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Government Executive: IRS Probe Continues to Divide House Oversight Panel

August 1, 2013 by

By Charles S. Clark
July 30, 2013

Two conservative groups with long-standing tax-exempt status were unfairly targeted by the Internal Revenue Service and merit a new investigation by the inspector general, according to two members of the sharply divided House Oversight and Government Reform Committee.

Reps. Darrell Issa, R-Calif., chairman of the panel, and Jim Jordan, R-Ohio — acting without cooperation from the panel’s ranking member Elijah Cummings, D-Md. — on Monday wrote a letter complaining about audits and unfair paperwork demands that a controversial unit of the tax agency imposed on the Arlington, Va.-based Leadership Institute and the Herndon, Va.-based Claire Boothe Luce Policy Institute.

“The totality of your ‘targeting’ investigation along with evidence obtained by the committee points to the fact that the IRS may have selected certain conservative organizations for additional scrutiny after the IRS already approved their tax-exempt status,” Issa and Jordan said in a letter to J. Russell George, the Treasury inspector general for tax administration.

The Leadership Institute, founded in 1970 and run by longtime conservative activist Morton Blackwell, reported about $15 million in assets in 2012. During IRS audits, the lawmakers’ letter said, the group had to turn over 23,430 pages of documents at a cost of some $50,000. Staff told congressional investigators that they were asked “invasive questions, including requests for information about its interns and where they worked after their internships.”

The Clare Booth Luce Policy Institute, founded in 1993 to advance conservative women and run by Michelle Easton, an Education Department appointee during the Reagan and George H. W. Bush administrations, reported assets of some $2 million. Easton told congressional staff that its treatment by the IRS amounted to “harassment,” and that its audit “took the greater part of 2011 and cost tens of thousands of dollars.”

Both have 501(c)3 nonprofit status.

The Republican lawmakers want auditors to determine whether the Cincinnati-based entity within the IRS’ Exempt Organization Division called the Review of Operations Unit had been flagging groups with longtime tax-exempt status in addition to the 300-400 groups that had applied for the status beginning in 2010 that became the subject of this spring’s IRS scandal. Issa quoted an email from Lois Lerner, the director of Exempt Organizations who is on administrative leave and who so far has declined to testify to Issa’s panel, instructed underlings that “[o]ne of the recommended actions is going to be to send ROO referrals for those cases that cause us concern resulting from organizations making changes after being questioned during our case development.”

The request on Tuesday drew a rebuke from Cummings, who in a letter to Issa, said, “your letter appears to provide partial and incomplete information and to disregard key evidence that is contrary to your political narrative.”

Quoting from transcripts of congressional staff interviews with IRS employees who processed the nonprofits’ applications, Cummings said Issa’s version fails to explain that the head of the Exempt Organizations Determinations Unit in Cincinnati told the committee that referrals to the ROO were not “systematic,” but instead were done on a case- by-case basis. Also left out of the request to TIGTA, Cummings added, was the testimony from another employee saying that a referral to the ROO did not automatically result in an audit of the organization.

“The committee,” Cummings concluded, “has identified no evidence that the IRS discriminated against conservative groups that had been approved for tax exempt status.”

In another sign that the political and legal maneuvering stemming from the IRS scandal are not fading away, a transparency advocacy group called Cause of Action on Monday announced that it has hit the IRS’ Exempt Organizations Division with a complaint about Enroll America, a nonprofit that is also a 501(c)3 that works on a parallel track with the Health and Human Services Department to promote enrollment in health insurance exchanges during implementation of the Affordable Care Act.

Cause of Action is seeking removal of Enroll America’s charitable status because it operates “like a business league or trade association,” providing a profit incentive and performing marketing and lobbying for medical and insurance interests rather than charitable acts. “If Enroll America is designed to benefit insurance companies instead of the American public, then its charitable status no longer applies,” argued Dan Epstein, Cause of Action’s executive director. “An organization that has been granted tax deductible status but is actually depriving the American people of taxable revenue warrants an investigation.”

To read the full article, click here.

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Cause of Action Files IRS Complaint Against Enroll America For Violating the Internal Revenue Code

August 1, 2013 by

FOR IMMEDIATE RELEASE                                                                                             

July 29, 2013

Cause of Action Files IRS Complaint Against Enroll America For Violating the Internal Revenue Code

WASHINGTON – Today, Cause of Action (CoA), a government accountability organization, filed a complaint before the Internal Revenue Service (IRS) asking for the IRS to revoke the charitable status of Enroll America, the nonprofit whose mission is to enroll individuals in the Patient Protection and Affordable Care Act’s insurance exchanges. Enroll America is, the complaint alleges, improperly classified as a 501(c)(3) organization and therefore in violation of the Internal Revenue Code.

