Newt Gingrich was re-elected speaker of the House
this
past January, despite findings by an investigative
subcommittee that he had used tax-deductible charitable
contributions for partisan political purposes. The House
Ethics Committee then reprimanded Gingrich and punished him
with a fine of $300,000.
Are the charges against Gingrich serious? Is the tax law
he is alleged to have violated important? Should the average
citizen care? As a lawyer who practices in this area every
day, I believe the answer is yes to all three questions.
There are one million charitable organizations in the
United States, employing about one-tenth of the nation’s
work force. All of them — colleges, churches, hospitals,
service groups and others — are required by the Internal
Revenue Code to abstain absolutely from supporting or
opposing candidates. Unlike a business corporation or labor
union, a charity may not sponsor or support a political
action committee.
Donors to charities are entitled to a tax deduction,
which means that roughly one-third of every donated dollar
is subsidized by the federal Treasury in the form of lost
tax revenue. This subsidy is justified if the funds are used
to teach our children, heal the sick or minister to the
poor. But donations to help elect or defeat political
candidates have been denied such a subsidy since 1954.
This is a simple rule, and for 40 years the vast majority
of charitable organizations have strictly observed the
prohibition. They may speak out on issues of policy or
morality, but their tax-exempt resources are off-limits to
politicians. Playing by this rule protects the integrity of
the nation’s charitable money supply.
This is the law that Gingrich is alleged to have broken.
The evidence against him appears to be, even to a
dispassionate observer, compelling if not devastating.
The subcommittee’s “Statement of Alleged Violation”
quotes a series of
promotional letters signed by Gingrich indicating that the
purpose of his
televised college course, “Renewing American Civilization,”
was to activate at least 200,000 citizens nationwide to
“unseat the Democratic majority in the House in 1994.” The
subcommittee found that “virtually the entire political
program for GOPAC,” Gingrich’s political action committee,
was “centered on developing, disseminating and using the
message of ‘Renewing American Civilization'” in 1993 and
1994.
The amount of money involved is not small. The
subcommittee’s report identified almost $1.5 million raised
and spent through the Kennesaw State College Foundation and
several other charities to support Gingrich’s TV program.
This could translate into a Treasury loss of about $500,000
in tax savings by Gingrich’s donors.
The way in which Gingrich and his assistants went about
funding the program suggests a serious form of abuse. The
executive director of the Kennesaw Foundation told the Los
Angeles Times, “We acted like a bank essentially,” leaving
decisions about how the money was raised and spent to
Gingrich and GOPAC. It appears that the college foundation,
currently under IRS audit, was asked to act as a conduit for
tax-deductible funds to support “Renewing American
Civilization.”
This is a form of charitable money laundering that the
IRS can attack by denying the tax deductions taken by
Gingrich’s donors. The IRS could also charge the key
individuals involved, including Gingrich, with aiding and
abetting an understatement of federal tax. If I were
Gingrich’s lawyer, I would worry that the charges could
escalate to tax fraud, mail fraud, conspiracy and
racketeering in the hands of an aggressive independent
prosecutor.
Overt violations of the prohibition on use of charitable
funds for political purposes are punished by the IRS. In
December l995, the IRS ruled that a left-of-center abortion
rights group violated the tax law by sending out
fund-raising letters containing political appeals — which
were less ambitious than those sent over Gingrich’s
signature. It revoked the tax exemption of a church in
upstate New York for sponsoring anti-Clinton newspaper ads
in 1992 and it has assessed religious groups associated with
Jimmy Swaggart and Jerry
Falwell $170,000 and $50,000 respectively for political
interventions.
Some aspects of the IRS rules on charitable political
activity are unclear. For six years, I have served as
co-chair of an American Bar Association subcommittee of
lawyers for tax-exempt organizations. We have submitted
detailed proposals to the IRS seeking clarification of the
rules on voter guides, mailing lists, PAC relationships and
other questions, with no response.
These are urgent issues because the few charities that
bend or break the rules put the law-abiding majority at a
disadvantage. When a politician steps way over the line, as
the subcommittee’s evidence indicates Gingrich has done, all
eyes in the nonprofit world watch to see what the
consequence will be.
As the last election demonstrated, candidates are
increasingly resorting to “soft money” strategies, working
outside traditional party structures to advance their
campaign prospects. There is mounting pressure to break down
the barriers protecting the tax-deductible charitable
dollar. It would be a mistake to treat the issue as a
trivial one.
The action taken by the House in re-electing Gingrich to
the speakership should make the public wonder: Will Congress
maintain the nonpartisan integrity of the charitable sector?
Or has promoting a politician’s image and ideology become
the equivalent of finding a cure for cancer or housing the
homeless?
