• With: Judy Miller, Jehmu Greene, Jim Pinkerton, Cal Thomas

    This is a rush transcript from "Fox News Watch," July 2, 2011. This copy may not be in its final form and may be updated.

    JON SCOTT, HOST OF "FOX NEWS WATCH" (voice-over): On "Fox News Watch" --

    (BEGIN VIDEO CLIP)

    C. BOYDEN GRAY, FORMER WHITE HOUSE COUNSEL: When you start to accuse Fox News of being the spokesman for the Republican Party, that's when it crosses the line.

    (END VIDEO CLIP)

    SCOTT: The anti-conservative organization, Media Matters, declares war against Fox News. Chief antagonist, David Brock, initiating guerilla tactics to battle the number-one news channel and cause disruption for parent company, News Corporation. Their anti-Fox effort is being paid for by tax-free funding. Why is the government supporting their status? And why are the media ignoring the issue?

    Michele Bachmann's rising star in the GOP has the mainstream media poking fun and picking apart everything she says. Did they do that for the president's gaffes as well?

    And the people's princess gets a staring role on the cover of Newsweek, and the reaction is strong.

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    PAUL BURRELL, PRINCESS DIANA'S FORMER BUTLER: It's haunting and quite disturbing.

    (END VIDEO CLIP)

    SCOTT (on camera): On the panel this week, writer and Fox News contributor, Judy Miller; syndicated columnist, Cal Thomas; Jim Pinkerton, fellow, New America Foundation; and former president of Women's Media Center and Fox News contributor, Jehmu Greene.

    I'm Jon Scott. "Fox News Watch" is on right now.

    SCOTT: Have you heard of Media Matters for America? It's an anti- conservative organization founded by a guy -- or founded by a guy named David Brock, with this stated mission. "Media Matters for America is a web-based, not-for-profit 501(c)(3) progressive research and information center dedicated to comprehensively monitoring, analyzing and correcting conservative misinformation in the U.S. media."

    That mission has changed however, which we'll talk about in just a few minutes. As for Media Matters’ tax-exempt status, the government has very strict rules about organizations like that. And this liberal advocacy group appears to be in violation of those rules.

    Chief Washington correspondent, James Rosen, has more.

    (BEGIN VIDEOTAPE)

    GRETCHEN CARLSON, GUEST HOST: Well, thanks for watching today, everyone.

    JAMES ROSEN, CHIEF WASHINGTON CORRESPONDENT (voice-over): Perhaps Fox News' harshest severest critic is Media Matters for America, or MMA, a D.C. group founded in 2003 by former reporter, David Brock, a conservative-turned-liberal, and funded, in part, by progressive billionaire George Soros. In the forms filed with the IRS eight years ago that secured tax-exempt status for MMA, the group described its purpose as charitable and educational. MMA said it would work to counter, quote, "viewpoints in the media that tend to overly promote corporate interests, the rights of the wealthy and a conservative Christian-influenced ideology," unquote.

    JAMES KING, TAX ATTORNEY: You may advocate a particular point of view and you may do so strongly, but you can't have it just be unsubstantiated opinion and you have to be reasonably objective about the way you present your views. And excessive use of inflammatory language would be one factor that the Internal Revenue Service could look at.

    ROSEN: In an interview in March, Brock was quoted as telling Politico that MMA had shifted from traditional media monitoring and had launched a, quote, "war on Fox." By its own admission, MMA is conducting opposition research against a dozen or so mid and senior-level executives and producers. It is also instigating lawsuits against FNC and even starting an operation in the U.K. to focus on Rupert Murdoch, the chairman of News Corporation, FNC's parent company. Brock described it as, quote, "trying to disrupt Murdoch's commercial interests." To that end, the MMA web site now features a link called, "Drop Fox," which helps users contact advertisers and urge them to boycott the network. As well, The Washington Post reported on Media Matters’ sponsorship of a boot camp for liberal pundits. That last activity is key, because a federal court ruled in 1989 that IRS was correct to deny tax-exempt status to a group that operated a similar academy to train conservative campaign workers.

    GRAY: When you sought to declare war on a media outlet, when you start to accuse Fox News of being the spokesman for the Republican Party, which is demonstrably false, there's no basis for that -- Brock and Media Matters makes no effort to substantiate any of that -- that's when it crosses the line.

    ROSEN: Now, Fox News has obtained documents showing that multiple complaints have been filed with IRS as part of an online campaign, partly encouraged by some Fox on-air talent, challenging Media Matters’ tax- exempt status on these very grounds.

    The IRS citing procedure declined to say what action it might be taking or even whether it received the challenges to the Media Matters’ tax status. For one of the challenges, we faxed a redacted copy, withholding the filer's name and contact information directly to Media Matters. But aside from confirming receipt of the fax, the group's spokesman, Doug Stouffer, did not respond to our requests for comment.

    In Washington, James Rosen, Fox News.

    (END VIDEOTAPE)

    SCOTT: So where does the group get its money? Let's take a look at some of the funding they have reported. In 2007, contributions totaled -- grants and contributions, I should say, totaled $8.4 million for Media Matters, $8 million in 2008, $6.7 in 2009. Apparently, their funding sources were drying up and that may be the reason that George Soros stepped in in the year 2010 and donated $1 million to Media Matters for America. We don't yet know the total funding for that year.

    And then take a look at the story count. When you look at the number of stories, Media Matters for America, which is supposed to be, you know, taking a look at media misinformation, they filed 2,670 stories about Fox News versus 66 regarding CNN and 48 regarding MSNBC.

    Judy, is there a little bit of a balance problem there?

    (LAUGHTER)

    JUDY MILLER, WRITER & FOX NEWS CONTRIBUTOR: Well, I think there obviously is. And what's interesting is that this has been the worst-kept secret in America, because ever since Ben Stein's article in Politico appeared, with the planning memo from 2010, from David Brock, which said we are going to move from an educational institution to a kind of "attack Fox," launch a guerilla war on Fox and this is fair, because Fox is not a news organization, it's been out there since March. And where is the rest of the media? Nobody said a word. And finally, Fox is starting to fight back, which is what we're seeing today.

    SCOTT: Jehmu, where is the rest of the media on this?

    JEHMU GREENE, FOX NEWS CONTRIBUTOR: Well, I think clearly if the rest of the media is going to focus on this conversation, it needs to be focused from a bigger standpoint, that conservative organizations and liberal organizations can be nonprofit. Having run two progressive political organizations -- you can look at the Heritage Foundation or the American Enterprise Institute. Like, if we need to be having this conversation, it needs to be, should nonprofit organizations have a political agenda. I actually think we should agree that we need this vibrant marketplace of ideas, and there could be some on the left and some on the right, but this isn't just about Media Matters if you're looking at the specific examples.

    SCOTT: Jim, do you see a problem with them having tax-exempt status?

    JIM PINKERTON, FELLOW, NEW AMERICA FOUNDATION: I'm not a lawyer, but Boyden Gray, who was interviewed in that segment, I've known about him. And people should know about him, that he was a law clerk for Earl Warren back in the 1960's. He was the lawyer and counsel to Vice President Bush and President Bush from 1981 to 1993. He's a very distinguished guy and he knows his stuff. And if he says this is challengeable, then I think that makes sense. It does seem intuitive to me though.

    And, Judy, I think you misspoke and said it was Ben Smith, opposed to Ben Stein.

    MILLER: Right. Yes.

    (LAUGHTER)

    (CROSSTALK)