501c3 “Charities” Cannot Break The Law

Sweetness & Light ^ | January 27, 2006 | N/A

[Sam Hill]

Our good friends at The American Thinker and Israpundit have uncovered a fascinating limitation upon 501c3s like Cindy Sheehan's Gold Star Families For Peace and Medea Benjamin's Code Pink and Global Exchange.

To wit, it is a violation of their tax exempt status for such "charities" to plan and engage in illegal activities.

From the guidelines of the Internal Revenue Service:

J. ACTIVITIES THAT ARE ILLEGAL OR CONTRARY TO PUBLIC POLICY

1. Introduction

Exempt purposes may generally be equated with the public good, and violations of law are the antithesis of the public good. Therefore, the conduct of such activities may be a bar to exemption. Factors that have to be considered in determining the effect of illegal activities on an organization's qualification for exemption are the paragraph of IRC 501(c) under which the organization is exempt or is applying for exemption, and the nature and extent of the illegal activities engaged in by the organization.

2. IRC 501(c)(3) and IRC 501(c)(4) Organizations

A. Charity Law

Exemption recognized under IRC 501(c)(3) is unique in that, unlike exemption under other paragraphs of IRC 501(c), it is grounded in charity law, so that denial of exemption under IRC 501(c)(3) may be based on charity law.

(1) Substantiality Test

Violation of constitutionally valid laws is inconsistent with exemption under IRC 501(c)(3). As a matter of trust law, one of the main sources of the general law of charity, planned activities that violate laws are not in furtherance of a charitable purpose. "A trust cannot be created for a purpose which is illegal. The purpose is illegal ... if the trust tends to induce the commission of crime or if the accomplishment of the purpose is otherwise against public policy.... Where a policy is articulated in a statute making certain conduct a criminal offense, then ..., a trust is illegal if its performance involves such criminal conduct, or if it tends to encourage such conduct." IV Scott on Trusts Section 377 (3d ed. 1967). Thus, all charitable trusts (and by implication all charitable organizations, regardless of their form) are subject to the requirement that their purpose may not be illegal or contrary to public policy. Rev. Rul. 71-447, 1971-2 C.B. 230; Restatement (Second) of Trusts, Section 377, Comment c (1959). Moreover by conducting criminal activities, an organization increases the burden of government and thus thwarts a well recognized charitable goal, i.e., relief of the burdens of government.

Reg. 1.501(c)(3)-1(c)(1) states that an organization will not be regarded as operated "exclusively" for IRC 501(c)(3) purposes if more than an insubstantial part of its activities is not in furtherance of an exempt purpose. The presence of a single non-charitable purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly charitable purposes. Better Business Bureau v. United States, 326 U.S. 279 (1945). Therefore, if an organization engages in illegal acts that are a substantial part of its activities, it does not qualify for exemption under IRC 501(c)(3).

And this:

(4) Planning Illegal Acts

Not only is the actual conduct of illegal activities inconsistent with exemption, but the planning and sponsoring of such activities are also incompatible with charity and social welfare. Rev. Rul. 75-384 holds that an organization formed to promote world peace that planned and sponsored protest demonstrations at which members were urged to commit acts of civil disobedience did not qualify for IRC 501(c)(3) or (4) exemption. G.C.M. 36153, dated January 31, 1975, states that because planning and sponsoring illegal acts are in themselves inconsistent with charity and social welfare it is not necessary to determine whether illegal acts were, in fact, committed in connection with the resulting demonstrations or whether such a determination can be made prior to conviction of an accused. However, it is necessary to establish that the planning and sponsorship are attributable to the organization, if exemption is to be denied or revoked on this ground.

In fact, a public minded citizen can even earn monetary rewards from the government by reporting such violations of the IRS code. Again from the IRS website:

Where Do You Report Suspected Tax Fraud Activity?

If you suspect or know of an individual or company that is not complying with the tax laws, you may report this activity by completing Form 3949-A. You may fill out Form 3949-A online, print it and mail it to:

Internal Revenue Service
Fresno, CA 93888

If you do not wish to use Form 3949-A, you may send a letter to the address above. Please include the following information, if available:

* Name and address of the person you are reporting
* The taxpayer identification number (social security number for an individual or employer identification number for a business)
* A brief description of the alleged violation, including how you became aware of or obtained the information
* The years involved
* The estimated dollar amount of any unreported income
* Your name, address and daytime telephone number

Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.

