Explainer: American Bridge 21st Century’s Cost Sharing Agreement

American Bridge 21st Century Foundation (AB Foundation), a 501(c)(4) nonprofit, has paid American Bridge 21st Century Super PAC (AB Super PAC) $11,116,209 since March 2011, according to Federal Election Commission reports filed by AB Super PAC.

However, not one penny of AB Foundation’s payments to AB Super PAC was recorded as political contributions. Rather, they were all classified as expense reimbursements under a cost-sharing agreement between AB Super PAC and AB Foundation.

AB Foundation says the payments cover “shared expenses” like shared employee expenses under a common paymaster arrangement and occupancy expenses. However, the math shows that over 90 percent AB Foundation’s payments to AB Super PAC are to cover shared employee expenses.

A combination of factors leads us to believe that AB Foundation appears to be overpaying AB Super PAC its share of shared employee cost. Any amount overpaid by AB Foundation would be considered an unreported contribution, a violation of the reporting requirements of 52 U.S. Code § 30104(b)(2) and (3), and 11 C.F.R. § 104.7 and 104.8.

AB Super PAC, which reports to the Federal Election Commission, is required to disclose the identity of its donors. AB Foundation, which reports to the IRS, is not required to disclose the identity of its donors. We believe AB Foundation is taking advantage of this loophole to hide the identity of AB Super PAC donors by overpaying what it owes to AB Super PAC.

This report will provide the following:

  1. AB Foundation’s cost-sharing agreement with AB Super PAC.
    • What it told the press.
    • What it told the IRS.
  2. AB Super PAC as the common paymaster for AB Foundation.
    • How AB Super PAC has zero dedicated employees, yet disburses over $7 million in employee compensation.
  3. Adding up AB Foundation’s shared expenditures using its statements to the press and to the IRS.
    • Proof that over 90 percent of AB Foundation’s shared expenditures are for shared employee expenditures.
  4. The importance of AB Foundation’s employee timesheets.
  5. Our estimation of the amount of time AB Super PAC employees spent working on AB Foundation activities from 2011 through 2015.
    • March 2011 – June 30, 2011: 7.41%
    • July 2011 – June 2012: 16.10%
    • July 2012 – June 2013: 31.91%
    • July 2013 – June 2014: 25.04%
    • July 2014 – December 2014: 45.55%
    • January 2015 – December 2015: 38.77%
  6. Evidence that AB Foundation overpaid what it owes to AB Super PAC from 2011 through 2015
    • AB Foundation reporting $1,138,060 in “direct” political expenditures from July 2014 through Dec. 2015.
      • The description of AB Foundation’s “direct” political expenditures — “research and tracking of political candidates” — is AB Super PAC’s mission.
    • AB Super PAC’s failure to report its indebtedness of $610,800 to AB Foundation at the end of Dec. 2015.
      • The FEC considers unpaid loans to be contributions — so AB Super PAC failed to report a $610,800 contribution from AB Super PAC.
    • Beginning in July 2013, many AB Foundation payments to AB Super PAC begin taking the form of donations rather than legitimate expense reimbursements for shared employees.
    • Many AB Foundation payments to AB Super PAC are exact matches to the donations it received in its July 2013 – June 2014 and Jan. 2015 – Dec. 2015 tax years.
  7. Evidence that AB Foundation overpaid what it owes to AB Super PAC in 2016 and Jan. 2017 – June 2017.
    • AB Foundation’s payments contain the same description they did from 2011 through 2015 — “Overhead & Staff Expenses.”
    • All AB Foundation payments take the form of donations rather than legitimate expense reimbursements for shared employees.
    • Reason to believe AB Foundation continues to employ zero employees, defaulting to using AB Super PAC as the common paymaster.
      • The precedent set by AB Foundation’s Real Koch Facts project.
    • Estimation of the amount of time AB Super PAC employees spent working on AB Foundation activities in 2016 and Jan. 2017 – June 2017.
      • January 2016 – December 2016: 12.53%
      • January 2017 – June 2016: 92.45%
    • AB Super PAC publishing its “Trump Accountability” reports on AB Foundation’s website
      • Why the logo displayed on the “Trump Accountability” reports matters
    • David Brock’s statement to prospective donors in January 2017 that AB Foundation “owns” AB Super PAC.
      • “American Bridge’s 501(c)(4) and its Super PAC.”
    • AB Foundation began reimbursing expenses in 2017 only after its high-profile $40 million fundraising event in late January 2017.
  8. What the Federal Election Commission should do about all of this.

AB Foundation’s Cost-Sharing Agreement With AB Super PAC

AB Foundation has been asked on multiple occasions about its cost-sharing agreement with AB Super PAC. AB Foundation has told reporters its payments to AB Super PAC cover administrative costs, shared staff, office space, computer equipment, and news subscriptions. AB Foundation told Roll Call its payments to AB Super PAC “were not an attempt to move program money around.”

From the LA Times, Feb. 3, 2012:

American Bridge 21st Century, which concentrates on opposition research to help Democratic campaigns, received nearly $246,000 from its sister group, American Bridge 21st Century Foundation, for “overhead and staff expenses,” according to the finance reports.

Officials with the organizations said the transfers were simply reimbursements from the nonprofits to super PACs to cover administrative costs. They noted that in reporting the transfers they were providing transparency about the groups’ spending. Representatives of both groups declined to comment on the record.

  • Takeaway: AB Foundation’s transfers to AB Super PAC “simply reimbursements” to “cover administrative costs”. Representatives for AB Foundation declined to comment on the record.

From Roll Call, Feb. 10, 2012:

American Bridge 21st Century Foundation, which is not required to disclose its donors, raised an additional $2.7 million [in 2011]. The foundation then transferred nearly $223,000 of that untraceable money to [AB Super PAC], a controversial move that has raised concerns among campaign finance reform advocates. [Chris Harris, communications director of AB Super PAC] said the payment was a reimbursement for shared staff, office space and equipment such as computers and printers, not an attempt to move program money around.

  • Takeaway: AB Foundation’s payments to AB Super PAC were for shared staff, office space and computer equipment. “Not an attempt to move program money around.”

From Sunlight Foundation, Dec. 3, 2015:

American Bridge 21st Century Foundation is another 501(c)(4) organization, also known as a dark money group. It runs Bridge Project, which says it’s “dedicated to opposing the conservative movement’s extreme ideology and exposing its dishonest tactics.” The site has a database, “Conservative Transparency,” that allows users to search for conservative donors, recipients and organizations. Featured donors include the Koch brothers and The Lynde and Harry Bradley Foundation.

The hilarious part (if you find dodging transparency hilarious) is that the group has an entire database for uncovering the money behind conservative causes, documenting spending from their 990s, and blogging about conservative donors, but it does not disclose its own donors on that website, or anywhere else. We reached out to American Bridge for comment on this, and will update this post if we receive anything from them.

On that note: The foundation arm of American Bridge 21st Century has donated a lot of money to the Bridge super PAC, which does have to disclose its donors. In the first six months of 2015, the foundation gave $1.2 million to the super PAC. In 2014, they donated $2.5 million. That’s $3.7 million dollars funneled from the foundation to the super PAC in just the last two years — with donors safe in the knowledge that their names won’t be disclosed to the public.

  •  Takeaways:
    • AB Foundation never responded to Sunlight Foundation’s inquiry whether it intends to disclose the identity of its donors
    • AB Foundation “donates” a significant amount of money to AB Super PAC, “with donors safe in the knowledge that their names won’t be disclosed to the public.

From The Wall Street Journal, Feb. 3, 2016:

Super PACs backing Democrat Hillary Clinton raised no money from LLCs, but one pro-Clinton super PAC, American Bridge 21st Century, raised $1.5 million from its related nonprofit, which isn’t required to disclose its donors. A spokesman for the group said that money was used to pay for shared expenses like rent, news subscriptions and staff.

  • Takeaway: AB Foundation spokesman said payments to AB Super PAC “used to pay for shared expenses like rent, news subscriptions and staff.”

