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Funneling U.S. Charitable Donations to the West Bank

Earlier this week I wrote about for-profit companies creating nonprofit subsidiaries for the sole purpose of qualifying for Congressionally banned earmarks. Today I want to draw your attention to another unusual use of the nonprofit, as a means to distribute tax-exempt donations to political efforts on the West Bank.

Last week the New York Times reported that a number of American evangelical organizations in the United States are using tax-exempt donations to help Jews establish permanence in the Israeli-occupied territories.

As the Times article puts it:

The result is a surprising juxtaposition: As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank, the American Treasury helps sustain the settlements through tax breaks on donations to support them.

A New York Times examination of public records in the United States and Israel identified at least 40 American groups that have collected more than $200 million in tax-deductible gifts for Jewish settlement in the West Bank and East Jerusalem over the last decade. The money goes mostly to schools, synagogues, recreation centers and the like, legitimate expenditures under the tax law. But it has also paid for more legally questionable commodities: housing as well as guard dogs, bulletproof vests, rifle scopes and vehicles to secure outposts deep in occupied areas.

The Times points out that:

The use of charities to promote a foreign policy goal is neither new nor unique—Americans also take tax breaks in giving to pro-Palestinian groups. But the donations to the settler movement stand out because of the centrality of the settlement issue in the current talks and the fact that Washington has consistently refused to allow Israel to spend American government aid in the settlements. Tax breaks for the donations remain largely unchallenged, and unexamined by the American government. The Internal Revenue Service declined to discuss donations for West Bank settlements. State Department officials would comment only generally, and on condition of anonymity. …

The Times’s review of pro-settler groups suggests that most generally live within the rules of the American tax code. Some, though, risk violating them by using the money for political campaigning and residential property purchases, by failing to file tax returns, by setting up boards of trustees in name only and by improperly funneling donations directly to foreign organizations. …

Americans cannot claim deductions for direct donations to foreign charities; tax laws allow deductions for domestic giving on the theory that charities ultimately ease pressure on government spending for social programs. …

But the I.R.S. does allow deductions for donations to American nonprofits that support charitable projects abroad, provided the nonprofit is not simply a funnel to another group overseas, according to Bruce R. Hopkins, a lawyer and the author of several books on nonprofit law. Donors can indicate how they would like their money to be used, but the nonprofit must exercise “some measure of independence to deliberate on grant-making,” he said.

The article goes into much more detail than I can go into here. I strongly support the right of nonprofit organizations to advocate and influence public policy, as appropriate. My concerns are:

  • Are the laws governing tax-exempt organizations being followed?
  • Is the IRS providing adequate oversight to make sure laws are not being violated?
  • Is this an example of nonprofit laws and regulations being flouted to serve political or religious objectives?
  • Does this add to the American public’s confusion over the appropriate role of nonprofit organizations?
Topics: Policy