Nonprofit Groups Question Motive for Federal Actions (IRS & NAACP et al.)

The National Association for the Advancement of Colored People is locked in a standoff with the Internal Revenue Service, preferring to risk its tax exemption rather than hand over documents for an I.R.S. review that the civil rights group contends is politically motivated.

While it is rare for an organization to defy the I.R.S. openly, the N.A.A.C.P. is not the only group that believes it is being made a government target for its positions on issues.

Roughly a dozen nonprofit organizations have publicly contended that government agencies and Congressional offices have used reviews, audits, investigations, law enforcement actions and the threat of a loss of federal money to discourage them from activities and advocacy that in any way challenge government policies, and nonprofit leaders say more are complaining quietly.

"In previous administrations, there's been the occasional instance of what might appear to be retaliation, but when it started happening in a serial way, it began to look like a pattern to us," said Kay Guinane, counsel for the nonprofit advocacy project of OMB Watch, a government watchdog group that has published two reports on the issue.

Government agencies, which are under increasing financial pressure themselves, say they are merely enforcing rules on use of public money and nonprofit assets. Federal law prohibits organizations from using government financing for lobbying purposes, and tax law limits the use of charitable assets in general for lobbying.

"In the 1990's and early 2000's, some of our grantees hadn't been reviewed, hadn't had a site visit in some time," said Kathy Harben, a spokeswoman for the Centers for Disease Control and Prevention. "In October 2002, the financial management office renewed its commitment to reviewing funded programs through regular site visits."

Gauging whether liberal groups are being singled out for review more than conservative ones is almost impossible to determine because audits, investigations and threats are rarely made public.

Liz Towne, director of advocacy programs for the Alliance for Justice, a group that educates charities about how to avoid running afoul of tax laws that restrict their ability to lobby, said, "When we talked to the brain trust of lawyers who represent nonprofits around the country, they were saying, 'Well, I don't know if we see a pattern that goes beyond the usual kinds of complaints and investigations.' "

But, she added, the group sensed a "higher level of attention to nonprofits and their activities and that people are getting more sophisticated in how to get nonprofits to back off their message."

The review of the N.A.A.C.P. comes after the organization's chairman, Julian Bond, gave a speech at its 2004 convention sharply criticizing the Republicans, President Bush and Vice President Dick Cheney. The tax agency reminded the N.A.A.C.P. that tax-exempt organizations were barred from supporting or opposing any candidate.

After the organization complained that it was a political target, the I.R.S. commissioner, Mark W. Everson, asked the inspector general of the Treasury Department to review the I.R.S. process of choosing which groups to investigate for politicking.

Last month, the inspector general concluded that political considerations had no role in the I.R.S.'s selection of an organization for review. Of 40 cases studied by the inspector general, 18 were characterized as involving "pro-Republican" organizations, 12 "pro-Democratic" and one "pro-Green." The inspector general was unable to determine the affiliation of the other nine. The inspector general also looked at 20 cases the I.R.S. declined to review and found 8 were "pro-Republican" and 4 "pro-Democratic."

The agency also heard complaints of selective enforcement under the Clinton administration, but a study by the General Accounting Office, the investigative arm of Congress, found no evidence then of I.R.S. wrongdoing.

A spokesman for the N.A.A.C.P., John White, said last week that it was waiting for the I.R.S. to make the next move. The tax agency says it does not comment on specific cases.

Another agency that says it has been singled out for government scrutiny is Advocates for Youth, which operates programs that educate young people around the world about reproductive health and has received federal money for various programs for more than two decades.

It opposes the Bush administration's push for the adoption of programs that advocate abstinence as the only way to prevent childhood pregnancy and sexual transmission of diseases.

In September 2002, 24 Republicans in Congress sent a letter to Tommy G. Thompson, then the secretary of health and human services, demanding an audit and accusing Advocates for Youth of violating the law by using federal money to support lobbying. Its activities included visiting Congressional offices to distribute a report by the Institute of Medicine that questioned the efficacy of abstinence-only sex education.

James Wagoner, the president of Advocates for Youth, said the group has strict internal procedures to ensure that federal support backs only programs for children. "It was bare-knuckled intimidation," Mr. Wagoner said of the Congressional request.

A month later, the C.D.C., which is part of the Health and Human Services Department, asked Advocates for Youth to demonstrate with documentation that none of its money had been used for lobbying activities.

In January 2003, the General Accounting Office, now known as the Government Accountability Office, informed the group that at the request of Representatives Christopher H. Smith of New Jersey and Joe Pitts of Pennsylvania, both Republicans, it was investigating how much federal money Advocates for Youth and organizations like it spent on international and domestic activities. The G.A.O. review documented how the groups spent their federal financing, but did not touch on the issue of lobbying.

Two months after the report was released, the centers subjected the organization to a "business and financial evaluation," also at the behest of the two congressmen.

Advocates said it spent $100,000, or more than 2 percent of its annual budget, responding to the agencies' requests. To date, it says it has not been told the results of the C.D.C. reviews.