From Sunlight Foundation, Feb 10, 2016:

In the second half of 2015, American Bridge 21st Century also continued to take a lot of its funding ($1.6 million, or 40 percent) from the American Bridge 21st Century Foundation, a connected 501(c)(4) nonprofit which doesn’t have to disclose its donors. The super PAC told The Wall Street Journal that this covers “shared expenses” like staff and news subscriptions, and it’s not clear if it’s the same staff working on both 501(c)(4) activities and super PAC activities. We reached out to American Bridge to clarify this, but our email was not returned.

  • Takeaway: AB Foundation ignored Sunlight Foundation’s email asking if the same staff works on both AB Foundation and AB Super PAC activities.
    • This is very significant. Why did AB Foundation ignore Sunlight Foundation’s email? This report will show that the same staff does indeed work on both AB Foundation and AB Super PAC activities.

 

An attempt to move program money around?

AB Foundation told Roll Call its payments to AB Super PAC “were not an attempt to move program money around” — can we take their word for it?

The New York Times published a report in February 2015 about American Bridge’s professional fundraiser, Mary Pat Bonner, that provides some reason to doubt that claim.

From The New York Times, Feb. 5, 2015:

Early in the cycle, American Bridge wanted a larger portion of shared fund-raising so it could begin tracking and researching Republican candidates. The other groups thought that Ms. Bonner was seeking to establish her client (American Bridge) as a central financial clearinghouse for other Democratic groups.

Several recalled attending a meeting at American Bridge where they glimpsed a half-erased whiteboard diagram, showing money flowing into American Bridge and then back out to their super PACs.

Prospective donors thinking Bonner was seeking to establish American Bridge as a “central financial clearinghouse” and a whiteboard diagram showing money “flowing into American Bridge and then back out to their super PACs” sounds more like an attempt to move program money around rather than expense reimbursements.


What did AB Foundation tell The IRS?

Seeking 501(c)(4) status, AB Foundation filed its Form 1024 Application for Recognition of Exemption to the IRS on May 21, 2013. On page 6, AB Foundation described its cost-sharing agreement with AB Super PAC:

The Foundation shares some resources, facilities, and employees with American Bridge 21st Century, a section 527 organization registered with, and reporting to, the Federal Election Commission. The two entities have entered into a cost-sharing agreement to allocate shared costs so that neither entity is financially supporting the activities of the other. The two organizations share one overlapping director, David Brock, and they have overlapping officers.

AB Foundation also told the IRS it utilized employee timesheets to track expenses on page 37 of its Form 2014:

The organization tracks its expenses, including through the use of timesheets for its employees, to ensure that political activities do not become a majority of its activities in the course of a fiscal year, and to ensure that all required taxes will be paid under Internal Revenue Code section 527(f).

AB Foundation telling the IRS it utilizes employee timesheets to track employee expenditures is very important. Much more on that later.

Side note: OpenSecrets.org obtained and published AB Foundation’s Form 1024 in an article published July 21, 2014. In it, OpenSecrets.org reporter Robert Maguire wrote in detail about how difficult it was for him to obtain AB Foundation’s Form 1024.

AB Foundation refused to provide Maguire an electronic copy of its Form 1024. Instead, AB Foundation charged him $428.60 for a paper copy.

We asked some of the nation’s top nonprofit lawyers whether there’s any legitimate reason for a well-funded nonprofit like American Bridge to have a “policy” of printing a document from an electronic file, then mailing it to a requester — other than to make it as difficult as possible for that requester to obtain and process the document. The consensus was that American Bridge probably knew it was going to be hard for us to scan thousands of double-sided pages.

Maguire added that AB Foundation was the only organization he’s dealt with that has charged so much money for its Form 1024.

American Bridge is not the only organization with a hard-copy policy, nor is it the only one that charges for paper copies of documents we’d prefer to receive in PDF form. It’s just the only one to charge us this much money for this much paper with this much drama.

Furthermore, Maguire wrote that the IRS didn’t ask AB Foundation any questions in the 9 months it took to approve AB Foundation’s nonprofit status.

(SPOILER ALERT: Though the IRS took nine months to approve American Bridge’s status, it didn’t actually ask the group any questions.)

This raises some very important questions. Why did AB Foundation make it as difficult as possible for Maguire to obtain its Form 1024. Is there something in that document AB Foundation doesn’t want to see the light of day?

Also, the IRS granted AB Foundation 501(c)(4) status without asking a single question about its relationship with AB Super PAC. When the IRS approved AB Foundation’s 501(c)(4) status on Feb 28, 2014, it had already paid AB Super PAC $2,287,543.29 under its cost-sharing agreement.

AB Foundation’s approval came shortly after the IRS admitted that it targeted conservative nonprofit political advocacy groups seeking 501(c)(4) status with the terms “tea party” or “patriot” in their names.

Why didn’t the IRS have any questions for AB Foundation relating the over $2 million it had paid to AB Super PAC?

  • Takeaways:
    • AB Foundation charged a reporter an unprecedented $428.60 for a paper copy of its Form 1024.
    • AB Foundation put the reporter through a considerable amount of drama, for the assumed motive of making it as “difficult as possible for that requester to obtain and process the document.
    • AB Foundation told the IRS in its Form 1024 the existence of employee timesheets and its cost-sharing relationship with AB Super PAC.
    • The IRS approved AB Foundation’s 501(c)(4) status without asking any questions about its cost-sharing relationship with AB Super PAC, at the same time conservative groups seeking 501(c)(4) status were met with heavy scrutiny.

AB Foundation left out one very important detail

AB Foundation disclosed to the press and to the IRS the fact that it shares employees with AB Super PAC, but it didn’t say how. AB Foundation shares employees with AB Super PAC via a common paymaster arrangement. This is only disclosed on AB Foundation’s 2011 and 2012 Form 990s — nowhere else.

From AB Foundation’s 2012 Form 990 Schedule O

A common paymaster arrangement between two or more related organizations allows one of the related corporations to designate the other as the common paymaster.  One paycheck can then be issued as compensation for work performed on behalf of both employers, and only one set of payroll taxes is due.  Only a single IRS Form W-2 is issued to each worker, but each employer is responsible for reporting the wages that it actually funded on its own tax return.  As a result, double employment tax payments are avoided.

Corporations are considered by federal law to be related if 30 percent or more of one corporation’s employees are concurrently employees of the other corporation.  We believe that AB Foundation and AB Super PAC justify their common paymaster arrangement as related organizations based upon that 30-percent provision, since they appear to deny being related based on common control or other relevant tests.+

In this case, AB Super PAC acts as the common paymaster.

Summary

From March 2011 through June 2017, AB Foundation has paid AB Super PAC $11,116,209, none of which was considered a political contribution. Rather, AB Foundation’s payments to AB Super PAC were supposedly expense reimbursements under a cost-sharing relationship. AB Foundation told the press and the IRS its payments cover shared office space, administrative costs, computer equipment, news subscriptions and most importantly shared employees via a common paymaster arrangement.


The Common Paymaster arrangement

AB Foundation told the IRS in its form 1024 it shares “some resources, facilities and employees” with AB Super PAC. AB Foundation doesn’t share some employees — it shares all its employees with AB Super PAC.

AB Foundation has reported zero individuals employed in each of its Form 990s filed to the IRS from 2011 through 2015, the latest available return. This, despite disbursing $6,872,105 in employee compensation during the same timeframe.

 

How can AB Foundation pay almost $7 million to individuals it doesn’t employ?

This is where AB Super PAC as the common paymaster comes into play. AB Super PAC manages payroll for all American Bridge employees. AB Super PAC pays its employees 100% of the wages due with one consolidated paycheck.

AB Foundation then “offsets” the Super PAC’s expenditures for the time their employees spent on Foundation activities, in addition to any applicable payroll taxes.

For example:

  1. John Doe works for American Bridge, earning $1,000 per pay period.
  2. John Doe spends 70% of his time during a pay period working for AB Super PAC, and the remaining 30% of his time working at AB Foundation.
  3. For that pay period, John Doe receives one consolidated paycheck from AB Super PAC for $1,000.
  4. AB Foundation reimburses AB Super PAC with a $300 offset for the time John Doe spent working at AB Foundation.

This arrangement is legal only if the expense reimbursements are honest. Using the example above, if AB Foundation had overpaid AB Super PAC with a $600 offset for John Doe’s time, the extra $300 should be considered a contribution, not an expense reimbursement.

 

How do we know AB Foundation is using AB Super PAC’s employees?

