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:
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:
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:
And this:
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).
(4) Planning Illegal ActsIn 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:
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.
Where Do You Report Suspected Tax Fraud Activity?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?
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.
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.
