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IRS: 501c3 “Charities” Can’t Break Laws

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 widely credited as being the organizers behind 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 promotes "Reality Tours" to Cuba, which is a violation of US law.

Cuba

Currently our program concentrates on four thematic areas: Environment, Education, Healthcare and Community Development. We offer the following travel opportunities:

  • Organizing research delegations for the topics listed below
  • Customized tours for humanitarian organizations, educational institutions and religious groups with a license that need program and logistical support
  • We provide informational resources and guidance for organizations, educational institutions and religious groups who are interested in acquiring a license

    For a current listing of our Research Delegations to Cuba, go to: Research Delegations to Cuba

  • Then there is Code Pink’s erstwhile plans to visit Castro’s paradise over New Year’s:

    Join CODEPINK for New Year’s in Cuba December 27-January 2, 2006

    Cuba is one of the most beautiful and fascinating countries on Earth—and George Bush says you can’t go there. Well, we’re going anyway, and we invite you to join us!

    This New Year’s CODEPINK will be organizing a large group of fun-loving and freedom-loving Americans to break George Bush’s ban on travel to Cuba. Join co-founders Medea Benjamin and Jodie Evans, together with Academy Award winning producer Paul Haggis, as we visit with farmers at their co-ops, doctors at their family clinics, dancers at the National Folklore Group, and young people at the ballpark. Don’t miss this historic chance to dance salsa, drink mojitos, and visit beautiful beaches—all while defending our constitutional rights!!!

    The federal restrictions barring travel to Cuba are not only counterproductive and outmoded in this post-Cold War context, but also a violation of our constitutional freedom to travel. The Bush administration says we can only travel to Cuba if we have immediate family there. Well, we do. Cubans ARE family—Somos Familia. And while we’re there, we’ll be holding a mutual adoption ceremony in order to demonstrate that family transcends political boundaries. In the ceremony, each participant will be paired with a Cuban brother or sister. After all, we are all part of one human family and there should be no artificial barriers dividing us. This historic opportunity to visit Cuba will cost approximately $1,500 (to Cancun) or $1,800 (to Mexico City). Participants will fly out of three points of entry: San Francisco, Los Angeles, and New York. We will all meet in Mexico City, where we will then take a chartered flight to Havana. Our trip this New Years will truly be a family affair. Feel free to bring children, parents, partners, neighbors, and friends. It is a trip designed for all ages, interests, and backgrounds (family rates available).

    After seven action-packed days on this wonderful island, we will re-enter the United States through these same three points of entry. This re-entry will be a powerful challenge to Bush’s restrictive policies that deny us our fundamental liberty to travel where we please. Though past high-profile “travel challenge” groups have experienced no adverse legal consequences to date, we will have our lawyers ready at each airport of entry to provide legal aid, if necessary.

    Because we will be traveling to Cuba without government permission (i.e. a license from the US treasury), CODEPINK participants will be breaking the embargo and therefore subject to civil penalties. (For further questions on the legal implications of unauthorized travel to Cuba, check out www.nlg.org/cuba). With these risks in mind, your participation in our trip is a crucial protest in the growing movement to end the travel ban.

    We expect a huge response to this trip, so get your applications in early. Also year–end travel gets booked up VERY early (especially the return flights after New Years), so make your plans early! We look forward to spending some marvelous days together, while pushing to overturn a policy that keeps us from building bonds of friendship with our neighbors.

    If you are interested in participating in this trip, please contact Dana (at) codepinkalert.org. You can also reach Dana by calling the CODEPINK office at (310) 827-4320.

    Alas, however, this 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, 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 as "charities."

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

    This article was posted by Steve Gilbert on Friday, January 27th, 2006. Comments are currently closed.

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