We know this for two reasons:

  1. AB Foundation paid $6,872,105 in employee compensation from 2011 through 2015, despite employing zero individuals during the same timeframe. The only method available to AB Foundation for it to pay employees W-2 wages that it doesn’t employ would be through its common paymaster, AB Super PAC.
  2. AB Foundation paid substantial employer portion payroll taxes on its Form 990s.
    • IRS instructions for Form 990 state that employer portion payroll taxes are to be recorded on Part IX, Line 10.
      • “Enter the amount of federal, state, and local payroll taxes for the year but only those taxes that are imposed on the organization as an employer.”
      • This would be the 6.2 percent Social Security tax and 1.45 percent Medicare tax imposed on employers for any employee compensation disbursed by AB Foundation.
    • AB Foundation reported the following employer portion expenditures from 2011 through 2015:
      • March 2011 – June 2011: $2,276
      • July 2011 – June 2012: $38,286
      • July 2012 – June 2013: $56,395
      • July 2013 – June 2014: $88,783
      • July 2014 – Dec. 2014: $80,199
      • Jan. 2015 – Dec. 2015: $154,330

The only method available to AB Foundation for it to pay employees W-2 wages that it doesn’t employ would be through the common paymaster, AB Super PAC.

It’s important to note that employers do not pay employer portion payroll taxes for contractors issued a Form 1099. Employers are only liable for employer portion payroll taxes for employees issued a W-2.

So, because AB Foundation reported zero employees, filed zero W-2s, yet paid substantial employer portion payroll taxes, AB Foundation’s reported employee compensation expenditures must correspond to compensation payments routed through its common paymaster, AB Super PAC.

This is the only possible explanation. How else would AB Foundation pay employees W-2 wages and pay its employer portion payroll taxes if not through its common paymaster, AB Super PAC?


Adding up AB Foundation’s Expenses

AB Foundation told the press and the IRS its payments to AB Super PAC cover shared office space, administrative costs, computer equipment, news subscriptions and most importantly shared employees via a common paymaster arrangement.

Next, we will show that AB Foundation’s payments to AB Super PAC are almost exclusively for reimbursing shared employees under their common paymaster arrangement.

We have access to AB Foundation’s Form 990s from its founding in March 2011 through December 2o15. Part IX of its Form 990s contains a Statement of Functional Expenses, providing insight into the total expenditures AB Foundation reported for office space, administrative costs, computer equipment, news subscriptions and employee compensation.

The math shows that an estimated 92.52% of the shared expenditures identified by AB Foundation are for employee compensation.

  • Employee Compensation =
    • Form 990 Part IX Line 5: Compensation of current officers, directors, trustees, and key employees +
    • Line 7: Other salaries and wages +
    • Line 9: Other employee benefits +
    • Line 10: Payroll taxes
  • Occupancy / Office Expenses =
    • Line 13: Office Expenses +
    • Line 16: Occupancy
  • IT Expenditures =
    • Line 14: Information Technology
  • Dues / News Subscriptions =
    • Line 24: Other Expenses
  • Other Administrative Expenses =
    • Line 24: Other Expenses
  • Payroll Services =
    • Line 24: Other Expenses

 

From 2011 through 2015, AB Foundation disbursed $7,428,046 in office space, administrative costs, computer equipment, news subscriptions and employee compensation.

Of that, $6,872,105 — 92.52 percent — went towards employee compensation.

 

How Much did AB Foundation actually Pay AB Super PAC from 2011 through 2015?

According to AB Super PAC’s filings to the FEC, it received $7,596,209 from AB Foundation from 2011 through 2015.

Our prediction is on the money.

We predicted that AB Foundation’s shared expenditures were $7,428,046 based on its Form 990s filed from 2011 through 2015 and its statements to the press and to the IRS.

AB Foundation’s actual shared expenditures were $7,596,209.08, according to AB Foundation’s filings to the FEC.

Our prediction accounts for 97.79 percent of AB Foundation’s payments during this time period. There’s not much room for any more AB Foundation shared expenditures to be covered under its cost-sharing agreement with AB Super PAC.

 

What does this mean?

This shows that over 90 percent of AB Foundation’s shared expenditures from 2011 through 2015 were for shared employees employed by the common paymaster, AB Super PAC.

If AB Foundation’s employee compensation payments to AB Super PAC are honest, then there’s no issue with this arrangement.

However, if AB Foundation is overpaying what it truly owes AB Super PAC for employee compensation, then the amount overpaid would be considered a contribution and would need to be reported as such.


The importance of timesheets

So far, we’ve shown that over 90 percent of AB Foundation’s shared expenditures with AB Super PAC from 2011 through 2015 were for shared employees via a common paymaster arrangement.

If AB Foundation’s expense reimbursements are honest, then there’s no issue with this arrangement. However, if AB Foundation is overpaying what it owes to AB Super PAC, the amount it overpaid would be considered a contribution.

Fortunately, there’s a mechanism available for the FEC to verify the honesty of AB Foundation’s payments. Only through a review of the employee timesheets AB Foundation told the IRS they keep can it prove its employee compensation payments are honest.

Remember — AB Foundation told the IRS it utilized employee timesheets for its employees to track expenses on page 37 of its Form 1024 Application for Recognition of Exemption filed May 21, 2013:

The organization tracks its expenses, including through the use of timesheets for its employees, to ensure that political activities do not become a majority of its activities in the course of a fiscal year, and to ensure that all required taxes will be paid under Internal Revenue Code section 527(f).

Furthermore, on page 6 of its Form 1024, AB Foundation told the IRS its cost-sharing agreement is designed to ensure neither it nor AB Super PAC is financially supporting the activities of the other.

The Foundation shares some resources, facilities, and employees with American Bridge 21st Century, a section 527 organization registered with, and reporting to, the Federal Election Commission. The two entities have entered into a cost-sharing agreement to allocate shared costs so that neither entity is financially supporting the activities of the other.

 

Why does it matter that AB Foundation told the IRS it uses timesheets to track its employee expenditures?

Because it’s a confirmation that AB Foundation maintains a record of the remuneration disbursed to AB Super PAC employees for the services performed for AB Foundation.

Federal regulations provide two options for common paymasters to allocate taxes between related organizations:

  1. Remuneration-Based allocation
  2. Group-wide allocation

According to 26 CFR §31.3121(s)-1 Concurrent employment by related corporations with common paymaster:

If the related corporations maintain a record of the remuneration disbursed to the employee for services performed for each corporation, the remuneration-based allocation rules apply.”

Since AB Foundation confirmed to the IRS it maintains a record of employee remuneration through the use of employee timesheets, remuneration-based allocation rules must apply to it.

So, AB Foundation should have records for every shared employee for every pay period worked from March 2011 through Dec. 2015 similar to the example provided by the IRS:

Those records would be based entirely on timesheets filled out daily by AB Super PAC and AB Foundation employees, such as the sample timesheet provided by Bolder Advocacy:

In addition, management would have been smart to require every employee that split time between AB Foundation and AB Super PAC to sign a disclosure of some sort acknowledging that they understood the importance of reporting their time honestly. This is a big deal — if an employee were to fudge their timesheets, it could have serious consequences for AB Foundation and AB Super PAC.

 

Employee timesheets would be used to calculate other shared expenditures

Since AB Foundation told the IRS its cost-sharing agreement with AB Super PAC was designed “so that neither entity is financially supporting the activities of the other,” its employee timesheets would also be used to calculate AB Foundation’s occupancy and office expenses.

While Bolder Advocacy’s example uses a hypothetical 501(c)(3) organization with a cost-sharing agreement with a political 501(c)(4), it’s relevant to AB Foundation, a 501(c)(4), and AB Super PAC because their cost-sharing agreement supposedly ensures “that neither entity is financially supporting the activities of the other.”

Each organization’s share of the office and equipment must be calculated on a reasonable basis and documented. The IRS provides no specific guidance on allocating costs, but possible measures include assigning each organization a percentage of the cost equal to its share of staff time, staff payroll, or office space used. For example, if the 501(c)(3) pays 60 percent of the total salaries of the employees and the 501(c)(4) pays 40 percent, the rent and overhead might also be divided proportionately

This is where the first real red flag becomes apparent in AB Foundation’s cost-sharing agreement with AB Super PAC.

