American Campaign Academy and Excess Benefit: The Conservative Partnership Institute
I guess most, or many, exempt organizations utilize the calendar year because reporters are starting to sift through and report on 990s. The Times reported on Monday about the Conservative Partnership Institute, a 501(c)(3) with a lot of money according to its 990s. The organization’s motto, displayed on its home page is “Where Conservatives Go to Win.” If I didn’t know better, I’d swear the organization is a reincarnation of the American Campaign Academy and, if that case ever was good law, the organization is operating for the same improper purpose American Campaign Academy adopted. It serves as a pipeline for the MAGA wing of the Republican party. But let’s be honest. Though American Campaign Academy has never been overruled it was probably never good law either, to the extent it relies on private benefit. It’s hard not to think of that case as one involving wholesale campaign intervention instead. Take a look at CPI’s short video above. The rhetoric is not tied to any particular candidate, but rather a whole slate of unnamed present and future candidates. I think its pretty close to campaign intervention of the American Campaign Academy sort.
I could be wrong, though even CPI admits it exists solely to train conservatives running for public office. Seems like campaign intervention one step removed to me. I am admittedly uncomfortable with that conclusion. So it’s a good thing the Times article is more about private and excess benefit of the strictly financial kind, rather than whether the organization exists solely to train Republican candidates like the organization in American Campaign Academy. Here are the opening paragraphs:
The Conservative Partnership Institute, a nonprofit whose funding skyrocketed after it became a nerve center for President Donald J. Trump’s allies in Washington, has paid at least $3.2 million since the start of 2021 to corporations led by its own leaders or their relatives, records show. In its most recent tax filings, the nonprofit’s three highest-paid contractors were all connected to insiders.
One was led by the institute’s president, Edward Corrigan, and another by its chief operating officer. At a third contractor, the board members included the group’s senior legal fellow Cleta Mitchell, a lawyer who supported Mr. Trump’s efforts to overturn the 2020 election. Last year, the Conservative Partnership Institute hired a fourth company connected to an insider: a fund-raising firm run by Mr. Corrigan’s brother, Patrick Corrigan. Public filings show the company received a contract three weeks before the firm was legally formed.
The nonprofit has pushed those limits by entwining itself with only one faction of American politics. It pays high salaries to some of Mr. Trump’s former officials, hosts retreats for Republican lawmakers at a rural compound and funds efforts to vet people and ideas for a second Trump term.
Legal experts say these insider transactions also raise concerns about self-dealing. While hiring insiders is permitted when certain safeguards are in place, the payments moved money out of daylight and into opaque entities that the nonprofit’s leaders helped control.
By the way, the Service recently issued moderately helpful Private Letter Ruling 202418014 regarding how much excess benefit is enough to warrant revocation in addition to excise taxes under IRC 4958. It’s not that helpful because it’s too heavily redacted, at least the part describing the actual transactions. But it involves one of the few applications I have seen of Treasury Regulation 1.501(c)(3)-1(f). Some of those who were around when intermediate sanctions were enacted might recall the legislative history indicating that an excess benefit is usually sufficiently policed by the excise taxes imposed under IRC 4958 and that revocation was to be a sparingly used sanction. Because revocation hurts charitable beneficiaries, too, all for the sins of an insider. Treasury Regulation 1.501(c)(3)-1(f) provides a set of factors that guide the decision whether there excess benefit violation is so significant that tax exemption should be revoked along with excise taxes.
As near as I can tell, the charity addressed in the PLR accepted donations and used the donations at first to buy legal services from entities owned by former insiders who had left the charity within the past five years. Of course, that makes them insiders during those five years even if they were no longer officially involved with the charity. Later, the organization used the donations to buy “products” from those same entities. I’m thinking those “products” might have been DIY wills or divorce kits, but I can’t tell for sure. The Service determined that the charity did not receive — or could not prove that it received — fair market value from its payments to the insiders’ entities. It then applied 1.501(c)(3)-1(f) to conclude that the violation was significant enough to warrant revocation in addition to the excise taxes. In doing so, it demonstrated how an unrelated entity can be an insider through ownership by an insider and, of course, the five year look-back. It then applied the regulation to conclude that revocation is warranted in addition to excise taxes:
Treas. Reg. 1.501 (c)(3)-1 (f)(2)(H) states that in determining whether to continue to recognize the tax-exempt status of an applicable tax-exempt organization that engages in one or more excess benefit transactions (as defined tn IRC Sec. 4958(c) and Treas. Reg. 53.4958-2) that violate the prohibition of inurement under IRC Sec. 501(c)(3), the Commissioner will consider al! relevant facts and circumstances, including, but not limited to, the following:
1. The size and scope of the organization’s regular and ongoing activities that further exempt purposes before and after the excess benefit transaction(s) occurred. Here, the Organization has not substantiated that it conducts exempt activity. The activities of the Organization, collecting donations on behalf of for-profit entities, to make their [service or products] available at a price, serve the private interest of the for-profit entitles and do not benefit a charitable class. Therefore, the Organization’s has no regular and ongoing activities that further exempt purposes.
2. The size and scope of the excess benefit transaction or transactions (collectively, if more than one) in relation to the size and scope of the organization’s regular and ongoing activities that further exempt purposes. Here, substantially more than half of the Organization’s expenditures during were excess benefit transactions at of total expenditures.
3. Whether the organization has been involved in multiple excess benefit transactions with persons. Here, there were excess benefit transactions with disqualified persons. The excess benefit transactions were ongoing during the periods under examination.
4. Whether the organization has implemented safeguards that are reasonably calculated to prevent excess benefit transactions. There is no indication that safeguards have been implemented that would prevent further excess benefit transactions. During a prior examination, for the tax period ended, the Organization was issued an advisory for failure to have adequate internal control procedures in place as a result of having individual board member, control most of the transactions of the Organization. Currently, still controls the financial transactions of the Organization. The Organization’s Board consists of and who are related as and and is employed by
5. Whether the excess benefit transaction has been corrected, or the organization has made good faith efforts to seek correction from the disqualified person(s) who benefited from the excess benefit transaction. No corrections have been made. There is no indication that the Organization has made efforts to seek correction from the disqualified persons who benefited from the transactions.
Based on the analysis from Treas. Reg. 1.501 (c)(3)-1 (f)(2)(ii) above, the size and scope of the inurement issues revealed by the examination show the Organization is not operated exclusively for exempt purposes and, therefore, revocation of the Organization’s tax- exempt status is warranted.
darryll k. jones