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NEWS RELEASE
May 26, 2004


CONTACT: Carmen Balber - 310-392-0522 x324

IRS Should Investigate Schwarzenegger Political Committee As Tax & Disclosure Dodge

Gov's Group Promotes His Political Fortunes, Not Public Good, Complaint Says
Santa Monica, CA -- Governor Schwarzenegger's "California Recovery Team" (CRT) allows him to dodge taxes and avoid state and federal campaign contribution disclosure requirements because it is incorporated as a tax-exempt social welfare organization, according to a complaint sent yesterday to the Internal Revenue Service (IRS) by the Foundation for Taxpayer and Consumer Rights (FTCR). The CRT primarily benefits a political party and select individuals, rather than the common good of the community as a whole, and is therefore in violation of the tax code said the consumer organization's complaint.

"The Governor of California should not be using accounting tricks and convoluted committee structures to avoid tax payments that California needs and contribution disclosures that the voters deserve," said Carmen Balber, consumer advocate with FTCR.

If the IRS revokes the CRT's tax-exempt status, the organization will be required to pay taxes on non-exempt income and report the source of contributions as do other nonprofit political organizations.

"An organization may be exempt from federal income tax under Section 501(c)(4) of the Internal Revenue Code if it is operated exclusively for the promotion of social welfare. An organization is considered operated exclusively for the promotion of social welfare only if it is primarily engaged in promoting the common good and general welfare of the people of a community. The promotion of social welfare, however, does not include partisan political activity, because such activity promotes the interests of one political faction rather than the common good of the community as a whole," notes the complaint. "CRT's own promotional materials specifically state that its purpose is to 'provide the monetary and public support necessary for Governor Arnold Schwarzenegger to achieve his ongoing reform agenda.'" Read the complaint.

"It appears that CRT has adopted Section 501(c)(4) tax-exempt status merely as a tax shelter for its primarily partisan activities. By exploiting such tax-exempt status, CRT may retain large sums of money in support of Governor Schwarzenegger and earn tax-free interest income that would otherwise be taxable if it were a political organization. Furthermore, CRT also will be able to avoid publicly disclosing the source of its contributors, some of whom may have contributed up to $500,000 to obtain access to the Governor at one of his fundraising dinners," FTCR writes.

"Governor Schwarzenegger has so closely aligned his personal political success with the success of CRT's efforts, that one is hard pressed to distinguish between support for CRT and support for Governor Schwarzenegger himself," concludes the complaint. "We believe CRT demonstrates the characteristics of a political organization and should be treated accordingly."

The "California Recovery Team" is a 501(c)(4) organization and is distinct from the political action committee called "Governor Schwarzenegger's California Recovery Team."

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