Let’s take another look at AB Foundation’s shared expenditures from 2011 through 2015, but this time with an emphasis on Employee Compensation and Occupancy / Office expenses.

Isn’t it strange that AB Foundation’s employee compensation increased 400.57 percent from its first full tax year July 2011-June 2012 to Jan. 2015-Dec. 2015 ($567,777 to $2,274,352), yet its occupancy expenses only increased 8.808 percent ($85,524 to $93,057) during the same time period?

There are 3 possible explanations for this:

  1. It becomes increasingly more cramped in AB Foundation’s portion of the office as the years go by.
  2. AB Super PAC is financially supporting AB Foundation by footing a larger portion of its occupancy and office expenses each passing year.
    • This would mean AB Foundation wasn’t being truthful to the IRS in claiming its cost-sharing agreement ensured neither entity financially supported the activities of the other.
  3. AB Foundation’s reported employee compensation expenditures are not honest.

Again, the legality of AB Foundation’s cost-sharing relationship with AB Super PAC is entirely dependent on the honesty of its reported shared expenditures. Since over 90 percent of AB Foundation’s shared expenditures are for shared employees, it’s critical that its employees are properly filling out their timesheets.

It’s worth noting that AB Foundation has a history of dodging questions when asked how its employees are managed under its cost-sharing relationship with AB Super PAC.

Reminder — AB Foundation ignored Sunlight Foundation in 2016 when asked to clarify if the same staff works on both AB Foundation and AB Super PAC activities.

In the second half of 2015, American Bridge 21st Century also continued to take a lot of its funding ($1.6 million, or 40 percent) from the American Bridge 21st Century Foundation, a connected 501(c)(4) nonprofit which doesn’t have to disclose its donors. The super PAC told The Wall Street Journal that this covers “shared expenses” like staff and news subscriptions, and it’s not clear if it’s the same staff working on both 501(c)(4) activities and super PAC activities. We reached out to American Bridge to clarify this, but our email was not returned.

Why didn’t AB Foundation tell Sunlight Foundation that the same staff does work on 501(c)(4) and Super PAC activities? Why did AB Foundation put OpenSecrets.org reporter Robert Maguire through the wringer when he requested the one document that confirms the existence of its employee timesheets?


 AB Foundation’s Share Of Total Compensation Payments From AB Super PAC

So far, we’ve established that AB Foundation’s payments to AB Super PAC from 2011 through 2015 were almost exclusively — over 90 percent — to cover compensation expenses under its common paymaster arrangement.

We’ve also established that any amount overpaid by AB Foundation to AB Super PAC would be considered a political contribution.

And we’ve also established that the only way to verify the honesty of AB Foundation’s compensation payments to AB Super PAC are through a review of its employee timesheets — documents that AB Foundation itself said existed when it filed its Form 1024 to the IRS in 2013.

 

Is it possible to estimate what AB Foundation’s share of total compensation payments from AB Super PAC Should be?

Yes, there is a way for us to estimate AB Foundation’s share of total compensation in good faith.

AB Foundation reported zero employees yet paid substantial employer payroll taxes in each of its Form 990s from 2011 through 2015. This means that all W-2 compensation reported by AB Foundation must route through its common paymaster, AB Super PAC.

Since all AB Foundation wages must have been routed through the common paymaster (only option with zero reported employees), the entirety of AB Foundation’s compensation would be contained within AB Super PAC’s reported compensation. It should look something like this:

Estimation methodology

AB Foundation, a 501(c)(4) nonprofit that reports to the IRS, has completely different reporting requirements than AB Super PAC, which reports to the Federal Election Commission.

AB Foundation is required to provide the IRS its total expenditures in its Form 990 statement of functional expenses. Our formula for calculating AB Foundation’s shared employee expenditures routed through the common paymaster:

  • Form 990 Part IX Line 5: Compensation of current officers, directors, trustees, and key employees +
  • Line 7: Other salaries and wages +
  • Line 9: Other employee benefits +
  • Line 10: Payroll taxes

AB Super PAC is required to provide the FEC every disbursement in its reporting. AB Super PAC reported over 22,000 disbursements from 2011 through 2015, each containing a disbursement description and a date. When we add together all of AB Super PAC’s receipts containing disbursement descriptions relating to salary and payroll tax, we can come to a pretty good estimation of AB Super PAC’s total compensation payments.

  • All FEC disbursements that contain “Salary,” “Payroll,” “Payroll Taxes,” “Payroll Fees,” and “Payroll Services” in description used to estimate AB Super PAC’s total compensation expenditures.

The formula used to estimate AB Foundation’s share of AB Super PAC total compensation for 2011 – 2015:

  • (AB Foundation Form 990 Compensation) / (AB Super PAC Total Compensation)
AB Foundation Estimated share of AB Super PAC Total Compensation from 2011 through 2015
  • March 2011 – June 30, 2011: 7.41%
  • July 2011 – June 2012: 16.10%
  • July 2012 – June 2013: 31.91%
  • July 2013 – June 2014: 25.04%
  • July 2014 – December 2014: 45.55%
  • January 2015 – December 2015: 38.77%

In total, AB Foundation reported $6,872,105 in employee compensation compared to AB Super PAC’s $22,016,806.07. Employee timesheets should exist from March 2011 through Dec. 2015 showing AB Super PAC employees as a group spending 31.21% of their time working on AB Foundation activities.

Does this prove AB Foundation overpaid its share of compensation from 2011 through 2015?

This alone does not prove that AB Foundation overpaid, but it does show that it’s possible to estimate what AB Foundation’s share of employee compensation was. Employee timesheets should exist showing that AB Super PAC employees as a group spent 31.21% of their time working on AB Foundation activities from 2011 through 2015.


Evidence that AB Foundation is overpaying its share of expenditures

It’s important to note that 501(c)(4) organizations like AB Foundation can engage in political activities, but only as a secondary activity, according to Bolder Advocacy.

A 501(c)(4) social welfare organization generally pays no taxes on its income, but may not offer its donors a tax deduction. Social welfare organizations may conduct unlimited lobbying and may engage in partisan political campaign work, but only as a secondary activity.

While the IRS has provided no clear guidelines for determining when partisan political work becomes a 501(c)(4)’s primary purpose, the general consensus is that political activity expenditures must not exceed 50 percent of total expenditures.

That said, let’s compare AB Foundation’s total expenditures to the amount it paid AB Super PAC from 2011 through 2015:

In AB Foundation’s first three tax years, its payments to AB Super PAC stayed far under the 50 percent threshold:

  • March 2011 to June 2011: 6.39%
  • July 2011 to June 2012: 32.60%
  • July 2012 to June 2013: 39.39%

However, AB Foundation’s payments to AB Super PAC exceeding the 50 percent threshold the following three tax years:

  • July 2013 to June 2014: 50.35%
  • July 2014 to Dec. 2014: 67.72%
  • Jan. 2015 to Dec. 2015: 58.01%

AB Foundation’s 501(c)(4) status could be at risk, because over 50 percent of its expenditures from July 2013 through Dec. 2015 were payments to AB Super PAC, a political organization.

Of course, there’s an explanation for each tax year from July 2013 through Dec. 2015, but the explanations support our theory that AB Foundation is overpaying what it owes to AB Super PAC.

 

July 2013 to June 2014

AB Foundation’s payments to AB Super PAC ($1,550,416) made up 50.35 percent of its total expenditures ($3,079,292).

However, $93,468 of AB Foundation’s payments can be attributed to a $93,648 debt it settled from the previous tax year.

From AB Foundation 2012 Form 990 Schedule D Part X

AB Foundation paid the amount owed to AB Super PAC on July 19, 2013. When this is taken into consideration, AB Foundation’s total payments to AB Super PAC from July 2013 to June 2014 become less than 50 percent of its total expenditures.

July 2014 to Dec. 2014

AB Foundation’s payments to AB Super PAC in this short year far exceeded the 50 percent threshold — clocking in at 67.72% of its total expenditures.

AB Foundation admitted it engaged in some political activity during this tax year. It stated in Schedule C of its 2014 Form 990 that it expensed $800,194 in political expenditures for the following purpose: “The organization engaged in research and tracking of candidates for public office.”

