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.

[Issaquahking]

If you don't like the way things are...get your own website. if you were passionate about the issue, you'd have a lot more than two hours of work into the issue.

In a positve light, thanks for a great post, but people will stay closer to the issue if you don't whine in the thread.

[tertiary01]

We are in the era of getting to select the laws we don't like by breaking them and getting away with it. I was talking with my county supervisor yesterday and brought up some laws and regulations often broken or ignored by some of the county regulatory employees and others. Basically his reply was that it was standard operating procedure and the PTB are is tooo busy to deal with it.

[tertiary01]

Interesting....This put some pieces of a puzzle together for me, especially (C). Thanks

[Sam Hill]

"If you don't like the way things are...get your own website."

Thanks. I have done that.

"if you were passionate about the issue, you'd have a lot more than two hours of work into the issue."

That's good to know. Can I guote you on that?

"In a positve light, thanks for a great post, but people will stay closer to the issue if you don't whine in the thread."

You are undoubtedly unaware that this has been an ongoing issue on my (and other people's) posts around here for some time.

It is only by whining about it, that the articles get put back in the news/activism section where they might be seen by enough people to do some good.

But thanks for your expert instant analysis. No matter how uninformed it may be.

And keep up your great works for the cause. LOL

[Issaquahking]

So if you have a website, maybe it needs "some of my expert analysis" to peek my interest.

One of the better websites I've seen on who not to give to is listed here. Most of the people I work with in activist projects don't seem to have a chip on their shoulder, they build bridges and find ways around obstacles, and are fun to work with.

[mware]

Sam, I could be mistaken but I thought that CodePink cancelled that trip.

[raybbr]

Liz,
I am not sure you meant to ping me to this. However, anytime I do get a ping from you it is either entertaining or informative and sometimes both. As always I look forward to being remembered by you.

Ray

[Liz]

Thanks for the note, Ray. Pinged you on purpose. Thought the take on hyphenates would interest you.

[Sam Hill]

They seemed to have.

But according to the IRS regs, even planning such a thing is a violation.

Also, it's hard to tell from their sites, but I'm fairly sure Global Exchange has done other trips to Cuba previously.

[Sam Hill]

I'll keep that in mind. Thanks so much.

And keep your interest "peeking." LOL

[raybbr]

Oh, I see it now (Candidates may use non-profit, ethnic, hyphenated, or faith-based groups as middlemen). I didn't catch that before. Funny that they are finally catching on to the "hyphenate as special interest grouups".

[mware]

I believe you are correct Sam. They have sponsored previous trips to Cuba.