“If Enroll America is designed to benefit insurance companies instead of the American public, then its charitable status no longer applies,” said Dan Epstein, executive director of Cause of Action. “An organization that has been granted tax deductible status but is actually depriving the American people of taxable revenue warrants an investigation.”

Cause of Action has conducted previous investigations into how non-profit groups are handling federal grant money as well as how the IRS monitors tax-exempt groups. Their report on potential violations of the law concerning stimulus funds that went to a program called Communities Putting Prevention to Work can be found here. A report released last month delves into a little known provision of the tax code called fiscal sponsorship, which is ripe for abuse and not being monitored well by the IRS.  The report can be found here. This Enroll America complaint is the latest in CoA’s work to ensure that organizations benefiting from taxpayer dollars and tax exemption are adhering to the law.

Cause of Action is requesting an immediate investigation to address the following:

  1. Enroll America does not operate as a 501(c)(3) charity; it is organized more like a trade association for the healthcare industry, employing marketing and political tactics to sell health insurance.  Accordingly, Enroll America is not organized and operating exclusively for a charitable purpose.
  2. The for-profit healthcare providers represented on EA’s board of directors and advisory board stand to reap a substantial private benefit from EA that is not shared by its intended beneficiaries, meaning Enroll America fails the private inurement and private benefit doctrines.

Cause of Action will also be sending a letter to Covered California, California’s state health exchange, to alert them of liabilities under federal and state laws and guidelines. Enroll America will be a liaison to state health exchanges across the country, such as Covered California, who manage the sale of health insurance policies.

“The risk of spending federal money in wasteful, fraudulent or abusive ways as they fund outreach activities to enroll the uninsured should put state exchanges on high alert,” said Dan Epstein. “Covered California creates a one-stop insurance marketplace, while conducting outreach similar to that of Enroll America, and we want these exchanges to be aware of the numerous laws and regulations that could present multiple liabilities for them as enrollment begins.”

The complaint can be found here.

The liability alert letter to the General Counsel of Covered California is here.

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Washington Examiner: Cause of Action files IRS complaint against Obamacare advocate Enroll America

July 30, 2013 by

Cause of Action files IRS complaint against Obamacare advocate Enroll America

BY KELLY COHEN | JULY 29, 2013 AT 7:35 PM

Cause of Action, a Washington-based non-profit government accountability group asked the IRS Monday to withdraw the tax-exemption of Enroll America, which was formed explicitly for the purpose of encouraging Americans to enroll in the Obamacare health insurance exchanges.

Cause of Action believes Enroll America should have its nonprofit status revoked because it does not adhere to the requirements in the tax code for tax exempt 501(c)(3) educational foundations.

In its complaint to the federal tax agency, Cause of Action said Enroll America “is engaged in commercial, for-profit business activities” and the “directors/officers/persons are using income/assets for personal gains.”

In addition, Cause of Action said the group “is organized more like a trade association for the healthcare industry, employing marketing and political tactics to sell health insurance. Accordingly, Enroll America is not organized and operating exclusively for a charitable purpose.”

Dan Epstein, Cause of Action’s executive director, said “an organization that has been granted tax deductible status but is actually depriving the American people of taxable revenue warrants an investigation.”

Cause of Action also plans to contact Covered California, California’s state health exchange, “to alert them of liabilities under federal and state laws and guidelines.”

Go here for more information on the Cause of Action complaint.

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The Daily Caller: Legal group requests IRS investigation into organization promoting Obamacare

July 30, 2013 by

Legal group requests IRS investigation into organization promoting Obamacare

Caroline May

Political Reporter
 A  government watchdog group has filed a complaint with the Internal Revenue Service calling for an investigation into the tax status of a group responsible for promoting Obamacare.

Enroll America is a nonprofit, with ties to the Obama administration, whose mission is to “maximize” the number of uninsured Americans enrolling in health care options under Obamacare.

According to the complaint, filed Monday by Cause of Action, Enroll America should not have been classified as a 501(c)(3) and is in violation of the tax code as it operates more like a trade association and benefits private companies represented by the members on its board of directors and advisory council.

Dan Epstein, executive director of Cause of Action, explained to The Daily Caller that the charitable distinction should not apply to Enroll America.

