Thursday, July 21, 2011

IRS Denies 501(c)(4) Status to Political Party Training Academies

Just when I was suggesting that American Campaign Academy is absurd, the IRS relied heavily on the case to deny 501(c)(4) status to several political party training academies in these private rulings.  In each of the cases, the training schools trained candidates for a specific political party.  In denying exemption, the Service stated:

Educational activities undertaken to provide a partisan benefit are considered to serve private interests, rather than the common good.  In American Campaign Academy, supra, the court denied exemption under section 501(c)(3) to a school organized to train individuals for careers as political campaing professionals because its educational activities were operated with the partisan purpose of benefiting Republican Party entites and candidates.  The private benefit conferred on these persons was more than incidental, and thus demonstrated a substantial non-exempt purpose that precluded exemption.  While you are requesting recognition as an organization described in section 501(c)(4) and not section 501(c)(3) (as was American Campaign Academy), the standard for determining what constitutes private benefit described in American Campaign Academy applies to both sections.  As such, for purposes of both section 501(c)(3) and section 501(c)(4), an organization which conducts its educational activities to benefit a political party and its candidates serves private interests.  And, as discussed above, an organization that primarily serves private interests fails to qualify for exemption under section 501(c)(4). 

Thus, notwithstanding any benefit your educational activities may provide to the community, you fail to qualify for exemption because your trainining program primarily benefits the interests of the Party and its candidates.  According to your Articles and Bylaws, your primary activity is to train and recruit ____________________ who are members of the party to run for political office.  Like the school in American Campaign Academy, your purpose in conducting this activity is to provide education solely to individuals affiliated with a certain political party who want to enter politics.  Indeed, you measure your success in terms of the number of graduates who have run for, or won, elective office representing the Party.

Just to be clear, the theory in American Campaign Academy is a sound one in my opinion, but wrongly applied to cases whether the alleged private benefit is to a political party.  Its like condemning a truck-driving school for benefiting trucking companies.  As one scholar once said, the case is really about an NGO's identifiable ideology rather than private benefit. 

dkj

July 21, 2011 | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 20, 2011

Nonprofit and charitable contributions at Center of Pakistani "Spy" Allegation

Even if it is a rare occurrence, and even if domestic laws against political activities have never been fully explained, the involvement of NGO's in secret government foreign policy matters puts all NGO's at risk.  For example, an NGO operating in a theatre of war with the explicit or implicit assistance of one or the other warring parties, or both, inevitably causes the warring parties to look upon the NGO as something more than neutral noncombatants trying to mitigate the consequences of human madness.  So I was intrigued when I read the complaint recently filed against two Americans of Pakistani descent and learned that the nonprofit, Kashmir American Center, an organization described as a "not-for-profit dedicated to raising teh level of knowledge in the United States about the struggle of the Kashmiri people for self-determination." In essence, the complaint alleges that the KAC served as a front through which the Pakistani intelligence service, the ISI, attempts to shape domestic political opinion in favor of Pakistan's goals in the disputed Kashmir region.  I am not quite sure whether a tax exempt organization whose goal is to influence American grassroots and political opinion is contrary to 501(c)(3) is necessarily disqualified from tax exemption, but the complaint makes for intriguing reading regarding the seemingly nefarious uses to which nonprofit organizations can be put.  For example, the affidavit in support of the criminal complaint implies that the KAC allowed sympathetic "straw donors" to obtain charitable contribution deductions by funding the domestic operations of a foreign spy agency: 

Fai [a principal insider of the nonprofit organization] has received approximately $500,000 to $700,000 per year from the Government of Pakistan, and that the Government of Pakistan has funded Fai's operations through Ahmad. As further discussed below, I believe that the Government of Pakistan money is routed to Fai through Ahmad and a network of other individuals connected to Ahmad. I believe that much of this money is provided to Fai through contacts of Ahmad in the United States because Ahmad lives in Pakistan and is rarely in the United States. The evidence shows that Ahmad arranges for his contacts in the United States to provide money to Fai in return for repayment of those amounts in Pakistan. I believe that these other individuals assist Ahmad in routing money to Fai because doing so ostensibly enables them to take tax deductions deductions for the amounts that they transfer to the KAC as charitable deductions. I estimate that the total amount his funding network to Fai and the KAC since the mid-1990s is at least $4,000,000.

