IRS may be trying to stop tax exemption of Karl Rove's Crossroads GPS

If Crossroads is denied a tax exemption, it would be treated as a taxable corporation subject to a top rate of 35 percent, said Marcus Owens, a partner at Loeb & Loeb LLP in Washington and former director of exempt organizations at the IRS.

Its donations would be taxable income and its political spending wouldn’t be deductible, which isn’t an efficient structure for turning donors’ money into political ads.

The IRS can impose those taxes retroactively — though only for three years, which means the early years of Crossroads GPS could escape taxation.

“Depending on how the IRS approached the facts in the case, it might illustrate how the IRS is going to generally handle politically active c4s,” Owens said. “Or it may be that there’s something about Crossroads that’s unique.”

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