“If everything that the organization does can be done by a for-profit, it already frames the organization as not having a charitable purpose,” Epstein said.

The complaint names three board members with “significant ties to for-profit healthcare providers” and “extensive experience lobbying executive branch officials regarding the Affordable Care Act” as well as six organizations on Enroll America’s advisory council that “have a vested commercial interest in the sale of health insurance policies through the state health benefit exchanges, and which actively lobby the federal government on healthcare related issues.”

“In short, insiders with substantial control over the organization and for-profit healthcare providers are unlawfully receiving a private benefit from its activities, and the earnings and assets of the organization are therefore inuring to their benefit,” Epstein wrote in his complaint letter.

Health and Human Services Secretary Kathleen Sebelius has come under fire from Republican lawmakers in recent months for her fundraising efforts on behalf of the organization, soliciting donations from the healthcare companies HHS regulates.

Enroll America launched a multimillion dollar campaign, called “Get Covered America,” to educate about health insurance options available under Obamacare in June.

 

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The Hill’s HealthWatch: Watchdog requests IRS review of group that is promoting ObamaCare

July 30, 2013 by

Watchdog requests IRS review of group that is promoting ObamaCare

By Sam Baker – 07/29/13 12:40 PM ET

A watchdog group is asking the IRS to review the tax-exempt status of a organization crucial in helping to promote ObamaCare.

Cause of Action has asked the IRS to investigate Enroll America, a nonprofit that is encouraging people to enroll in new coverage options under the healthcare law.

The watchdog group said Enroll America should not have received tax-exempt status because its work helps secure new customers for insurance companies.

“If Enroll America is designed to benefit insurance companies instead of the American public, then its charitable status no longer applies,” said Dan Epstein, executive director of Cause of Action. “An organization that has been granted tax deductible status but is actually depriving the American people of taxable revenue warrants an investigation.”

Enroll America is a known ally of the White House, and was established to help raise awareness of new insurance options available under ObamaCare. Health and Human Services Secretary Kathleen Sebelius has made fundraising calls for the organization.

Enroll America National Communications Director Jessica Barba Brown said the objections are baseless.

“This complaint is completely without merit,” she said. “Enroll America is focused solely on helping to educate American consumers about the new health insurance benefits created by the Affordable Care Act.  The IRS has reviewed both the mission of Enroll America and in most cases the exact statements that Cause for Action is citing, and found that Enroll America qualifies for 501(c)(3) status.”The request for additional IRS scrutiny comes after conservatives have taken aim at the agency over its treatment of certain advocacy organizations, including those affiliated with the Tea Party, during the 2012 elections.

Enroll America is classified as a 501(c)3 organization, citing a charitable and educational mission to “maximize the number of lower- and moderate-income people either enrolled in Medicaid or certified for exchange-based subsidies.”

Enroll America’s aim is not to promote the healthcare law politically, but to encourage people to sign up for the new insurance options the law provides. The group’s leader is a former White House official, but it has also partnered with insurance companies and other industry players to focus on enrollment.

Cause of Action said the organization should not have tax-exempt status because increased ObamaCare enrollment will benefit the healthcare industries that sit on Enroll America’s board.

“As Enroll America’s purpose is so closely aligned with the commercial interests of these for-profit entities, its activities thus far demonstrate that it is little more than a trade association for the healthcare industry, employing marketing tactics and its high-level access to executive branch officials as a means to increase the sale of healthcare services,” Cause of Action’s complaint states.

Cause of Action describes itself as a nonpartisan watchdog group that fights government regulation and spending. Its executive director is a former aide to Rep. Darrell Issa (R-Calif.). the powerful chairman of the House Oversight Committee, and has worked for the powerful conservative donors Charles and David Koch.

— This story was updated at 2:54 p.m. and 5:04 p.m.

 

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IRS complaint against Enroll America

July 29, 2013 by

CoA sent a complaint to the IRS advising that Enroll America, a § 501(c)(3) organization, is in violation of several provisions of the Internal Revenue Code, and that an immediate investigation is warranted to determine whether its tax exemption should be revoked.  Enroll America is primarily organized to benefit the health insurers, pharmaceutical companies, and other for-profit commercial entities represented on its board of directors and advisory council, and is therefore not organized to achieve any of the lawful purposes listed under IRC § 501(c)(3).

