Perspective on the Gingrich Case: Keep Charity Clear of Politics
April 23, 1997
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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?
This article originally appeared in the January 8, 1997 edition of the Los Angeles Times.
Gregory L. Colvin is an attorney based in San Francisco who specializes in the law of nonprofit, tax-exempt organizations. He is a legal adviser to the Foundation for National Progress.