Another organization, the Global Health Council, lost financial commitments from the United States Agency for International Development, the C.D.C. and the Health Resources and Services Administration for the council's annual conference last year. The centerpiece of the conference was a debate on preventing the transmission of H.I.V. among youth.

Dr. Nils Daulaire, president and chief executive of the Global Health Council, said he believed the group had lost the money because a representative from Planned Parenthood was invited to the debate and a representative of the United Nations Population Fund was the host of another discussion. Both organizations support a variety of approaches to sex education.

A spokeswoman for A.I.D. said the agency had concerns because MoveOn.org, a political group that opposed President Bush in the 2004 election, was set to participate, which the agency saw as an increasingly partisan bent to the conference.

Ms. Harben, the centers' spokeswoman, said, "The agenda submitted with the application indicated some of the conference activities would support lobbying, and the budget that was submitted was not able to show that federal funds would not be used for lobbying activities."

The latest groups to complain that a Congressional inquiry is really an effort to punish them for opposition to Republican policy are the State and Territorial Air Pollution Program Administrators and its sister group, the Association of Local Air Pollution Control Officials.

Three days after one of their officials went before the Senate Environment and Public Works Committee and criticized the Clear Skies Act of 2005 for being too lenient on power plant emissions, the groups were asked by Senator James M. Inhofe, Republican of Oklahoma and the committee chairman, to supply several years of tax returns, lists of contributors and other documentation.

The legislation, which President Bush supports, stalled on March 10 when the committee deadlocked on whether to send it to the full Senate.

Will Hart, a spokesman for the committee, said no one had accused the organizations of wrongdoing. He said the request for information was made as part of a formal review of organizations that receive grants from the Environmental Protection Agency after a critical G.A.O. report in 2003 that said the agency needed better oversight of its grantees.

"Hindsight being 20/20, should we have included those questions relating to the investigation with questions about the testimony on Clear Skies? Probably not," he said. "Then the perception of them might have been different."

S. William Becker, the organizations' executive director of 24 years, says Senator Inhofe's inquiries were an effort to intimidate his organizations and silence their dissent. "There is no way of sugar-coating it," Mr. Becker said.

501C's are used to run just about every kind of fraudulent accounting schemes, some observers say. Legal fees, a line item in most non-profit accounting reports, are well-used money laundering schemes that evade US taxes and use fraudulent accounting techniques to violate US banking and SEC laws.

As part of the Tax Exempt Compensation Enforcement Project, the Internal Revenue Service (IRS) announced August 2004 that it intends to examine non-profit organizations (NPO), to learn more about the practices nonprofits follow as they fill out Form 990, the main public disclosure documents for charities and foundations, and whether accounting fraud and tax evasion is taking place, and whether the compensation of specific individuals is excessive and, and whether instances of questionable compensation practices may evade IRS, banking and SEC laws.

The IRS will examine NPO insider transactions, such as (1) loans, the (2) sale, (3) exchange or (4) leasing of property to non-profit officers and others. In particular, the IRS will look to see how organizations report (5) "excess benefit transactions" on Form 990, and (6) executive pay.

News agencies reported the IRS statement Aug 10, 2004, and that some 2,000 charities will be reviewed under a new IRS enforcement effort to determine whether NPO are abusing their tax-exempt status. "We are concerned that some charities and private foundations are abusing their tax-exempt status by paying exorbitant compensation to their officers and others," said IRS Commissioner Mark Everson. The IRS began the new enforcement project at the end of July and will continue through 2005.

The IRS has received complaints that 501C's are being used to run just about every kind of off-the-books accounting fraud. In one case, the president of a non-profit organization was embezzling donations and was engaging in accounting fraud by having the NPO pay his entire apartment lease which was fraudulently booked on non-profit documents as a "business office."

When the incident was reported to the IRS, they agreed that documentation to prove the fraud existed, but that the IRS had the staff to investigate non-profit fraud solely in amounts totaling $100,000 or more. The only way the fraud could have been stopped was to hire private attorneys to take the individual to court for fraud against the non-profit. However, the non-profit board walked away from it because they didn't have the personal resources to stop the fraud.

Concerns have also been raised that the IRS has been stymied in its efforts to penalize falsified tax documents and official financial instruments to cover-up theft, and the failure of individuals to report stolen money as income.

Nonprofits, authorities, trust, foundations, unions, have the potential and may, in fact, be major money laundering conduits. They wrap themselves in all sorts of high-sounding causes while engaging in activities that are fraudulent and benefit insiders at the expense of law-abiding Americans.

There are concerns that NPO's juggle the books. We need to determine whether NPO's are cooking the books, and whether they fraudulently filed false documents and whether NPO's misled state and federal agencies.

We need to know whether NPO's made accurate statements about income and outgo. The IRS should determine whether corporate contributors to NPO's misused corporate reserve accounts, concealing losses, inflating asset values and improperly accounting for transactions, as well as deferring profits into reserve accounts, improperly shifting capital funding to other projects to hide illegal payments, and so on.

Any of these practices could jeopardize the financial interests of stockholders and compel the SEC to step in. Anyone with concerns about these issues should contact the SEC here: enforcement@SEC.gov.

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