AB Foundation may try to use its $800,194 in reported political expenditures to wiggle their way out of its payments to AB Super PAC, but to do so would be to admit its overpaying its share of employee compensation expenditures.

This is incredibly damning — AB Foundation said it “directly expended” $800,194 for political activities. That’s not true — AB Super PAC directly expended those funds for the purpose of engaging in research and tracking of political candidates, AB Foundation merely reimbursed them for those expenditures.

 

Jan. 2015 to Dec. 2015

AB Foundation’s payments to AB Super PAC constituted 58.01% of its total expenditures from Jan. 2015 to Dec. 2015.

Just like in the previous tax year, AB Foundation reported $412,866 in political expenditures, $337,866 of which it directly expended and $75,000 as a contribution to IVote, Inc.

From AB Foundation 2015 Form 990 Schedule C

Again, it is not true that AB Foundation “directly expended” $337,886 for research and tracking of candidates for public office. AB Super PAC made those expenditures, AB Foundation merely reimbursed them for those expenditures.

 

Why does it matter that AB Foundation said it made political expenditures?

Because the description of the amounts it “directly expended” for political activities — “The organization engaged in research and tracking of candidates for public office” — is AB Super PAC’s mission statement:

Our organization researches candidates’ records to ensure their rhetoric matches their voting records. We monitor public appearances to prevent the cynical pandering that results in a candidate taking different positions depending on the audience they are in front of.  And we work to get this information to you through mainstream and social media, grassroots activism and our website.

AB Foundation’s mission statement has nothing to do with researching and tracking political candidates:

This appears to be a direct admission that AB Foundation overpaid its share of expenses by financially supporting the activities of AB Super PAC — by the tune of $1,138,060 from July 2014 through Dec. 2014.

 

Does this mean AB Foundation overpaid its share of expenses by $1,138,060?

It certainly appears so, yes.

AB Foundation falsely stated that it “directly expended” $1,138,060 for “research and tracking of candidates for public office” from July 2014 through Dec. 2014.

But AB Foundation did not make those expenditures directly — AB Super PAC did.

The $1,138,060 reported by AB Foundation in “direct” political expenditures should have been recorded as a contribution to AB Super PAC, because AB Super PAC employees engage in research and tracking of political candidates.

AB Super PAC is nowhere to be found on AB Foundation’s Form 990 Schedule C Part 1-C line 5, which calls for the following:

“names, addresses and employer identification number of all section 527 political organizations to which the filing organization made payments… Also enter the amount of political contributions received that were promptly and directly delivered to a separate political organization such as a political action committee (PAC).”

From AB Foundation 2014 Form 990 Schedule C

From AB Foundation 2015 Form 990 Schedule C

Summary

It appears AB Foundation overpaid AB Super PAC under its cost-sharing agreement by at least $1,138,060 from July 2014 through Dec. 2015. Since over 90 percent of AB Foundation’s payments to AB Super PAC are to cover shared employee expenditures, this means that AB Foundation falsely attributed a large portion of employee time to its own activities, when in reality it was AB Super PAC activities.


Other issues in AB Foundation’s 2015 Form 990

We’ve established that AB Foundation overpaid AB Super PAC $337,866 in 2015. AB Foundation said it “directly expended” $337,866 for “research and tracking of candidates for public office.” But that’s not true– AB Super PAC conducted those activities and was “reimbursed” by AB Foundation under their cost-sharing agreement.

This isn’t the only issue with AB Foundation’s 2015 reporting.

 

AB Super PAC’s failure to report its indebtedness to AB Foundation

AB Super PAC owed $610,800 at the end of December 2015 to AB Foundation, according to AB Foundation’s 2015 Form 990. This indicates that AB Foundation made some sort of loan to AB Super PAC to the amount of $610,800.

From AB Foundation 2015 Form 990 Schedule D

One would expect AB Super PAC to report the $610,800 it owed to AB Foundation at the end of December 2015 in its reporting to the FEC, but it didn’t.

In fact, AB Super PAC only reported its $1,645 indebtedness to MailPOW! at the end of December 2015, and reported nothing owed to AB Foundation.

From AB Super PAC FEC Form 3X Covering July 2015 through Dec. 2015

Why does this matter?

This shows quite clearly that AB Super PAC failed to report its indebtedness to AB Foundation in the amount of $610,800. Furthermore, none of AB Super PAC’s FEC reports filed after December 2015 recognize that the $610,800 debt to AB Foundation either existed or was settled liquidated.

But this goes further than AB Super PAC failing to report a loan. According to FEC Form 3X instructions, unpaid loans are contributions — which means AB Super PAC failed to report a $610,800 contribution from AB Foundation.

A loan is a contribution at the time it is made and is a contribution to the extent it remains unpaid… All loans to a political committee (regardless of amount) must be disclosed on the first report filed with the Commission after the date the loan is made.

AB Super PAC failed to disclose the $610,800 loan it received from AB Foundation. Its failure to report the indebtedness is a clear violation of 52 U.S.C. § 30104(B)(2)(H) and 11 CFR 104.3(a)(vi), 104.11(a).

Could this have just been a typo?

Highly unlikely, because AB Super PAC demonstrated it knew how to correctly report debts owed to AB Foundation when it reported its indebtedness to AB Foundation to the amount of $18,869 at the end of June 2014.

AB Super PAC owed $18,869 to AB Foundation at the end of June 2014 according to AB Foundation’s audited financial statements:

From AB Foundation Audited Financial Statements June 30, 2014

AB Super PAC recognized its indebtedness of $18,869 to AB Foundation in its June 30, 2014, filing with the FEC.

From AB Super PAC June 2014 FEC Form 3X

AB Super PAC reported its $18,869 debt to AB Foundation as a line item on Schedule D.

From AB Super PAC June 2014 FEC Form 3X June 2014

Two months later, on August 11, 2014, AB Super PAC reported to the FEC that it settled its $18,869 indebtedness to AB Foundation in the following disbursement.

What does this mean?

This shows that AB Super PAC properly reported its indebtedness to AB Foundation to the amount of $18,869 at the end of June 2014. Two months later, on August 11, 2014, AB Super PAC correctly settled its debt to AB Foundation.

This demonstrates that AB Super PAC knows how to properly report its indebtedness to AB Foundation to the FEC.

But at the end of December 2015, AB Super PAC failed to report its indebtedness of $610,800 to AB Foundation. Furthermore, that debt has never been recognized nor settled in any subsequent AB Super PAC FEC Form 3X filings.

Since AB Super PAC has never settled its $610,800 indebtedness to AB Foundation, that amount would be considered an unreported contribution, because the FEC considers a loan to be a contribution “to the extent it remains unpaid.”

This begs the question — why did AB Super PAC correctly report its indebtedness of $18,869 to AB Foundation at the end of June 2014, but fail to report its $610,800 indebtedness — a contribution — to AB Foundation at the end of December 2015?


A look into the nature of AB Foundation’s payments to AB Super PAC

So far, we’ve shown that over 90 percent of AB Foundation’s payments to AB Super PAC are for shared employees under a common paymaster arrangement.

We’ve also shown that AB Foundation’s payments to AB Super PAC exceded 50 percent of its total expenditures from July 2013 through December 2015, after staying far under that threshold from 2011 through June 2013.

We’ve also shown that AB Foundation falsely stated it “directly expended” $1,138,060 in political expenditures from July 2014 through December 2015 for “research and tracking of candidates for public office.” Those were AB Super PAC’s direct expenditures — AB Foundation merely “reimbursed” that amount to AB Super PAC.

So, given the change in behavior from before and after June 2013, we should expect to see a change in the nature of AB Foundation’s payments to AB Super PAC around that same timeframe. That’s exactly what happened.

 

AB Foundation’s payments to AB Super PAC 2011 through June 2013

Keep in mind that employee expenditures are not fixed expenditures. For example, an employee may spend 20 percent of their time one week at AB Foundation followed by 30 percent of their time the next week. So, it should be expected that AB Foundation’s expense reimbursements would reflect this variability.

This is reflected in AB Foundation’s payments to AB Super PAC from May 2011 through June 2013:

Given the context, these payments make sense.

 

AB Foundation’s payments to AB Super PAC July 2013 through December 2015

The nature of AB Foundation’s payments to AB Super PAC changes dramatically starting July 2013.