 

13909 Complaint

13909 Complaint Cover Letter

Exhibits

 

 

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The Fiscal Times: Dan Epstein: Lax IRS Oversight Fostered Costly Charity Scams

June 20, 2013 by

Lax IRS Oversight Fostered Costly Charity Scams

By DAN EPSTEIN    June 20, 2013

 

In addition to its clean beaches, rolling hills and exclusive real estate, Pacific Palisades, California, was home to the International Humanities Center (IHC), a tax-exempt sponsor of over 300 charitable endeavors. Its executive director, Steve Sugarman, rose to non-profit stardom by leading IHC-supported organizations to over $6 million in combined revenue.

But by December 2011, several IHC-sponsored projects received a shocking letter from Sugarman. It disclosed that IHC was “running a considerable deficit that has severely impacted all operations,” and warning the projects that future payments may not be processed.IHC became so successful so quickly that by 2009 the organization had to place a moratorium on sponsoring new projects. Sugarman’s secret was fiscal sponsorship – a term of art referring to tax-exempt 501(c)(3) charities that raise tax-deductible contributions on behalf of projects that lack the resources to operate as independent, tax-exempt charities themselves.

One month later, Sugarman informed IHC’s projects that their fiscal sponsor was shutting down. Donations to hundreds of charitable causes – and the sponsor entrusted with them – had vanished. The FBI subsequently launched an investigation into the apparent disappearance of an estimated $1 million in donations that about 200 non-profits reported losing when the organization abruptly shut down.

The story of IHC is not unique. Fiscal sponsors that engage in money laundering and fraud are systemic. And these CEOs are not on Wall Street or in the boardrooms of large, publicly-traded corporations. This kind of corporate fraud occurs in small, tax-exempt nonprofits, often run by one or two individuals who have discovered an opening in the tax code that allows them to dupe unsuspecting start-up charities and fly under the radar of an over-complicated tax code.

While the Internal Revenue Service got into trouble for targeting Tea Party groups, many fiscal sponsors have wrongly obtained charitable status to engage in a dangerous pattern of abuse that destroys jobs and ruins charitable aims toward the public good. Sadly, despite evidence of fiscal sponsors having fabricated tax documents and bank statements or mismanaged federal grant money, fiscal sponsorship has been unmanaged, unchecked, and undefined by the IRS.

The importance of IRS oversight of fiscal sponsorship is not just in the interest of those charitable projects that rely on the practice for their support – but for the American taxpayers as well. IHC received economic stimulus funding from the U.S. Department of Energy – yet no shovel-ready jobs were created.

In fact, the IHC’s use of these funds was subject to a DOE Inspector General investigation, with a criminal and civil case pending against IHC as of April 2012. Proper IRS oversight over fiscal sponsorship would have averted whatever bureaucratic wisdom concluded that IHC merited tax dollars or that it would employ out-of-work Americans.

Moreover, fiscal sponsorship has been abused in ways that threaten American security interests. Many are familiar with the Freedom Flotilla, which was led by the pro-Hamas Free Gaza Movement; it resulted in the death of nine people. But few are aware that the Free Gaza Movement is fiscally sponsored by a Washington, D.C.-based tax-exempt nonprofit, the American Educational Trust. For the IRS, fundraising for terrorism abroad apparently does not raise the same red flags as does being a “patriot” or supporting the constitution.

The IRS must regulate fiscal sponsorship by clearly defining the parameters and standards of the practice. Fiscal sponsorship agreements should be treated as contracts that identify the fiscal sponsorship arrangement between sponsor and client, as well as provide evidence that the sponsoring organization will exercise discretion and control over its client. The IRS, through rulemaking, should require that any 501(c)(3) organization that engages in fiscal sponsorship file with its Form 990 copies of all of its written fiscal sponsorship arrangements. Additionally, the IRS should require that fiscal sponsors disclose in their 990s when the gross receipts of a sponsored project exceeds $50,000.

Cases like IHC and the Free Gaza Movement underscore the substantial lack of guidance regarding fiscal sponsorship. Those gaps in oversight have exposed hundreds of charities to abuse and allowed substantial sums of donations – including federal government grants – to be mismanaged by unaccountable sponsors.

The IRS’s failure to properly oversee tax-exempt groups puts all projects that find themselves under an incompetent or disreputable fiscal sponsor at risk of losing funding and shutting down.

Dan Epstein is executive director of Cause of Action, a nonprofit, nonpartisan group that promotes government accountability and transparency. The group has filed a request with the IRS to develop rules and standards for tax-exempt fiscal sponsors.

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