This was the most expensive week in American election history, and it’s only August. Outside groups are pumping millions into swing-state advertising, which is targeting Democratic candidates over Republican ones by a ratio of seven-to-one . Much of this air war is being launched by nonprofits that are not required to disclose donors, and enjoy special tax exemptions on top of it. This is where most corporate spending goes—big companies are reluctant to fund Super PACs, which must disclose their donors.
Today, the New York Times reported  that New York Attorney General Eric Schneiderman has launched an inquiry into how these nonprofits operate—and whether they should be allowed to retain their secretive, tax-exempt status. To qualify for that, the groups must have “social welfare” as their main purpose, not influencing elections.
Schneiderman has authority over many of them since they do business and raise substantial amounts of money in New York State. He is asking several groups—including Karl Rove’s Crossroads Grassroots Policy Strategies and Priorities USA Action, a White House–affiliated organization—for tax returns and other financial information. Reports the Times:
With New York both the center of the country’s financial industry and home to many of its leading conservative and liberal donors, that jurisdiction could give Mr. Schneiderman oversight power over many of the biggest-spending groups.
“Given how many nonprofit organizations are raising tens or hundreds of millions of dollars and evading campaign finance disclosure laws, any and all scrutiny of these organizations by regulators is a welcome development,” said Paul S. Ryan, associate legal counsel of the Campaign Legal Center, which has pushed for tighter regulations.
The letters sent by Mr. Schneiderman’s office, part of a broader look into political activities by charitable organizations, went to groups that appear to fall under those regulations but have not filed the required paperwork, according to people with knowledge of the inquiry.
The letters remind the groups that Mr. Schneiderman could, if necessary, exercise his subpoena powers, and asks them to respond to a questionnaire if they do not believe they fall under Mr. Schneiderman’s jurisdiction.
Schneiderman isn’t the first person to go after the special tax-exempt status enjoyed by groups like Crossroads GPS. Democrats in Congress and good government groups have been pressuring the Internal Revenue Service to probe the paper-thin premise that Karl Rove founded Crossroads GPS as an education organization. They have pointed to many of Rove’s public statements, like this op-ed by Rove in the Wall Street Journal just last week:
Roughly $111 million of Mr. Obama's ad blitz was paid for by his campaign; outside groups chipped in just over $20 million. The Romney campaign spent only $42 million over the same period in response, with $107.4 million more in ads attacking Mr. Obama's policies or boosting Mr. Romney coming from outside groups (with Crossroads GPS, a group I helped found, providing over half).
Right there, Rove seems to confirm that the purpose of Crossroads GPS is to influence the election. Moreoever, an examination of that and similar group’s finances would likely reveal almost everything is being spent on political attack ads.
The IRS did recently signal  that it would step up scrutiny of these groups, but immediately found itself at the center of a political firestorm. Republican Senator Orrin Hatch sent  the IRS an ominous letter this week, joined by nine other Republican Senators, pre-emptively accusing it of acting politically:
“We believe these petitions have less to do with concerns about the sanctity of the tax code and more about setting the tone for the upcoming presidential election, and we urge you to resist allowing the IRS rulemaking process to be subverted to achieve partisan political gains,” wrote the Republican senators. “Your letter seems to suggest that outside political pressure is actually what is triggering your agency’s considering of changes to the law.”
“The only thing missing from the Republicans’ letter is the ‘or else,’ ” said Senator Charles Schumer in a statement. “This unsubtle threat is clearly designed to put a chilling effect on the agency’s enforcement of the law. But this Washington tug of war over the IRS isn’t something Schneiderman is likely to face, which is why his effort is so promising.
It isn’t the first time Schneiderman has waded into the arena of campaign finance as attorney general, either—recall that in late June, he began investigating  the US Chamber of Commerce over potential tax fraud violations relating to political spending.