23 of the 43 payments made in this timeframe are oddly uniform — $100,000, $50,000 and $200,000 payments sprinkled amid payments that look more like salary reimbursements:

Given the context, these payments don’t make sense. Things start to look especially odd after June 30, 2015, with all of AB Foundation’s payments looking much more like donations rather than expense reimbursements.

Think about it — how could AB Foundation’s expenses owed to AB Super PAC come out to exactly $50,000 on Oct. 15, 2015, followed by exactly $170,000 on Oct. 19, 2015, followed by exactly $25,000 on Nov. 9, 2015, followed by exactly $100,000 and $50,000 on Nov. 25, 2015?

Keep in mind, the math shows that over 90 percent of these payments are to cover employee salaries. It doesn’t make sense that AB Foundation’s employee expenditures are so uniform yet change wildly month-by-month. The only way to verify the honesty of these payments is via a thorough review of AB Foundation’s employee timesheets.

 

It appears that many of these payments are donation pass-throughs

A very interesting phenomenon appears the very same year AB Foundation began making very uniform expense reimbursements to AB Super PAC.

We’ve been able to locate versions of AB Foundation’s 2013 and 2015 Form 990 that contain Schedule B list of contributors. In it, we can view each contribution totaling $5,000 from any one contributor.

  • Note: we cannot view the name, address or date of the AB Foundation’s contributions, just the amount.

It turns out that many of AB Foundation’s payments to AB Super PAC are either close to or exact matches to donations it received in 2013 and 2015:

Furthermore, many AB Foundation’s payments can be combined to equal a donation it received.

For instance, AB Foundation made two payments to AB Super PAC on July 19, 2013 — $98,122.73 and $26,877.27. When added together, those two payments come to exactly $125,000, which happens to be an exact match to the $125,000 donation made by contributor #2 reported on Schedule B of AB Foundation’s July 2013 – June 2014 Form 990:

From AB Foundation 2013 Form 990 Schedule B

What does this tell us?

Seeing that many of AB Foundation’s payments to AB Super PAC are close to or exact matches to the donations it received provides a possible motive as to why AB Foundation would overpay AB Super PAC the amount it owes: To hide the identity of its donors.

Super PACs are required by law to disclose its donors to the Federal Election Commission. For example, notorious financier George Soros has donated $4,080,000 to AB Super PAC since 2012, according to AB Super PAC’s reports filed with the FEC.

The IRS, which regulates nonprofits, does not require nonprofits to disclose the identity of its donors publicly. AB Foundation, as 501(c)(4) nonprofit organization, is not required to disclose the identity of its donors.

It’s reasonable to suspect that prospective high-dollar donors would be hesitant to publicly support an overtly political organization like AB Super PAC. Being associated with the likes of George Soros or the Koch brothers frequently brings a level of notoriety that prospective donors would probably want to stay far away from. Just look at the heat PayPal founder Peter Thiel received for his public support of Donald Trump during the 2016 presidential election.

So, American Bridge has a solution to prospective AB Super PAC donors that want to keep their identity hidden — donate to AB Foundation secure in the knowledge your identity will stay hidden, and AB Foundation will make sure your dollars make it to AB Super PAC through the common paymaster arrangement.

Sunlight Foundation said it best on Dec. 3, 2015:

The foundation arm of American Bridge 21st Century has donated a lot of money to the Bridge super PAC, which does have to disclose its donors. In the first six months of 2015, the foundation gave $1.2 million to the super PAC. In 2014, they donated $2.5 million. That’s $3.7 million dollars funneled from the foundation to the super PAC in just the last two years — with donors safe in the knowledge that their names won’t be disclosed to the public.

 

American Bridge chairman David Brock told prospective donors he wouldn’t disclose donor identities.

Politico obtained a “secret memo” by AB Foundation and AB Super PAC chairman David Brock on June 2, 2016.

While he insisted he disagreed with the current system, and that he was not motivated by personal gain, David Brock said he had no intention to disclose the identity of donors funding his “dark money” groups, such as AB Foundation:

 

David Brock’s own words lend credibility to our theory that AB Foundation’s cost-sharing agreement with AB Super PAC is being abused to funnel donations into AB Super PAC in an effort to hide the identity of their donors.


AB Foundation’s Payments to AB Super PAC 2016 and 2017

So far, we’ve shown that AB Foundation’s cost-sharing agreement with AB Super PAC covers administrative costs, shared staff, office space, computer equipment, and news subscriptions. Over 90 percent of AB Foundation’s payments are for shared employees under a common paymaster arrangement.

We’ve shown AB Foundation has zero employees and issues zero W-2s. Instead, it uses AB Super PAC’s employees, with AB Super PAC acting as the common paymaster.

The math shows that an estimated 31.21 percent of all employee time at AB Super PAC from 2011 through 2015 was spent on AB Foundation activities.

We’ve established that the only way for AB Foundation to confirm the honesty of its expense reimbursements is through a review of its employee timesheets — documents it told the IRS it kept in its Form 1024.

We’ve also shown that the common paymaster arrangement starts to unravel at the seams by the end of 2015, with many of AB Foundation’s payments taking the form of donations instead of legitimate expense reimbursements, not to mention the significant number of AB Foundation payments to AB Super PAC equaling the donations it received.

We’ve shown that AB Foundation falsely attributing $1,138,060 in “direct” political expenditures from July 2014 through December 2015 for “research and tracking of candidates for public office.” However, we know this cannot be true because AB Foundation did not conduct research and tracking activities — AB Super PAC did, and AB Foundation merely reimbursed those expenses through its cost-sharing agreement.

And we’ve established a possible motive behind this scheme — to hid the identity of its donors. The theory is that AB Foundation, which is not required to disclose the identity of its donors, takes in the money, “creates” expenditures, then “reimburses” those created expenditures in an effort to pass contributions through to AB Super PAC.

 

Can we estimate AB Foundation’s share of AB Super PAC’s salary expenditures in 2016 and 2017?

Our estimations for 2011 through 2015 were based in large part on the fact that AB Foundation reported zero employees in all its Form 990s from 2011 through 2015, in addition to the expenses reported in those filings.

While we have access to AB Super PAC’s expenditures and receipts through the end of June 2017, we do not have access to AB Foundation’s 2016 and 2017 Form 990s. We expect AB Foundation’s 2016 Form 990 to become available in December 2017 at the earliest.

Despite this, we can provide an estimation of AB Foundation’s share of AB Super PAC’s salary expenditures in 2016 and 2017.

 

The description of AB Foundation’s payments to AB Super PAC remained the same in 2016 and 2017

A clear pattern arose in AB Foundation’s reported shared expenditures from 2011 through 2015. Over 90 percent of its shared expenditures were for shared employees. The vast majority of AB Foundation’s payments to AB Super PAC from 2011 through 2015 were described as “Overhead & Staff Expenses.” Most payments that didn’t contain that description were left blank.

Every AB Foundation payment to AB Super PAC in 2016 and 2017 is also described as “Overhead & Staff Expenses,” leading us to believe that the pattern established in 2011 through 2015 continues through 2017.

 

The nature of AB Foundation’s payments in 2016 and 2017

The nature of AB Foundation’s payments to AB Super PAC in 2016 and 2017 is perplexing, to say the least. While some payments in earlier years resembled donations instead of honest expense reimbursements, all of AB Foundation’s payments in 2016 and 2017 resemble donations:

Given the context, these payments make no sense. We have a hard time accepting that these payments resemble honest expense reimbursements covering shared staff expenditures.

Things look even more strange when comparing AB Foundation’s total payments from 2011 through 2015 to its total payments in 2016 and 2017:

The uniformity of AB Foundation’s total payments to AB Super PAC in 2016 and 2017 is jarring. It’s hard to believe that AB Foundation’s expenditures totaled exactly $720,000 in 2016 and exactly $2,800,000 in the first six months of 2017, especially when compared to the nature of AB Foundation’s total payments from 2011 through 2015.

 

Does AB Foundation still use AB Super PAC’s employees in 2016 and 2017?

All indications point to yes. Not only are its payment descriptions the same in 2016 and 2017 as they were from 2011 through 2015, multiple reports show that while AB Foundation should have reported dedicated employees, AB Super PAC still disbursed their paycheck as the common paymaster.

