “conspiracy.” On the October 7 edition of Fox News' America Live, Megyn Kelly raised allegations by Republican senators that Sen. Max Baucus' (D-MT) call for an Internal Revenue Service audit of 501(c)(4) organizations that may be illegally misusing their tax exempt status, including the Karl Rove-conceived Crossroads GPS, is “politically motivated.” She then hosted Fox News contributor Dana Perino, who defended Rove's group:

PERINO: I was thinking about this today, and I thought, well, desperate times call for desperate measures when you're the Democrats leading up to this November mid-term. This certainly smacks of a political interference that is inappropriate, possibly unlawful with some of the tactics. I also think that I probably just doesn't sit well with the American people. This all stems from the Supreme Court decision -- remember President Obama mentioning it in the State of the Union address, calling out the Supreme Court justices who were there, talking about the parade of horribles that was going to happen because the Supreme Court sided with the First Amendment. And now we see, just three weeks before the election, calls for investigations and tax audits into this. Now, there was the letter from Max Baucus; that's an anomaly, you could say. Then there was an attack by a group, a liberal-leaning group on that Americans for Prosperity that you mentioned -- that could be a coincidence. But third one against Karl's group, GPS Crossroads -- that's a conspiracy or at least a coordinated attack.


If it was just one, you would say that's a coincidence, but it was so classic. You saw several in the media start to write about these groups. Then, of course, they all want to talk about Karl Rove -- I mean, he's their favorite subject. So then they bring up Karl Rove, and it's just three weeks before the election. And I just think if they had not been in the dire straits they are they probably wouldn't have brought this up in this way. I think it's a last-ditch measure. You know, Megan, in 2004, George Soros, the billionaire, said that he would do whatever it took and pour as much money as it took into the campaigns in order to unseat George Bush. Well, he wasn't successful, but there were no calls for investigations from Democrats about that type of activity at that time.

Perino was Rove's White House colleague, is his colleague at Fox News. Karl Rove, currently a Fox News contributor, served in President Bush's White House from his inauguration through August 2007. Perino was Rove's co-worker in the Bush administration for several years, serving as associate director of communications on the White House Council on Environmental Quality from 2003 to 2005 and as deputy press secretary from 2005 to March 2007, when she became acting press secretary. Rove has reportedly praised Perino as “one of the most talented professionals I've seen,” with “a really sharp mind, fine judgment and a great sense of humour.”

Nonpartisan campaign finance groups have also called for IRS investigation of Rove-backed group

Democracy 21, Campaign Legal Center called for IRS investigation into Crossroads GPS. In an October 5 letter to IRS Commissioner Douglas H. Shulman, campaign finance watchdog groups Democracy 21 and the Campaign Legal Center called on the IRS to investigate whether Crossroads GPS “is operating in violation of its tax status because it has a primary purpose of participating in political campaigns in support of, or in opposition to, candidates for public office.” In their letter, the groups write:

The status of Crossroads GPS as a section 501(c)(4) entity allows its donors to evade the public disclosure requirements that would apply if the organization was registered as a section 527 political organization. Section 527 groups are organizations that are “primarily organized and operated” to engage in political activities. By contrast, Section 501(c)(4) organizations are not permitted to be “primarily engaged” in activities to influence elections. They are not required to disclose their donors.

If, in fact, Crossroads GPS is impermissibly operating as a section 501(c)(4) organization in order to conceal its donors from the American people, the IRS has an obligation to take steps to protect the integrity of our tax laws and to make clear that such abuses will not be permitted in future elections.

Watchdog complaints echo those of Baucus. In his September 28 letter to Shulman, Baucus, in his role as chairman of the Senate Finance Committee, wrote:

I request that you and your agency survey major 501(c)(4), (c)(5) and (c)(6) organizations involved in political campaign activity to examine whether they are operated for the organization's intended tax exempt purpose and to ensure that political campaign activity is not the organization's primary activity. Specifically you should examine if these political activities reach a primary purpose level - the standard imposed by the federal tax code - and if they do not, whether the organization is complying with the notice or proxy tax requirements of Section 6033(e). I also request that you or your agency survey major 501(c)(4), (c)(5), and (c)(6) organizations to determine whether they are acting as conduits for major donors advancing their own private interests regarding legislation or political campaigns, or are providing major donors with excess benefits.

