Wednesday, January 29, 2020

Hawaii AG Issues Controversial Subpoena for Nonprofit's Bank Records

As reported in the Honolulu Civil Beat, in late November 2019, the Hawaii Attorney General issued a subpoena seeking a nonprofit organization’s bank records for nearly three years (2017 through most of 2019), including monthly statements, deposit tickets and ATM surveillance photos.  What might seem like a routine exercise of AG oversight over a charitable organization within its jurisdiction, the history between the AG and the nonprofit, KAHEA: The Hawaiian Environmental Alliance, presents a different optic.  KAHEA has been at the center of the fight against the Thirty Meter Telescope on Mauna Kea on Hawaii's Big Island, including adversarial court proceedings between the two parties.  Shrugging off any claims that its subpoena action constitutes "retaliation and harassment," the AG argues that it is fulfilling its responsibility of regulating charitable organizations and presents two primary justifications for its investigation: (1) the use of tax-deductible donations for activities of civil disobedience are not permitted under the tax laws (specifically, federal tax law); and (2) KAHEA’s purported non-filing of the Attorney General’s annual disclosure form (Federal Form 990) for several years. 

In response to KAHEA's motion to quash the subpoena, the AG asserts that donations to KAHEA have supported "non-violent direct actions"--namely, the "five-month-long illegal blockade of Mauna Kea Access road in protest of the construction of the thirty-meter telescope.”  In support of its argument that nonprofits are not permitted to engage in civil disobedience activity, the AG cited an IRS ruling [Rev. Rul. 75-384] that denied federal tax-exempt status to a charitable organization that sponsored protests to promote world peace with illegal actions including blocking vehicle traffic and disrupting government work and the movement of supplies.

The Hawaii Alliance of Nonprofit Organizations recently weighed in on the controversy in support of KAHEA:

Neither of [the AG's] reasons justifies this kind of overreach. 

Contrary to the AG's assertions, there is no prohibition on a charitable organizations' participation in nonviolent protest, including acts of civil disobedience. 

Although the IRS has occasionally denied tax exemption for organizations whose sole or primary activities have been to violate the law, the IRS has never revoked an organization's tax-exempt status merely because it (or its members) occasionally took part in acts of civil disobedience or constitutionally protected Free Expression.  KAHEA also engages in a variety of legitimate activities that qualify it as a 501(c)(3) organization.

The suggestion that these activities are not permitted is therefore dangerous and misleading, not only to nonprofits, but also to the social change they seek. 

Moreover, it is not the role of the AG to enforce IRS requirements; that is a federal responsibility.

In today's hearing on the subpoena, according to the Honolulu Star Advertiser, a Hawaii Circuit Court judge stated that he was "inclined to allow . . . the subpoena" but articulated concerns regarding the subpoena's scope; specifically, the AG's request for surveillance photos taken from ATM machines.  Postponing a ruling on the motion to quash the subpoena, the judge gave the AG and KAHEA until Feburary 7, 2020, to reach an agreement about the extent to which KAHEA's financial information should be disclosed.

According to the Civil Beat article, the KAHEA subpoena isn’t the first AG subpeona related to the Mauna Kea protests.  In September 2019, the AG issued a subpoena to the Office of Hawaiian Affairs for information related to that public agency's financial support of the Mauna Kea protest movement.

[For more information on the Mauna Kea protests, see here].

 

Nicholas Mirkay

https://lawprofessors.typepad.com/nonprofit/2020/01/hawaii-ag-issues-controversial-subpoena-for-nonprofits-bank-records.html

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