A closer look at the NRCC scandal

I'm not talking about a run of the mill sex scandal. Or a run of the mill sex scandal. Or even a run of the mill sex scandal. I'm talking about allegations of fraud at the National Republican Campaign Committee (NRCC).

The blogosphere has circulated a story broken by The Politico that the NRCC is under FBI investigation. While it's always fun when the opposing party is under investigaiton, this could really be a long-term problem for the NRCC.

On February 6th, The Politico reported that the NRCC was under FBI investigation. On February 8th, Politico reported that NRCC's former treasurer Christopher J. Ward forged an internal audit and the NRCC notified the Federal Election Commission (FEC) that the committee may have filed inaccurate disclosure statements. These developments have not made the NRCC "In the News" website section. They also haven't made the Democratic Congressional Campaign Committee's "Newsroom" either. A tacit understanding?

Republican officials are concerned that illegal activity may have gone back as far as 2001.

What could this be about? I know that accounting procedures don't sound that interesting on their face.

Why would the NRCC have illegal or fraudulent accounting procedures? Not that I have any inside knowledge, but given the NRCC's role, the shady accounting could have been designed to cover up campaign finance law violations. For instance, the NRCC may have violated election contribution limits by collecting more money that is allowed from individuals or giving more than is allowed to particular campaigns. It is also possible, given the millions of dollars passing through it, that the NRCC used money as a slush fund for the private gain of insiders or other purposes.

I am by no means a tax or political law expert, but I could easily envision possible violations of Federal tax laws. As a "Section 527" political committee, the NRCC has to file IRS Form 1120-POL as its tax return. Line 7 of 1120-POL requires the NRCC to disclose "income and nonexempt function expenditures." This includes illegal expeditures as well as funds that were meant for political functions but went to other purposes.

Basically, political committees like the NRCC do not have to pay taxes on donations (called "exempt function income") because the government does not want to tax political donations, which are akin to speech under the First Amendment. However, income derived from other sources is taxable income. In addition, exempt function income that is diverted for other purposes is also taxable. According to the IRS, illegal expenditures are also taxable.

A political committee's bookkeeper would be in charge of preventing the commingling of exempt function income and other income. If Christopher Ward used NRCC donations for non-exempt purposes, that amount would be considered income. If Christopher Ward willfully covered up such shenanigans to the IRS, it would be tax fraud. If others were involved, it would a conspiracy.

Regardless of the criminal implications, the NRCC could be looking at a large tax liabilities including interest and penalties. Not to mention expected massive legal bills from Covington & Burling. In contrast to the Democratic Congressional Campaign Committee, the NRCC barely has any cash now. It's hard to imagine that the dispirited Republican faithful will be eager to pay legal bills and tax penalties.

I hope the nice NRCC building at 320 C St. SE, located just steps from the House of Representatives office buildings, goes on sale to keep the NRCC solvent. It would make nice condos.