Is there any doubt that Cindy Sheehan and Medea Benjamin's groups have promoted the breaking of laws and actually engaged in law-breaking themselves?

Mother Sheehan and her cadre, including Code Pink, chained themselves to the White House fence and were arrested and later convicted of breaking various laws.

Medea Benjamin's groups are credited with helping to organize the Seattle WTO riots. Dozens of press accounts credited Global Exchange's role, as they themselves did in the Boston Phoenix:

But many who were in the streets during WTO week hope to remember Seattle for the start of a new dialogue about the global economy. "This was historic!" says Kevin Danaher, who heads Global Exchange, a human-rights-watch organization based in San Francisco. "Have you ever seen the public get concerned about a trade ministers' conference? Never! We dragged the snake out from underneath the rock."

Global Exchange has organized several "Reality Tours" to Cuba, which is a violation of US law. Lately, some of these trips seem to have hit a snag:

Dear Friends,
We have some bad news to relay about the Cuba trip. We knew that this trip was a challenge to the Bush administration’s restrictions on travel to the island.
However, we had anticipated that, as in the past, the government would either let us come and go without incident, or would send us a letter after we returned. Instead, we—CODEPINK, Global Exchange, and some of the participants—have already received ominous letters from the Treasury Department, calling on us to “cease and desist” our plans for the trip, demanding the names of all the people who had signed up, and threatening us with a million dollar fine and ten years in jail.
When some individual participants received these letters, they canceled their plans—leaving us without the “safety in numbers.” And while our organizations are willing to fight the government on this (Global Exchange has been fighting the travel restrictions for 15 years!), we feel that right we are too overloaded with other efforts, such as stopping the war in Iraq, to take on a prolonged legal battle right now.

Never the less, it is still against the IRS guidelines to even plan such illegal activities, which Global Exchange admits to doing. And there are surely plenty more examples of their scofflaw activities.

All in all, this little known fact about the IRS regulations covering 501c3s should be a very handy tool to use against these and the many other tools on the left that masquerade a "charities."

Such as Cindy's other close friends, the Veterans For Peace.

[Sam Hill]

Actually it seems that particular trip hit a snag:

Dear Friends,

We have some bad news to relay about the Cuba trip. We knew that this trip was a challenge to the Bush administration’s restrictions on travel to the island.

However, we had anticipated that, as in the past, the government would either let us come and go without incident, or would send us a letter after we returned. Instead, we—CODEPINK, Global Exchange, and some of the participants—have already received ominous letters from the Treasury Department, calling on us to “cease and desist” our plans for the trip, demanding the names of all the people who had signed up, and threatening us with a million dollar fine and ten years in jail.

When some individual participants received these letters, they canceled their plans—leaving us without the “safety in numbers.” And while our organizations are willing to fight the government on this (Global Exchange has been fighting the travel restrictions for 15 years!), we feel that right we are too overloaded with other efforts, such as stopping the war in Iraq, to take on a prolonged legal battle right now.

Nevertheless, it is still against the IRS guidelines to even plan such illegal activities.

[djreece]

BTTT

[mosquitobite]

LMAO!

[weegee]

Additionally 501c3s can no more legally urge voting for/against a candidate/party or piece of pending legislation than a preacher can in a church.

AND that includes violations like party literature and voting guides (checklist of the "correct" candidates) inside Pacifica Radio offices.

[weegee]

Conservative churches. Democrats are notorious (including Bubba) for urging voters to vote for them from the pulpit on Sundays before election day, WITHOUT repercussion.

[Ernest_at_the_Beach]

Well THAT is good news....

And...this hasn't been getting much play today but I think it is BIG....notice the Iraqis involved in 1992...:

Colombia: Fake Passport Ring With Terror Ties Busted ~ links to al-Qaida and Hamas militants,..

See Post #2 for the Iraqi note.....

[Sam Hill]

I know you're right. Cindy has even bragged about campaigning against Bush and lobbying congress.