Possible violation of tax laws should be identified as you conduct this study.

Groups previously targeted “pro-Democratic 527 groups,” resulting in “substantial civil penalties” paid to the FEC. In the press release issued after they sent their letter, the campaign finance watchdogs noted:

Following the 2004 election, Democracy 21 and the Campaign Legal Center took action against section 527 groups for violating the campaign finance laws. Democracy 21 and the Campaign Legal Center called for an investigation of two pro-Democratic 527 groups, ACT and the Media Fund, the two biggest spending 527 groups in the 2004 presidential election.

In response to FEC complaints filed by Democracy 21 and the Campaign Legal Center against the two 527 groups, the FEC entered into conciliation agreements that found that the 527 groups, combined, had spent more than $150 million illegally in the 2004 presidential election. Both groups paid substantial civil penalties to the FEC.

Indeed, The Media Fund and Americans Coming Together (ACT) -- both funded by George Soros -- received fines of $580,000 and $775,000, respectively.

Perino jumps on Weekly Standard's bogus weeks-old Koch Industries scandal

Weekly Standard: According to Koch Industries, Obama administration official suggested to reporters that Koch doesn't pay corporate income tax. On September 20, The Weekly Standard's John McCormack reported (emphasis in original):

According to Mark Holden, senior vice president and general counsel of Koch Industries, a senior Obama administration official told reporters at an August 27 on-the-record background briefing on corporate taxes:

So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we've literally got something like 50 percent of the business income in the U.S. is going to businesses that don't pay any corporate income tax. They point out [in the report] you could review the boundary between corporate and non-corporate taxation as a way to broaden the base.

Perino: White House actions “could be illegal.” On America Live, Perino said of the story:

PERINO: I take the White House at its word that when it mentioned the tax status of Koch Industries, it didn't mean to. But, you know, it's hard to swallow that, because just from where I was as the press secretary, at the White House you're not even supposed to have access to any information about any specific individual or company.

She later added that the Obama administration official's actions “could be illegal,” explaining: “After Watergate laws were put in place to make sure that political interference regarding your taxes and how much you pay and how much you owe could not be used against you in political speech.”

Koch Industries' Holden: “I'm not accusing any one of any illegal conduct.” In McCormack's article, he quotes Holden saying: "I'm not accusing any one of any illegal conduct. ... I don't know what [the senior administration official] was referring to. I'm not sure what he's saying. I'm not sure what information he has. ... [I]f he obtained it in a way that was inappropriate, that would be unlawful. But I don't know that that's the case."

Administration official: Information was obtained from public sources. On September 21, Politico's Ben Smith reported:

[A]nother administration official said in an email this morning that the White House got the information from testimony before the the President's Economic Recovery Advisory Board (PERAB) and from Koch's own website:

No senior administration officials have any access to anyone's tax returns--individual or business. The administration official was discussing the section of the PERAB's tax report that argued we should look at the rising importance of pass through entities that do not pay corporate income tax.

This issue was raised repeatedly by outside experts that testified before the PERAB and Koch was cited to the PERAB as an example by outside commenters to the group. We assume it came up from publicly available information such as the Forbes magazine annual report listing Koch as one of the largest private companies in the nation or the fact that a high fraction of the largest companies within Koch Industries are listed on the Koch website as LLCs, LPs or other frequent pass-through entities. If this information is incorrect, we are happy to revise statements.

Koch Industries' web site identifies numerous Koch companies as L.L.C. or L.P. businesses. As Media Matters has documented, a Koch Industries “fact sheet” available on the company's website identifies numerous “Koch companies” that are L.L.C.'s or L.P.'s:


This is not the first time Fox has pushed a bogus McCormack story. Fox News previously jumped on McCormack's completely baseless accusation that President Obama was buying Rep. Jim Matheson's (D-UT) vote on health care reform by appointing his brother, Scott Matheson, to the 10th Circuit Court of Appeals. McCormack provided no evidence to support the allegation -- which Rep. Matheson, the White House, and a spokesman for Republican Sen. Robert Bennett (UT) called “absurd.” Former Judge Michael McConnell -- an appointee of former President Bush who last occupied the seat to which Scott Matheson has been named -- later definitively debunked the smear. Matheson subsequently voted against the health care legislation.