Why Alliance for Global Justice, A Fiscal Sponsor, is in a Bullseye for Allegedly Supporting Terrorism
Alliance for Global Justice is a tax-exempt charity that sponsors progressive organizations. It’s been in the news, recently, especially after Treasury designated Samidoun a supporter of terrorism. AGJ was Samidoun’s fiscal sponsor. AGJ sponsors a host of groups whose beliefs can best be described as left or far left. Shortly after Treasury designated Samidoun, Ways and Means Chair Smith began calling for Treasury to revoke AGJ’s tax exemption for sponsoring Samidoun. Treasury would have to be convinced, but it would not have to prove, that AGJ supported Hamas by its fiscal sponsorship of Samidoun. To its credit, Treasury appears to be proceeding carefully, if at all, despite Smith’s urgent insistence. Maybe its already sent inquiries, who knows. But current law authorizing Treasury to suspend tax exemption for supporting terrorism is fraught with unconstitutionality that would be somewhat (not sufficiently) remedied by HR 9495, the Stop Terror Financing Bill everyone is so upset about.
Still, I would say that AGJ is a tight and potentially painful spot. Fiscal sponsors are akin to private foundations because they don’t engage in charitable activities directly. They collect donations and they are tax exempt essentially for pursuing charitable activities through independent groups who submit to the sponsor’s general fiscal supervision. Therein lies AGJ’s real vulnerability because supervision implies responsibility.
Private foundations are required to exercise expenditure responsibility for gifts made to non-exempt entities whose activities are nevertheless consistent with the private foundation’s charitable purpose. AGJ is not a private foundation but the Service still reasonably requires that fiscal sponsors exercise a less formal expenditure responsibility. Here is the gist of Revenue Ruling 68-489:
An organization exempt from Federal income tax under section 501 (c) (3) of the Internal Revenue Code of 1954 distributed part of its funds to organizations not themselves exempt under that provision. The exempt organization ensured use of the funds for section 501(c)(3) purposes by limiting distributions to specific projects that are in furtherance of its own exempt purposes. It retains control and discretion as to the use of the funds and maintains records establishing that the funds were used for section 501(c)(3) purposes. Held, the distributions did not jeopardize the organization’s exemption under section 501 (c) (3) of the Code.
The Service, on the basis of Revenue Ruling 68-489, has actually revoked a fiscal sponsor’s tax exemption in an examination initiated to determine whether the sponsor supported terrorism through fiscal sponsorships. Private Letter Rulings 201740022 and 20171212014 appear to relate to a single fiscal sponsor that, according to the letters, failed to implement procedures to keep track of and verify that donations funneled to sponsored organizations were actually used for charitable purposes (and not to support terrorism). The absence of adequate record-keeping led the Service to revoke tax exemption.
The PLRs are shockingly remarkable, by the way. When the fiscal sponsor asserted that it had a license from Treasury’s own Office of Foreign Asset Control to engage in certain activities, the author said the only reason OFAC issued the license was because it caved to “publicity stunts such as media frenzy, hunger strikes, etc.” None of that needed to have been addressed, nor is it conceivable that an examiner would explicitly disregard an OFAC license based on his view OFAC bowed to publicity stunts. But that is what happened. Read the PLRs if you don’t believe me. No wonder Civil Society is so paranoid about HR 9495!
Anyway, Alliance for Global Justice is in a rock and hard place. If AGJ knew about Samidoun’s alleged support for terrorism and funneled donations nevertheless, that would make AGJ a terrorist supporter as well. I doubt that can be proven, though proof is not really required. If it did not know, it might sacrifice tax exemption because of its lack of expenditure authority. Unless AGJ can prove that it could not have known despite the exercise of reasonable expenditure authority.
darryll k. jones