Union-Backed Critic of U.S. Chamber Asks IRS to Probe Political Funding

A group backed by labor unions is complaining to tax authorities that the U.S. Chamber of Commerce, which is already under criticism from the White House and Democrats, may have knowingly used charitable funds for political activities.

The group, U.S. Chamber Watch, is filing an amendment to an earlier complaint with the Internal Revenue Service asking for an investigation. It alleges that the chamber may have misstated financial transactions and given improper compensation to Chamber President Thomas Donohue.

The new allegations add to a war between Democrats and the chamber, which plans to spend $75 million on this year’s elections and is mainly supporting Republicans. White House officials have questioned whether the organization uses foreign money to illegally fund political activities, a charge denied by the business lobbying group.

“This is yet another desperate attempt to distract the Chamber of Commerce from its aggressive efforts to support job creation and economic growth,” Tita Freeman, a spokeswoman for the Washington-based chamber, said in an e-mail. Freeman said the complaint represents “petty and baseless allegations by an anti-business group whose sole existence revolves around undermining the chamber’s efforts to improve our economy.”

In a Sept. 16 statement after the first IRS complaint, Freeman wrote on the chamber’s website that financial transactions “are thoroughly reviewed by lawyers and outside accountants, who have confirmed that they comply with all relevant tax laws.”

Loan From Charity

The Chamber Watch complaint involves a loan from a chamber- affiliated charity to the main group, and whether the money was improperly spent for non-charitable purposes.

“What the chamber has done is overstepped its bounds and violated IRS regulations that have a firm demarcation between what not-for-profits are doing, what charitable organizations are doing and what advocacy groups are doing,” said Cyrus Mehri, outside counsel to Chamber Watch.

In the new filing, the group cites different statements made by Freeman in the Web posting and by the group’s chief financial officer, Stan Harrell, in the New York Times, about a donation from the New York-based Starr Foundation to the charitable National Chamber Foundation, and a subsequent loan from the chamber’s foundation to its parent group.

Freeman said Starr’s money was an “endowment contribution” and that the charitable foundation later invested the funds in a chamber debt instrument to minimize risks. Harrell said the transaction was a loan only in a legal sense, and wasn’t meant to be paid back.

‘Grossly Erroneous’

“The Chamber Watch complaint is grossly erroneous and based on an uninformed financial analysis,” Freeman said in her September post.

The Starr Foundation, which is led by its board chairman, former American International Group Inc. Chairman Maurice “Hank” Greenberg, says it has about $1.25 billion in assets and makes grants in areas including education, health care and public policy. No one was available to comment at the Starr Foundation last night, after normal working hours.

In the latest filing, the Chamber Watch group complains that Donohue’s $3.8 million in compensation in 2008 and his use of a private jet, a car and a driver, might violate regulations.

Chamber Watch, a group with a budget of less than $1 million, originated from the labor federation Change to Win. It is trying to pressure chamber members to force the group to back down from efforts to defeat Democratic candidates. Chamber allies say members will support the group’s efforts to defend itself against attacks from Democrats and their allies.

Political Advertising

“I don’t know of a single organization that is affiliated with the chamber that is anything but praiseful of what the chamber is doing,” said Dirk Van Dongen, president of the Washington-based National Association of Wholesaler- Distributors. “Most of us, if not many of us, are frankly applauding the chamber.”

The chamber has reported spending almost $19 million on political ads since Sept. 1, the traditional start of the general election campaign. While it’s run some ads favoring House Democrats, most of the money has gone into opposing Democrats in Senate races, including more than $3 million to take on California Senator Barbara Boxer.

Donohue, in an Oct. 12 letter denying the allegations about foreign money being used for political activities, said his group has no intention of backing down.

“In fact, for the next three weeks leading up to Election Day, you will see us ramp up efforts to educate voters about the positions of candidates of both parties who are committed to free enterprise and economic growth,” he wrote.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Kristin Jensen in Washington at kjensen@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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