Nonprofit organizations that might be inappropriately enriching their organizers and fostering anti-societal behavior, including participating in the January 6 Capitol insurrection, are abusing their 501(c)(3) or 501(c)(4) statuses, according to Extremist and Hate Groups May be Abusing Non-Profit Status, a report from New York City-based Anti-Defamation League (ADL).
Nonprofit status allows these groups to raise money, avoid taxes and use fundraising tools available to charities such as Facebook Donations and Amazon Smiles. Additionally, government-granted nonprofit status might be viewed as government endorsement, lending these entities credibility, the report authors claim.
Potential abuses of nonprofit status fall into several buckets, according to the ADL report. Some appear to be making misleading statements in their Internal Revenue Service (IRS) filings in order to gain tax-exempt status. Others pay excessive compensation to their leaders, which in some cases amount to more than half the organizations’ annual revenue. Still others enrich friends and family members at the exempt organization’s expense, according to the study’s authors.
These organizations often promote themselves as education foundations or outlets for community service. Some claim noble missions such as outreach among law enforcement, military members and veterans, but in fact are doing so to build a paramilitary force capable of violent confrontations with law enforcement and other authorities, according to the report’s authors.
Other questionable nonprofits blur the line between individuals being officers and independent contractors, allowing a single person two income streams from a given nonprofit. These nonprofits do not list oversight mechanisms within their IRS forms that would establish the appropriateness of the additional compensation. Still others appear to have executives who were granted inappropriate loans from their organizations.
In some cases, the ADL cited organizations for what appeared to be inconsistent or potentially misleading reporting, such as fudging their state of incorporation, inconsistently listing the names of officers or failing altogether to file required forms.
The authors concluded by asking the IRS’s Exempt Organizations Division to review and revoke the tax-exempt status of organizations involved with the Capitol insurrection or other violent extremist activities. They further call on the U.S. Department of the Treasury to create guidance that would help identify fraud and abuse by these organizations.
ADL leaders also called on the Biden administration to create a multi-agency strategy for stanching financial support from tax-exempt organizations for violent extremist activities, and for online platforms to tighten controls over nonprofits that solicit donations for hate and other extremist activities. Finally, it asks the commercial community to become aware of, and refrain from supporting, nonprofits that support such activities, such as through matching employee contributions.
The ADL provided a copy of its report to IRS Deputy Commissioner, Services and Enforcement Sunita Lough and IRS Director, Exempt Organizations and Government Entities Robert Malone. A copy of the report is available here: https://www.adl.org/media/16514/download
“We urge the IRS to take swift and meaningful action to investigate organizations that may be abusing their tax-exempt status to support violent extremism, and to revoke this status where appropriate,” ADL CEO and National Director Jonathan Greenblatt wrote in a note accompanying the report.
At deadline, the IRS media team had not confirmed whether Lough or Malone had received the report.