 

Common Paymaster Rules

First, it’s important to revisit federal regulations governing common paymasters.

AB Super PAC can only serve as the common paymaster for employees that are concurrently employed with AB Super PAC and AB Foundation. AB Super PAC cannot serve as the common paymaster for an employee that spends 100 percent of their time working on AB Foundation activities.

According to 26 CFR §31.3121(s)-1 Concurrent employment by related corporations with common paymaster:

(3) Concurrent employment. For purposes of this section, the term “concurrent employment” means the contemporaneous existence of an employment relationship between an individual and two or more corporations.

The contemporaneous existence of an employment relationship with each corporation is the decisive factor; if it exists, the fact that a particular employee is on leave or otherwise temporarily inactive is immaterial. However, employment is not concurrent with respect to one of the related corporations if the employee’s employment relationship with that corporation is completely nonexistent during periods when the employee is not performing services for that corporation.

 

It appears AB Foundation is breaking common paymaster rules

On May 15, 2014, AB Super PAC issued a press release announcing the creation of an AB Foundation project called Real Koch Facts:

The ad, released by the American Bridge 21st Century Foundation with a national cable buy, is part of a new war room Bridge is launching today to fight back against the promise by the Kochs’ Americans for Prosperity to spend $125 million to buy this year’s mid-term elections. The Real Koch Facts project includes dedicated staff who will focus on a daily communications, research and rapid response effort to tell voters just how dangerous the Kochs’ self-serving agenda is for working families.

The press release stated that AB Foundation’s Real Koch Facts includes dedicated staff focused on impugning the motives of the Koch brothers.

The footer of RealKochFacts.com reads “Paid for by American Bridge 21st Century Foundation,” confirming the effort as an AB Foundation project.

  • Takeaway: Anything relating to American Bridge and Real Koch Facts should be attributed to AB Foundation.

There have been a few media reports indicating dedicated employees at Real Koch Facts since it began work in May 2014.

According to The Hill on December 3, 2015, there were 10 dedicated employees working on Real Koch Facts.

Supported by his own donor network, (David) Brock has created a menagerie of liberal opposition and attack groups that fill two floors of warehouse-style office space in D.C.

The downtown space includes the American Bridge super-PAC, its nonprofit arm; the press watchdog Media Matters; and the pro-Clinton super-PAC Correct the Record.

In all, the groups are employing more than 60 full-time staffers, with 10 of them spending all their time investigating the business and political interests of the Kochs.

According to Time Magazine on January 20, 2017, 8 researchers dedicated all their time “for years” working on Real Koch Facts:

For years, (David Brock) has employed eight researchers whose only job was to dig up dirt and impugn the motives of Charles and David Koch, the billionaire industrialists who have endeavored to remake much of the conservative movement.

Now Brock decided, once again, that he wanted to be more like those he had railed against. “Donald Trump famously threw out the political rulebook,” he wrote, in the prepared remarks for his donors. “If we are to succeed in this period, we Democrats must suspend the normal rules of politics as well.”

So, if Brock hired up to 10 researchers to dedicate all of their time digging up dirt on the Koch brothers, we should expect to see AB Foundation reporting at least 10 dedicated employees beginning in mid-2014.

But AB Foundation reported zero dedicated employees each year from 2011 through 2015:

From AB Foundation’s Form 990s 2011 through 2015

In the context of trying to legitimize AB Foundation’s payments to AB Super PAC, this doesn’t make sense — Common Paymaster rules state that an organization cannot be the common paymaster for an employee that isn’t concurrently employed with it.

The up to 10 employees that had dedicated 100 percent of their time towards Real Koch Facts, an AB Foundation activity, but they were still being paid by AB Super PAC under the common paymaster arrangement. That’s the only way to explain how AB Foundation paid W-2 wages to employees it never had.

But in the context of uncovering a fraudulent common paymaster arrangement, this does make sense. As stated earlier, federal law provides that a corporation can serve as a common paymaster for another organization if 30 percent or more of one corporation’s employees are concurrently employees of the other corporation. Reports state that AB Foundation and AB Super PAC employ up to 146 employees at a time, which means that at least 44 employees would need to shared between AB Super PAC and AB Foundation. The only way to make this arrangement work legally on paper is to reach that 44 shared employee threshold. Perhaps this is why AB Super PAC continued to serve as the common paymaster for Real Koch Fact’s dedicated employees, despite the fact it appears they performed no work for AB Super PAC.

It’s safe to assume AB Foundation continued to rely solely on AB Super PAC as the common paymaster in 2016 and 2017

It’s clear that in order for AB Foundation must default to using AB Super PAC as the common paymaster in order for this scheme to work.

Given the pattern established in 2011 through 2015, that over 90 percent of AB Foundation’s shared expenditures with AB Super PAC were for shared employees, that the description of AB Foundation’s payments to AB Super PAC remained the same from 2011 through 2017, and that AB Super PAC acted as common paymaster for AB Foundation’s dedicated Real Koch Facts employees, it’s safe to assume that AB Super PAC continues to act as the common paymaster for every employee that performs work for AB Foundation through 2017.

Plus, it’s the only way to explain the numbers for January 2017 through the end of June 2017. Things got really out of hand.


Estimating AB Foundation’s share of AB Super PAC employee time in 2016 and 2017

As stated above, in the absence of AB Foundation’s 2016 and 2017 Form 990s, we are assuming that AB Foundation continues to utilize AB Super PAC as the common paymaster for all its employees.

Our formula for estimating AB Foundation’s shared expenditures in 2016 and 2017:

  • AB Foundation’s shared employee compensation expenses
    • (AB Foundation total payments to AB Super PAC) * (0.9252)
    • Based on the pattern established in 2011 – 2015, that an estimated 92.52 percent of AB Foundation’s shared expenditures were for shared employees.

Our methodology to estimate AB Super PAC’s total employee compensation expenses in 2016 and 2017 is the same as it was in 2011 through 2015: We add together all of AB Super PAC’s receipts containing disbursement descriptions relating to salary and payroll tax to come to an estimation of AB Super PAC’s total compensation payments.

  • All FEC disbursements that contain “Salary,” “Payroll,” “Payroll Taxes,” “Payroll Fees,” “Payroll Services,” and “Payroll Tax Adjustments” in description used to estimate AB Super PAC’s total compensation expenditures.
AB Foundation Estimated share of AB Super PAC Total Compensation from 2016 through June 2017
  • January 2016 – December 2016: 12.53%
  • January 2017 – June 2016: 92.45%

Things got way out of hand in the first 6 months of 2017, with an estimated 92.45 percent of employee time at AB Super PAC being spent on AB Foundation activities.

In fact, from January 2017 through June 2017, AB Foundation’s payments constituted 67.77 percent of AB Super PAC’s total receipts:

  • AB Super PAC Total Receipts Jan. 2017 – June 2017: $4,131,851.26
  • AB Foundation Total Payments Jan. 2017 – June 2017: $2,800,000

This means that AB Foundation activities made up 64.41 percent of AB Super PAC’s total reported expenditures of $4,347,126.88 in the first six months of 2017.

Remember — these payments are supposed to be expense reimbursements:

Expense reimbursements or donations?

The only way for AB Foundation to verify the honesty of these payments is through a thorough review of their employee timesheets.

So what has AB Foundation and AB Super PAC been doing in 2017? We should expect to see that most output from American Bridge in 2017 should be coming out of AB Foundation, but that’s not the case.


AB Super PAC’s Trump Accountability War Room

A large portion of the work produced by AB Foundation in the first six months of 2017 was the creation of 61 Trump Accountability “Policy Briefs.

But the “Trump Accountability Project” is substantially a project of AB Super PAC, not AB Foundation.

 

AB Super PAC owns The Trump Accountability Project

AB Super PAC issued a press release on December 6, 2016, announcing the creation of an American Bridge “Trump Administration Accountability War Room”:

American Bridge founder David Brock this morning announced the establishment of a new American Bridge project specifically focused on ensuring President-elect Donald Trump and his incoming Administration are “accountable, transparent, and held in check.” Brock was joined by American Bridge President Jessica Mackler and James Carville for a call to emphasize the need for a robust Trump accountability operation.

