Bruce charity's tax returns show years of omissions

Douglas Bruce, a candidate for the Colorado Springs City Council, has spent more than 20 years in Colorado politics as an activist, a candidate and an office holder. He even founded a nonprofit charity in 2001 that has spent hundreds of thousands of dollars on various campaigns.

But in at least three years that Bruce operated the charity, called Active Citizens Together, he did not report the group’s political involvement and expenditures to the Internal Revenue Service, as charities are required to do. From 2005 to 2008, ACT spent money on at least eight political campaigns.

The Gazette reported in October that Bruce failed to report ACT’s 2008 political expenditures to the IRS, checking a box on a tax form saying ACT didn’t lobby that year,  while ACT in 2008 fiercely campaigned against a pair of statewide ballot questions.

Now, as Bruce is trying to win public office for the third time, he faces questions about a pattern of discrepancies between IRS documents he filed on behalf of ACT over a four-year period.

“We’ve seen this throughout his history on political issues, within the city and in the whole state, on some state issues,” said Colorado Springs Councilwoman Jan Martin, who, like Bruce, is running for an at-large City Council seat in the April 5 election. “It’s a pattern of his, and until somebody really calls him on it, I expect it will continue.”

(Gazette coverage of Active Citizens Together, here.)

ACT’s tax documents deserve closer attention, said Jenny Rose Flanagan, executive director of Common Cause, a Denver-based political watchdog group.

“The law is very clear, in terms of people’s responsibility in disclosing their involvements in campaigns, and where there’s a violation, there needs to be further investigation,” Flanagan said. “That’s something for voters in El Paso County to take into consideration.”

Bruce said ACT’s tax records are irrelevant because ACT has been shut down. He filed articles of dissolution with the Secretary of State’s office in December. The IRS still lists ACT as a registered 501(c)3 on its Web site.

“It is a nonstory about a nonentity,” said Bruce, before hanging up the phone when questioned recently about the IRS forms. He did not answer questions about why he did not report to the IRS that ACT spent money on political campaigns.

An IRS spokeswoman declined to comment on ACT’s tax filings.

Tax-exempt organizations such as ACT are required to file 990 tax forms with the IRS.

The forms report the organization’s income and expenses to the federal government.

A box on 990 forms from 2005 to 2007 reads, “During the year, has the organization attempted to influence public opinion on a legislative matter or referendum? If ‘yes,’ enter the total expenses paid or incurred in connection with the lobbying activities.”

Bruce checked the “no” box, and wrote on the form that ACT had no political expenses.

On the 2008 form, the language changed, and the question read, “Did the organization engage in lobbying activities?” Bruce checked the “no” box and again wrote that ACT had no political expenses.

The IRS defines lobbying as attempting to influence the public on ballot measures.

As ACT’s registered agent, Bruce filled out 990s each year and signed them. Above the signature line, the form reads, “Under penalties of perjury, I declare that I have examined this return...and to the best of my knowledge...it is true, complete and correct.”

Bruce founded ACT 10 years ago, and began campaigning as early as 2005, mailing fliers to voters. ACT also spent money on political campaigns in 2006, 2008, 2009 and 2010. Tax forms were available from the IRS only from 2005 to 2008. The Gazette requested all other ACT 990 forms;  an IRS spokeswoman said they were not available.

Many of the mailers included statistics, charts and graphs in support of or opposing various ballot measures, while some were standard pieces with simple campaign slogans. Some urged voters to support or oppose issues, and some simply urged them to vote, though it was clear where the charity stood on each issue.

Since 2005, ACT has advocated for and against at least 12 separate ballot issues. Its mailers were caustic on measures ACT opposed and were decidedly upbeat on measures it supported. Two obvious common threads ran through the campaigns — the group always wanted to cut taxes and limit the powers of government.

In 2005, ACT targeted Referenda C and D, two measures aimed at giving state government a financial boost.

In arguments against the measures, ACT condemned them both, and wrote, “Higher taxes cost jobs, hurt families and seniors...As gasoline and utility prices soar, the state wastes millions on corporate welfare, big raises to Ward Churchill-types, and illegal aliens.”

Referendum C passed by a narrow margin, and allowed the state to keep billions of dollars that otherwise would have been refunded to taxpayers. Referendum D would have allowed the state to borrow money to pay for maintenance of the state’s transportation infrastructure, but it failed.

In 2006, while supporting a statewide ballot measure that would have tightened term limits on state judges and justices, ACT sent a mailer that said the Colorado Supreme Court had “arrogantly denied our right to vote on illegal immigration.” The flier also said there have been “outrageous court rulings (that) have allowed 12-year-olds to marry, trampled property rights, trapped poor children in failing schools, and violated our freedom of religion.”

“Please vote on these common-sense reforms to protect the rule of law,” the flier read. “Politicians, lawyers and lobbyists hope you won’t!”

Both ballot issues failed.

Last year, ACT was the subject of a campaign finance complaint that alleged the group had broken state law during the 2010 election cycle by not filing required reports with the Secretary of State’s office. During a legal hearing in the case, it emerged that ACT had spent between $210,000 and $250,000 campaigning for a trio of tax- and fee-cutting ballot measures, Amendments 60 and 61 and Proposition 101.