I suppose, though, that an NGO whose goal is simply to advocate for one position or another is nothing new and its views do not necessarily disqualify it from tax exemption or any of the other benefits of charitable nonprofit status, even if the organization is run primarily by a foreign intelligence agency.  That the question is debatable demonstrates the nearly unlimited extent to which "charitable" in 501(c)(3) can be stretched.  But what if the organization itself is an "agent" of a foreign government (under the statute that is the basis of the complaint) and fails to register according to federal law?  If the organization were an agent and had actually registered, could it still qualify for tax exemption?  Theoretically "yes" it seems to me. 

dkj

 

 

 

 

 

 

July 20, 2011 in Federal – Judicial | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 19, 2011

Bias in Nonprofit News: Do American Campaign Academy and Big Mama Rag make any sense at all?

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From the "so what?" department, the Pew Research Center for Excellence in Journalism reports in a new study that most nonprofit news organizations have a distinct ideological bent one way or the other, left or right.  Which is really to say that most news people, even those who work for good rather than profit, have an opinion.  Or maybe my own cynical bent is showing.  Anyway, according to the study, almost 60% of the nonprofit news organizations had an identifiable ideological philosophy.  Here is a summary of the major findings:

Among the findings:

  • The most ideological sites were Group Sites, those that belonged to one of two families organized by a sole or primary funder. One was a family of nine liberal sites that all have the word "Independent" in their names, funded chiefly by the American Independent News Network, which itself is funded by a variety of individuals and foundations, including the Open Society Foundations founded and chaired by George Soros. The other was a group of 12 conservative sites that share the name "Watchdog" and are funded chiefly by the Franklin Center for Government & Public Integrity, which was launched in part by a libertarian group called the Sam Adams Alliance.
  • The least ideological in their content were sites that operated entirely on their own and had multiple funding sources and revenue streams, sites such as The Texas Tribune (which lists 12 foundations among its dozens of "founding investors," as well as 64 corporate sponsors and hundreds of individual donors, and generates revenue from events and other revenue devices) and Connecticut Mirror (which lists 10 supporting foundations). These sites also tended to be more transparent and generate a relatively high volume of content.
  • One striking feature across many of the news sites studied was that while they may have been forthcoming about who their funders were, often the funders themselves were much less clear about their own sources of income. This effectively made the first level of transparency incomplete and shielded the actual financing behind the news site. The chief funders listed for nearly two-thirds of the sites studied-28 in all-did not disclose where their money came from.
  • Reporting resources in this emerging category of news operations tended to be quite limited. All the sites in the study had some staff and all produced original content at least weekly. The median was eight stories per week, but some averaged as few as one or two. And, of the 46 sites studied, the median reporting and editorial staff numbered just three people. At 18 sites-more than a third of those studied-just one or two people authored all of the stories analyzed.
  • Whether by design or due to resource limitations, the majority of news stories on these sites presented a narrow range of perspectives on the topics covered. Overall, half of the news stories studied (50%) offered just a single point of view on controversial issues. Just 2% of stories contained more than two points of view.
  • The topics covered on these sites often correlated with the political orientation of the sites and their backers. The more liberal-oriented American Independent News sites, for instance, heavily favored stories about the environment and organized labor, topics that did not appear among the most-covered for other groups of sites. The more conservative Watchdog.org sites, on the other hand, often set their focus on the government system itself, drawing attention to stories of inefficiency and waste.

So, what do these findings mean?  Should we turn the holdings of the American Campaign Academy or Big Mama Rag loose on these nonprofits?  Should we be surprised or even concerned?  It seems to me that nonprofits inevitably have an ideological bent, thus exposing the great irony of cases implying that nonprofits should be unbiased; in other words devoid of human influnce.  I don't think a non-ideological organization, profit or nonprofit, exists in nature.  The study, as far as I have read, does not report the reactions of those news organizations perjoratively labeled as "ideological." but I bet most of them would disagree that they are presenting "narrow" perspectives.  They are just as likely to conclude that the study author's have an ideological bent.  Ideology, I think, is in the eye of the beholder.

dkj

 

July 19, 2011 in Studies and Reports | Permalink | Comments (0) | TrackBack (0)