I believe that 501c3s are allowed to do a little lobbying, if they report it and it is a small fraction of what they are about. But clearly they don't and it's yet another regulation they violate.

But that's almost forgiveable compared to actually breaking the law and getting tax breaks to do so.

[Dan(9698)]

Once again this post has been shunted off into the bloggers ghetto.

I see it in News/Activism.

Quit complaining.

[Sam Hill]

I was only moved after I complained.

But thanks for your insightful post.

[Sam Hill]

I = it

[ZGuy]

I'm going from personal experience on this. I don't have any written sources I can site. Contacting National Right to Life or Operation Rescue might lead you to some documentation.

[Sam Hill]

Thanks. I certainly never doubted what you said is true. It would just be nice to see it in print somewhere.

You're probably right that those groups might have something.

[American in Israel]

Well if I am not mistaken, to loose a 501c3 due to illegal activity puts your goods in jeopardy. Having benefited from a tax free status, your wealth garnered under the 501c3 can be attached.

They can not only loose the tax certificate, but their homes and cars too. The IRS has no sense of humor I am aware of...

[Thunder90]

I hope they put a travel embargo on Venezuela soon.

[Straight Vermonter]

This is what FR has become.

[Grampa Dave]

I believe that you are partially correct.

When the IRS removes the charitable/non profit status of 501c3 charities, the result can be fines and possible seizure of assets of the 501c3.

As of now the assets of the people involved are protected. So they just walk away from the wreckage, get more startup funding from George $oreA$$ and start a new 501c3.

A conservative lawyer in the DC area said the only way to stop this was to make the officers and board members of the 501c3 responsible for criminal acts. Over 6 years ago, he was for asset seizure of the execs and board members when they involved the 501c3's in illegal activities. Living in the DC area, he said that liberal criminals (his words) created 501c3's for illegal political activities on a regular basis. As soon as the need was over, they would end the 501c3 or change its name and mission. He felt that these 501c3's enabled the liberals to laundry money and create boiler rooms to defeat republican candidates. With what happened in 2004 and up to now, his warnings came true.

[NotJustAnotherPrettyFace]

Code Pink members have certainly broken laws. Are they 501(c)3?

[Liz]

The following complicated transactions should draw scrutiny in legal and political circles. No question, these scams are duplicated nationwide.

(A) Candidates deliberately raise more corporate money from publicly-held corporations than they need, then divert some of the excess in a series of generous donations to 501c3 non-profit groups that, on the surface, benefited their mutual causes.

(B) The candidates' donations to non-profits are then illegally converted, then funneled back to candidates‘ campaign coffers through donations by the N/P officers and their co-conspirators, or subsets of them.

(C) Setting up foundations is the newest candidate financial instruments to commit fraud.

Candidates may use non-profit, ethnic, hyphenated, or faith-based groups as middlemen for campaign transactions by a pattern of candidates funneling money from family-run foundations---- to these different groups, that is laundered, then lands in candidates’ campaign accounts, in order to obscure, if not cover-up, the original source of donations to campaign coffers.

Candidates, their family, or henchmen might also direct that N/P donations be made in the names of others without their knowledge or consent.

When the financial merry-go-round stops, non-profit, ethnic, and faith-based individuals---the hyphenated groups candidates need to endorse their election efforts---end up with a lot of money, some of which was laundered, illegally converted, then funneled back into candidates’ campaign coffers.

Millions of dollars in donations to candidates might never have been disclosed to campaign regulators, because the type of groups candidates used aren’t governed by federal law.

The public-spirited N/P donors might not always have known where their tax-deductible money was headed, and don't control funds once they're donated. Money gets transferred all the time and remains disclosed only to the extent required to be disclosed by applicable state and federal law---obviously this gets complicated.

With regard to (A), as a collateral effect, state laws and campaign finance laws are violated in schemes that appear to launder corporate donations to a candidate, and should raise questions regarding whether shareholders in publicly-funded corporations were deceived, and whether the true destination of corporate money was concealed (SEC is interested in this).

[HiTech RedNeck]

Hoot, it could be protests outside an abortion clinic at ALL. Isn't Roe "public policy"?

[Interesting Times]

Nice work. If this doesn't qualify as "activism" it's difficult to imagine what does...