Another political headache involving possible violations of campaign finance and tax laws is gnawing at GOP presidential hopeful Herman Cain even as he fends off allegations of sexual harassment.
Cain’s campaign faces questions about tens of thousands of dollars in expenses that were paid by Prosperity USA, an organization claiming 501(c)(3) charity status with the IRS that is barred by law from political activities.
Prosperity USA paid $40,000 in expenses, including bills for chartered planes, iPads and other items, according to financial documents cited by the Milwaukee-Wisconsin Journal Sentinel.
Cain’s campaign disclosure reports fail to list these payments as debts or in-kind contributions. The newspaper said the financial documents of the charity indicate that $37,372 is “due from FOH” which stands for Friends of Herman Cain, the campaign committee for the candidate. It is not known if the campaign repaid the money.
Election lawyers with knowledge of tax matters said these kinds of payments are off limits for charities or 501(c)(3) groups. To obtain IRS status as a 501(c)(3), which allows donors deductions for their contributions, groups have to abstain from electoral and political activities.
These groups “have zero tolerance for involvement in political activities as a matter of tax law,” Ken Gross, an election lawyer and former chief of enforcement at the Federal Election Commission, told iWatch News.
Trevor Potter, the former chairman of the FEC, echoed this view. “There’s a flat prohibition by c3s in elections,” Potter said in an interview.
With respect to potential violations of campaign finance laws, Potter said Prosperity USA could have other legal problems unless it provided similar services to others as part of its ongoing operations.
“Corporations may not advance costs or credit to candidates, unless they do so in the normal course of their business,” he said.
Appearing Monday on Fox News, Cain said, “We will take a look at it. But at this point, I didn't even know about the report until you brought it up on the show.”
Cain, the former CEO of Godfather’s Pizza, has steadily climbed to the top tier of Republican presidential preference polls in recent weeks. Fresh scrutiny has revealed financial issues as well as sexual harassment allegations by two former female employees.
Prosperity USA was set up in 2010 by Mark Block, now his campaign chief of staff and Linda Hansen, the deputy chief of staff.
The organization picked up some sizable tabs for the Cain campaign. For instance, the charity ponied up $17,000 for chartered flights and $15,000 for a trip to Atlanta, according to records cited by the Milwaukee paper.
Before Cain’s campaign launched, Block was the Wisconsin state leader of Americans for Prosperity, the grassroots conservative advocacy group started in 2004 with largesse from the billionaire Koch brothers. It has 501(c)(4) status and can accept unlimited contributions from donors without disclosure, as long as the funds are not spent primarily on politics, as explained in a report by iWatch News this week.
Cain traveled the country on AFP's behalf as state chapters were established for several years. Cain is scheduled to speak Friday at AFP’s convention in Washington.