  • Note that Brock identified the project as an “American Bridge project” — indicating that AB Super PAC would own the Trump war room. AB Foundation is not named anywhere in the statement.

Meanwhile, AB Foundation lay dormant from October 26, 2016, through February 27, 2017, issuing no posts on its website during that timeframe.

From BridgeProject.com

Despite this, AB Super PAC published all its Trump Accountability Reports on AB Foundation’s website, in what appears to be an effort to attribute more of its expenses to AB Foundation. AB Super PAC had to do this — how else would they explain the math that shows an estimated 92.45 percent of its employee time in the first 6 months of 2017 was spent on AB Foundation activities?

 

The logo is very important

Before we go any further, below are AB Foundation’s logo and AB Super PAC’s logo:

AB Foundation’s logo

AB Super PAC’s logo

The logo that’s placed on a report is very important. The logo should be viewed as a signature — if AB Super PAC’s logo is displayed on a report, AB Super PAC should be considered the creator of that report.

 

AB Super PAC’s logo is found on almost every Trump Accountability Report

The vast majority of Trump Accountability Reports found on AB Foundation’s website contain the logo of AB Super PAC. None of the Trump Accountability Reports contain AB Foundation’s logo.

For example, AB Foundation published a report on the Trump Administration’s budget cuts to higher education programs June 6, 2017. But the report clearly displays AB Super PAC’s logo:

Furthermore, AB Super PAC issued a press release on its own website on June 6, 2017, appearing to take ownership of this Trump Policy Brief:

However, each of the URLs contained in AB Super PAC’s press release link to reports hosted on AB Foundation’s website that display AB Super PAC’s logo.

AB Super PAC made no effort to inform its readers that the report was hosted on AB Foundation’s website.

Is the logo really that important?

Yes, it is.

In 2009, the IRS ruled on a similar situation involving  A Local, a 501(c)(3), and A Local 501(c)(4).

A Local 501(c)(4) published web pages with candidate questionnaires and endorsements of candidates for public office. Those web pages also included A Local‘s banner, logo and site links. The IRS ruled that A Local was considered to have engaged in those political activities because it published reports containing the presentation of A Local 501(c)(4):

As a result of this presentation, A Local is considered to have distributed those candidate questionnaires and endorsements.

This is very similar to AB Foundation hosting Trump Accountability Reports bearing the logo of AB Super PAC. Given the precedent set by the IRS in the A Local case, and as a result of American Bridge’s presentation, AB Super PAC should be considered to have distributed the “Trump Accountability Reports”.

Bolder Advocacy recommends that the content published by related organizations must clearly distinguish between one another.

Shared Website. If a 501(c)(3) organization owns a website and allows its related 501(c)(4) to post content on the website (or if the two organizations have a joint website), and if the 501(c)(4) conducts political activity, then political material on the website may be attributed to the 501(c)(3), resulting in a violation of the 501(c)(3)’s tax status.

To avoid this pitfall, a joint website maintained by a 501(c)(3) and its affiliated 501(c)(4) must clearly distinguish between the content that belongs to the 501(c)(3) and that which belongs to the 501(c)(4). The 501(c)(3)’s banner, logo, address, site links, disclaimer, or similar identifying information specific to the 501(c)(3) should not appear on any of the 501(c)(4) Web pages.

In regards to AB Super PAC’s “Trump Accountability Reports,” there is no clear distinction. Precedent provides that AB Super PAC should own the expenditures incurred for creating its “Trump Accountability Reports” because they contain AB Super PAC’s logo, despite the fact the reports are hosted on AB Foundation’s website.

 

This puts AB Super PAC in a bind

The math shows that, in the first six months of 2017, AB Foundation activities made up 64.41 percent of AB Super PAC’s total reported expenditures of $4,347,126.88 in the first six months of 2017. The math also shows that math that an estimated 92.45 percent of AB Super PAC employee time in the first 6 months of 2017 was spent on AB Foundation activities.

On the surface, it appears that AB Foundation published 61 Trump Accountability “Policy Briefs” and 38 blog posts unrelated to Trump Accountability reports during the period between January 1 and June 30, 2017, and thus, Trump Accountability reports would have consisted of 61.62 percent of AB Foundation’s activities.

But we’ve established that AB Super PAC owns the creation of the Trump Accountability “Policy Briefs.”

So, AB Foundation really only published 38 blog posts from January 2017 through June 2017.

Meanwhile, AB Super PAC published 61 Trump Accountability “Policy Briefs” and 621 blog posts during the period between January 1 and June 30, 2017.

So, AB Super PAC did 682 things in the first six months of 2017 compared to AB Foundation’s 38 things.

But the math shows that AB Foundation incurred 64.41 percent of AB Super PAC’s total reported expenditures and an estimated 92.45 percent of AB Super PAC’s employee time.

That doesn’t make sense.


It appears AB Foundation is Abusing Its Cost Sharing Agreement

David Brock held a very high profile fundraising conference for American Bridge, Media Matters, The Center for Responsibility and Ethics in Washington D.C., and ShareBlue on the weekend of President Donald Trump’s inauguration in January.

According to Politico on January 21, 2017:

The constellation of political groups in Democratic strategist David Brock’s network are aiming to raise roughly $40 million in 2017, the Clinton antagonist-turned-top ally told roughly 120 donors gathered here on Saturday.

The fundraising memo provided to prospective donors was leaked by The Washington Free Beacon. In it, the memo reveals that American Bridge’s budget for 2017 was $14.7 million, with $6.9 million, or 46.94 percent, going towards AB Super PAC, and $7.8 million, or 53.06 percent, going towards AB Foundation.

  • We know this wasn’t the case. AB Foundation provided 67.77 percent — $2,800,000 — of AB Super PAC’s total receipts from January 2017 through June 2017.

So, what did AB Super PAC bring in as a result of David Brock’s high-profile January fundraising event? A paltry $358,200 in individual contributions from January 2017 through March 2017:

During the same timeframe, from January 2017 through March 2017, AB Foundation paid AB Super PAC $934,000 in shared expenditures.

Remember, these are supposed to be expense reimbursements primarily for shared employee expenses, not donations.

Note how AB Foundation only began reimbursing expenses to AB Super PAC after David Brock’s high-profile, $40 million fundraising drive.

How strange.

The way in which Brock presented American Bridge to his donors gives the theorized scheme away:

Brock told his prospective donors American Bridge’s 2017 budget of $14.7 million represents the work of “American Bridge’s 501(c)(4) and its Super PAC” — as if AB Foundation “owns” AB Super PAC.

But we know that isn’t true — AB Super PAC is the common paymaster — AB Super PAC owns all the employees. If anything it should read AB Super PAC and its 501(c)(4).

 

Why would Brock frame it this way?

Simple: It appears Brock was urging his prospective donors to donate to AB Foundation with the knowledge their names won’t be disclosed to the public. Then, utilizing the common paymaster arrangement, AB Foundation “creates” expenditures to offset to the Super PAC.

AB Foundation’s cost-sharing agreement with AB Super PAC appears to be a fraudulent pass-through scheme. It wouldn’t be the first time an organization pulled a trick like this, according to Deloitte:

 


The Federal Election Commission needs to take action

Everything presented in this report is likely to be news to the FEC. Not once has AB Super PAC disclosed the existence of its cost-sharing agreement with AB Foundation, let alone the fact that its employees spend a considerable amount of time working on AB Foundation activities.

All the FEC knows is that AB Super PAC received $11,116,209 from AB Foundation in the form of “offsets to operating expenditures” from March 2011 through June 2017. Not once has the FEC made any apparent effort to request more information from AB Super PAC about what those payments were for.

 

The solution is simple

The math shows that over 90 percent of the $11,116,209 AB Foundation paid AB Super PAC from March 2011 through June 2017 were for shared employees. AB Foundation told the IRS it kept employee timesheets to ensure neither it nor AB Super PAC were financially supporting the activities of the other.

So, we call on the FEC to conduct a thorough review into AB Foundation’s employee timesheets to ensure that the $11,116,209 it has paid AB Super PAC were reimbursing expenses that actually were actually incurred

If AB Foundation overpaid AB Super PAC by any amount, the FEC should penalize AB Foundation and AB Super PAC under the fullest extent of the law for failing to report political contributions.

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