Colorado gov’t watchdog scrap gains traction as IRS targets nonprofit finances

On the record, Jessica Peck isn’t thinking much about a potential Internal Revenue Service investigation into her Denver-based watchdog Open Government Institute.

She has characterized the complaint (pdf) filed last month by left-leaning Colorado Ethics Watch as politically motivated and based on misinterpreted facts. She told the Independent she doesn’t think the IRS will take the request seriously and that she hasn’t been following news about similar flaps involving nonprofits like hers and the IRS.

“First of all, it’s not a complaint,” she said last week about the Ethics Watch letter to the IRS. “It’s a request for investigation, and most of those are denied without comment. We believe we’re in full compliance [with the tax code] and we’re moving forward.”

Peck said at the time that she hadn’t heard anything about the IRS denying an application for nonprofit status submitted by a group called Emerge America.

That group runs a candidate training program for Democratic women and is headed by Karen Middleton, a former Aurora, Colorado, state representative. The IRS denied the group’s application to be classed as a 501(c)(4) nonprofit, the prized category in which an organization “operating primarily to promote social welfare” pays no taxes and can raise millions from individuals and corporations without reporting the identity of the donors.

Peck’s Open Government Institute, housed in the so-called “Freedom Embassy” on 16th Avenue in Denver where some of the state’s most-prominent conservative and free-market organizations now live, has applied for the similar (c)(3) status.

The Emerge America story made national headlines for reflecting IRS reviews of nonprofit applications submitted by Tea Party groups last year. The IRS asked those groups for donor lists as part of the review process. The Emerge America story spurred Utah Sen. Orrin Hatch and 10 other Republican Senators to write a letter to IRS Commissioner Douglas Shulman, saying the agency was upending basic privacy protections and subjecting donors to possible harassment.

In an era where politics-finance loopholes seem to multiply every day, the IRS is sending tremors through the campaign-finance landscape. Where Capitol Hill is gridlocked on the matter and the U.S. Supreme Court has ruled against financial disclosure, the IRS now seems intent at least to enforce related tax laws and deny nonprofit status to partisan groups, which may or may not be dedicated to social welfare.

The complaint against the Open Government Institute stems from an appearance Peck made in April at the Colorado Republican Business Coalition alongside Republican U.S. Rep. Mike Coffman, who is presently up for re-election in the state’s newly drawn competitive Sixth Congressional District.

Video of Peck’s presentation shows her speaking as a “partisan Republican” about “some things” her organization was working on that “may, in a very nonpartisan way, benefit [Coffman] in [his] endeavors in November.” Peck asked attendees at the gathering for donations to OGI to help complete the work she was referring to in a timely fashion.

In his letter to the IRS, Colorado Ethics Watch Executive Director Luis Toro wrote that the work Peck was referring to likely included pushing the Colorado legislature to launch an investigation of Coffman’s election opponent, Democratic state Rep. Joe Miklosi. Toro pointed to a release posted on the OGI website that includes a letter sent by Peck to Republican House Speaker Frank McNulty suggesting that Miklosi violated the residency requirements of his present statehouse office by moving out of the state district he represents to Aurora in the Sixth Congressional District.

Toro told the Independent he thought that dismissing the Ethics Watch complaint as biased or unserious was a mistake. As he did in his letter to the IRS, he quoted tax law to say that any breach in the key provision– where an applicant organization participates or intervenes in any political campaign on behalf of a candidate, directly or indirectly– would disqualify the group from winning (c)(3) status.

Toro also pointed to the IRS’s Political Compliance Initiative to suggest the agency seeks to move on politics-related nonprofit application questions sooner rather than later in an election year.

“[Peck] has been all over the map since we filed this complaint,” he told the Independent. “She has said she’s flattered to draw our attention. She has called us biased and attacked our motives– anything except to say ‘You’re wrong Ethics Watch and this is why.’

“It has been [weeks] since we filed the complaint and we have yet to see any real defense of the action… No lawyer has been brought forward to say that what she was doing was OK.”

Peck is a high-profile attorney and up-and-coming political figure in the state. In addition to heading the Open Government Institute, Peck is a principal at the Henley lobbying group and serves on the U.S. Civil Rights Commission’s Colorado Advisory Committee. She ran for the state Senate as a Republican in 2004 and was a finalist for the state bar association’s Young Lawyer of the Year Award in 2011.

Some of Peck’s critics told the Independent that her comments should be viewed in that context. They said that Peck clearly understands the advantage to be gained in playing down any controversy tied to her remarks, which came at a critical time for her fledgling watchdog organization.

OGI filed its nonprofit-status application with the IRS in December of last year. If that application is denied, the group would be forced to reveal the identities of all of the donors it has attracted so far as well as any future donors.

Colorado Ethics Watch Letter to IRS

[ Image of IRS offices in D.C. by Afagen via Flickr ]