Literature paid for by ACT and mailed to Coloradans sported political cartoons, was full of statistics and included  graphs showing a rising trend of government spending. The flier read, “Trim car, income, phone taxes. YES on 101. Reform property taxes. YES on 60. Limit debt. Do it for the kids! Yes on 61.”

“TAX RELIEF NOW. VOTE YES ON 60-61-101.”

While he didn’t specify political expenses from 2005 through 2008, Bruce did disclose on the 990 forms the total amount of money ACT spent each year. Of several expense categories offered on the 990 form, Bruce listed expenses only for two: just over $380,000 for “printing, publications, postage and shipping” and roughly $21,000 for “professional fees and other payments to independent contractors.”

Bruce has said that one of ACT’s primary missions was educational, specifically printing and giving away pocket-size copies of the U.S. Constitution.

If Bruce had said on its 990 forms that ACT had been lobbying, the group would have had to file an itemized list of expenditures. But on IRS tax records, Bruce wrote that the group was dedicated only to the “education of (the) public on civil rights.”

Congress outlawed political lobbying by tax-exempt groups in 1976, and the courts have repeatedly upheld the ban, said Peter Nagel, a Denver tax attorney.

He cited a case in which an anti-abortion group sued the government and argued that the law violated its right to free speech.

“The court basically said, ‘You do have a free speech right to do that to your heart’s content, but if you want to be tax exempt, to get all these tax breaks, you have to give all that up,’” Nagel said. “Essentially, they’re saying, ‘You have to make a choice. If you want to voice your opinion on politics, you can do that, but you can’t do that through an organization that is tax-favored.’”

Bruce told The Gazette last year that ACT was going to be disbanded because it was penniless, and an $11,300 fine handed down by the state in December in the campaign finance violation has not yet been paid.

It’s unlikely the IRS will sanction ACT or Bruce. Nagel estimated that less than 1 percent of tax-exempt organizations are audited by the IRS.

“And maybe half of those are really, really large charities, like universities and hospitals, where the IRS thinks it’s going to get more bang for the buck. So the likelihood of an organization of (ACT’s) size being audited at random is unfortunately extremely low,” Nagel said.

Pursuing unpaid taxes is an onerous process, Nagel said. The IRS conducts an audit, and examines the group’s financial records. Then, if IRS officials decide the group has been doing too much politicking and should have paid taxes on a certain amount of expenditures, the IRS revokes that group’s tax-exempt status for violating federal rules.

If the IRS wants to obtain the back taxes, that’s yet another process. And if the group is broke — as Bruce says ACT was — then the IRS would have to consider whether it wants to go after any of the organization’s members, said Nagel.

“The likelihood of the IRS, on its own initiative just deciding that, ‘We ought to go in and audit organization A,’ is really unfortunately quite small,” said Nagel.

But, he said, “The IRS does read the paper and does get calls from concerned citizens, and sometimes — one never knows why or how — those things inspire it to take more initiative and look into a particular organization’s tax return.”

ACT filed its articles of dissolution on Dec. 29, one day after the $11,300 fine was levied by an administrative law judge.

If the government demands that back taxes be paid, then the U.S. Attorney’s office may be recruited to enforce the law. But Nagel added that the IRS rarely displays such vigor when it comes to chasing 501(c)3’s.

ACTIVE CITIZENS TOGETHER CAMPAIGNS AND EXPENDITURES

ACT spent at least $611,666 from 2005 through 2010, according to IRS tax records and an administrative court ruling last year. That does not include spending in 2009, and likely does not include all spending in 2010.

 2005: ACT spent $5,542 on printing, publications, postage, shipping, and payments to independent contractors.

ACT campaigned against Referenda C and D. Referendum C allowed the state to keep excess tax income that would have otherwise been returned to Coloradans. Referendum D would have allowed the state to borrow money to pay for transportation projects. Referendum C passed, Referendum D failed.

2006: ACT spent $132,136 on printing, publications, postage and shipping.

ACT campaigned for two statewide issues, Amendments 38 and 40, and two local ballot measures, issue 200 and 201. Amendment 38 would have made it easier to get initiatives onto the state ballot. Amendment 40 would have tightened term limits for state judges. Issue 200 would have slashed city taxes and Issue 201 would have limited the city’s ability to borrow money. All four ballot questions failed.

2007: ACT spent $63,213 on printing, publications, postage and shipping.

Unclear if ACT campaigned on any ballot measures that year.

2008: ACT spent $200,775 on printing, publications, postage, shipping, and payments to independent contractors.

ACT campaigned against Referendum O and Amendment 59. Referendum O would have made it more difficult to get constitutional amendments on the state ballot. Amendment 59 would have repealed a constitutional requirement that education funding increase every year. Both failed.

2009: Since tax forms from the IRS are unavailable for 2009, it’s not clear how much ACT spent. ACT paid for fliers telling voters to support local Measure 300, which eliminated the city’s stormwater enterprise. The measure passed.

2010: ACT spent at least $210,000 on circulating petitions, printing, publications, postage and shipping.

ACT campaigned for Amendments 60 and 61 and Proposition 101. All three would have repealed various taxes and limited government spending. All three failed.

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