New Charity Watchdog Files IRS Complaint
Accusing Nader Group of Evading Taxes on $30-Million Fund
Public Interest Watch also targets conservative anti-immigration group
View PIW's letter to the IRS.
WASHINGTON, DC -- A new charity-watchdog group was launched today, filing tax complaints with the Internal Revenue Service against two high-profile nonprofit organizations.
The new watchdog outfit, Public Interest Watch (PIW), filed complaints against Ralph Nader's Center for Study of Responsive Law (CSRL) and the anti-immigration Federation for American Immigration Reform (FAIR), accusing both groups of violating nonprofit tax laws.
The complaint against Nader's group alleges that it has evaded taxes on an investment portfolio of nearly $30 million and skirted requirements that it disclose information about its investment holdings and contributors. The complaint against FAIR accuses the group of improperly funding anti-immigration advocacy efforts with millions of dollars in tax-deductible contributions.
"What these two groups are doing, pure and simple, is cheating the taxpaying public. They're funding their operations with tax-deductible contributions, costing the treasury millions of dollars annually. Yet they're ignoring the conditions imposed by law to ensure that such taxpayer-funded groups are truly serving the public interest," said Mike Hardiman, executive director of Public Interest Watch, which filed the IRS complaints.
PIW was established to shine a spotlight on the activities and finances of nonprofit advocacy organizations, exposing specific instances of misconduct. PIW also plans to advocate for legislative reforms that would require improved financial disclosure by such groups. PIW's executive director, Mike Hardiman, is a taxpayer advocate and former congressional staffer.
PIW filed two complaints with the IRS today. Here are details of those complaints:
Ralph Nader's CSRL
The essence of the complaint against Nader's group is that he has mischaracterized the group in filings with the IRS as a "public charity" when in fact it is a "private foundation."
The distinction is significant because private foundations, unlike public charities, are subject to a tax on investment income, public disclosure of investment holdings and contributors, and a requirement that at least 5 percent of the foundation's assets be spent on charitable activities annually. Under the law, a nonprofit charitable organization is regarded as a private foundation unless it can establish -- under one of two tests set forth in IRS regulations -- that it receives a significant portion of its funding from the public.
In its complaint, PIW alleges that Nader's group fails both tests for qualification as a public charity and that Nader has maintained the group's official status as a public charity by making false claims in IRS filings. In particular, PIW points to the assertion made by Nader in a 2000 IRS filing, in support of the public charity qualification, that his group "has carried on an active program of public solicitation."
Nader also reports in that same filing, however, that the organization had zero expenditures for fundraising. PIW also notes in the complaint that the only fundraising pitch on the CSRL's website directs donors to make their contributions to a separate Nader-affiliated organization.
Other evidence cited by the complaint that Nader's group does not qualify as a public charity -- and instead resembles a private foundation, of a type often established by wealthy philanthropists -- is that the group has:
A tightly controlled board. (Nader and his sister constitute half of the board of directors.);
Investment assets that dwarf its annual operating budget ($27 million in assets vs. a $1 million budget at the end of 2000.); and
No membership, either formal or informal.
"By all appearances, the CSRL is a privately funded and controlled foundation of nearly $30 million that Mr. Nader uses to sponsor public policy-related projects to his liking. In every respect, it seems to qualify as exactly the kind of private, tax-exempt fund whose investments the law says should be taxed and whose finances the law mandates be opened up to public scrutiny," PIW wrote in its complaint to the IRS.
Federation for American Immigration Reform (FAIR)
PIW's complaint against FAIR alleges that the anti-immigration group is improperly using tax-deductible contributions to fund its advocacy efforts. FAIR obtained its status as a tax-exempt charitable organization by describing its purpose to the IRS as "education." PIW alleges that the group is in fact an advocacy organization, and therefore, ineligible to collect tax-deductible contributions.
"The name says it all: 'Federation for American Immigration Reform'. The primary mission of this group is not to educate the public, but rather to change immigration laws. Under the law, FAIR has every right to advocate for its version of reform, but not with tax-deductible contributions," Hardiman said.
Under the law, both educational and advocacy organizations may be established as tax-exempt nonprofits, but only the former may accept tax-deductible contributions. While a group can qualify as an educational organization by educating the public on public policy issues, the law clearly establishes that a group will not qualify as such if "its main or primary objective or objectives (as distinguished from its incidental or secondary objectives) may be attained only by legislation or a defeat of proposed legislation; and it advocates, or campaigns for, the attainment of such main or primary objective or objectives."
To support its qualification as an educational organization, FAIR has described its purpose in IRS filings as "to educate the public about the economic, sociological, environmental, demographic and other effects of mass immigration to the United States." Evidence cited by the PIW complaint, however, indicates that FAIR's main purpose is to prompt changes in immigration laws, and that education, if anything, is merely employed as a means to FAIR's namesake mission.
Among the evidence cited in the complaint that emanates from FAIR itself:
FAIR's description of itself as "a national, nonprofit, public-interest, membership organization of concerned citizens who share a common belief that our nation's immigration policies must be reformed to serve the national interest."
FAIR's description of its goals as (1) "to end illegal immigration"; and (2) "to set legal immigration at the lowest feasible levels consistent with the demographic, economic, social, and environmental realities of the present."
"The blatant violations of tax laws by these two groups-one liberal and one conservative-are symptomatic of a larger problem," Hardiman said. "Too many nonprofit groups, full of self-righteousness and well aware that the IRS isn't watching them closely, are simply ignoring the tax laws. Left holding the bag, probably to the tune of hundreds of millions, or even billions of dollars a year, are the taxpayers."
###
1425 P Street, NW Suite 706
Washington, DC 20005
How to Contribute
