A recent New York Times’ article attacked American charities that help build communities in Israel’s West Bank and IRS policy that enables donations to these organizations to be tax-deductable. As with any piece about the Palestinian-Israeli conflict, many people have been quick to attack or defend the veracity of the article.
To nonprofit organizations, the value of the article is not the accuracy of the authors’ claims, but rather the article’s insight into current concerns and trends influencing the nonprofit sector. These can serve as warnings and guidelines to US charities that operate internationally.
Towards this end, I have highlighted themes in the article through blocks of text.
Charity Law as an Extension of US Policy
Using tax-exempt donations to help Jews establish permanence in the Israeli-occupied territories – effectively obstructing the creation of a Palestinian State.
Mr. Obama has particularly focused on them as obstacles of peace.
As the American government seeks to end the four-decade Jewish settlement enterprise…the American Treasury helps sustain the settlements through tax breaks on donations to support them.
Washington has consistently refused to allows Israel to spend American government aid in the settlements.
The article hints to a link between United States charity regulation and governmental policy. While there necessarily shouldn’t be a connection between the two, the facts on the ground seem to hint otherwise. More because of increased scrutiny by the governmental department tasked with overseeing nonprofits rather than because of changes in law.
It would behoove organizations operating overseas to consider this growing link (at least during President Obama’s tenure) and to consider US policy when formulating strategy and governance.
Board Members and Officers Should Not Be A Rubber Stamp
It [Shuva Israel, a US tax-exempt charity] has two volunteers who double as board members. “I’ve never been to the board,” said one of them, Jeff Luftig.
Independence and control: two running themes in nonprofit legislation, regulation, and audits.
Volunteers who agree to serve as a board member should understand that this voluntary service comes with mandatory responsibilities. The same holds true for a nonprofit searching for potential candidates. The United States Government and the public look to a Board of Directors as the brains and power behind a charity; as such, the board is expected to actively participate in the running and planning of a nonprofit.
Local Charity, Local Board
Although IRS rules require that American charities exhibit “full control of the donated funds and discretion as to their use,” Shuva Israel [a US tax-exempt charity] appears to be dominated by Israeli settlers.
The IRS does not want an American charity to be a puppet, subservient to the wishes of another organization or individual — local or foreign. While foreigners are allowed to sit on the boards of American charities, the nonprofit should never appear as if it has lost its American identity and independence.
Silence Speaks Volumes
Settlements violate international law…
In some ways, American tax law is more lenient than Israel’s.
Asked whether it had ever filed a tax return, he responded, “I’m not in a position to answer that.”
Records from the group [Manhigut Yehudit] say a portion of the $5.2 million collected has gone to Israeli “community facilities”…neither man would answer questions about the nature of the “community facilities.”
Silence can sometimes be the worst answer an organization can give as it hints that perhaps no employee knows the answer or, even worse, that the organization has never bothered to ask the question. Conferencing with lawyers, accountants, and other professionals can often turn up most of the potential challenges facing the charity. It is to the benefit of the organization to prepare responses to expected Frequently Asked Questions and designate employees and volunteers best equipped to answer them.
The organization’s reputation demands an answer better than silence.
Filing with the IRS: The Best Defense is a Good Offense
Religious charities are still more opaque; the tax code does not require them to disclose their finances publicly.
Religious groups have no obligation to divulge their finances, meaning that settlements may be receiving sums that cannot be traced.
Religious organizations – like many of the charities that support Israel – that expect to come under government or general scrutiny should consider filing relevant IRS paperwork even though they are not required. Entering background, managerial, and financial information information ahead of any “investigative piece,” is convincing evidence that the nonprofit’s intentions are noble, as well as legal.
As the United States Government loses millions of dollars from noncollectable donations to tax-exempt organizations, charities will always be subject to public and governmental scrutiny.
After reading the excerpts from the Times article, one can certainly understand more of the public and regulatory sentiment towards US registered charities operating abroad, especially those supporting Israel. This said, American nonprofits can still fulfill their mission, operating at their peek capacity.
Among the many DON’Ts mentioned by the authors were also some excellent DOs, which, if followed, can prevent the very accusations highlighted in the article:
The [US] tax code encourages citizens to support nonprofit groups that may diverge from official policy, as long as their missions are educational, religious or charitable.
The Time’s review of pro-settler groups suggests that most generally lie within the rules o the American tax code. Some, though, risk violating them by: (1) by using the money for political campaigning and residential property purchases, (2) by failing to file tax returns, (3) by setting up boards of trustees in name only and (4) by improperly funneling donations directly to foreign organizations.
But the IRS 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.
Truly, good advice to follow.
Disclaimer: This blog houses my personal opinions and is for informational purposes only – not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professionals. Read the full disclaimer.