Taxing the Seed

William C. Naylor, Jr.’s academic and athletic achievements are noteworthy, but are greatly exceeded by his estimation of himself. Naylor established the Free Fertility Foundation, so that he could distribute his own sperm to women of his sole choosing. Naylor sought a tax exemption for his foundation, but the IRS nixed it, and the Tax Court upheld the IRS’s decision.

Specifically, the IRS contended that Naylor’s foundation does not promote health or serve a charitable purpose, notwithstanding Naylor’s contention that the public is well served by the free distribution of Naylor’s semen to women of his own choice.

With all due empathy to those having fertility issues (the building of our own family was not without its difficulties), Naylor’s foundation is the antithesis of serving the public good. Naylor is merely using his foundation as an instrumentality of his own ego.

I note that Naylor’s son is active in the foundation, and question the son’s integrity in that regard. Also noted is Naylor’s representation by Marcus Owens, Esq., formerly the IRS’s head honcho for tax-exempt organizations.

If Naylor wishes to go around sowing his seed, let him pay taxes on the same basis as everyone else. And let him pay for the kids he spawns!

SEIU Must Comply with the Law

Like other labor unions, the Service Employees International Union ("SEIU") is exempt from the income tax. In return for this exemption, the SEIU and other unions must submit information returns to the IRS. Unlike other tax returns, these information returns (Form 990) are available to the public. Guidestar, itself a tax-exempt entity, works in cooperation with the IRS to make the Forms 990 available to the public on its website [http://www.guidestar.org].

There are penalties that apply when a labor union or other tax-exempt organization is remiss in filing its Form 990.

The 9th Circuit Court of Appeals, in one of its comparatively rare pro-America moments, has ruled that the IRS has no discretion to partially abate the late 990 penalties. The decision is available here.

Accordingly, the SEIU is stuck with the lateness penalties assessed by the IRS for not timely filing its information returns for the public to see.

Nemo est supra leges!

A Spanking for Spinka, Part 2

This Blog's posting of 15 July 2009 discussed some broader implications of the plea agreement entered into by Naftali Tzvi Weisz, the Grand Rabbi of Spinka, in connection with his criminal money laundering charges. The subsequent posting of 31 July 2009 mentioned some of the contritionary acts and statements made by the Rabbi as he awaited sentencing.

Yesterday, in Los Angeles, U.S. District Judge John F. Walter imposed the sentence. The following matters are noted:

1. The statutory maximum for the offense is 5 years incarceration, plus 3 years supervised release, plus monetary fines. The plea agreement provided that the Rabbi would face no more than 3 years. The sentence actually imposed by Judge Walter was 2 years.

2. Yeshiva Imrei Yosef, one of the Spinka charitable institutions involved in the scheme, also pleaded guilty, and is slated to be sentenced in January 2010. It is not practical to incarcerate a corporation, but it can be fined, and such fines can result in the discontinuance of its existence. It is noted that the Spinka institutions, with the approval and encouragement of some major Rabbis connected with the Agudath Israel of America, are currently engaged in a campaign to collect money (and have an Internet presence for doing so, notwithstanding the many broad brush condemnations of the Internet by those same rabbis). I have received their solicitations, which tug at the heart strings and ask me to think of the innocent children whose education is now jeopardized. I agree with Rabbi Harry Maryles that if the good works done by the Spinka institutions are worthy of support, then the institutions should sever their connections with the Spinka hierarchy.

3. Leslie P. DeMarco, the ranking FBI Special Agent in Los Angeles, insinuated a quote into the US Attorney's press release: "Grand Rabbi Naftali Weisz exploited his position in the community, knowingly using the Spinka charitable organizations for the benefit of greedy donors. Today's sentencings close this aspect of the investigation. The donors, who were refunded up to 95 percent of the contributions they made to the Spinka charities but falsely claimed a charitable contribution deduction for the entire donation, are put on notice that they, too, have committed a crime, and that crime is tax fraud."


My take on it all:

Special Agent DeMarco's statement is an unambiguously clear signal that additional repercussions are in the pipeline. There is no doubt that scrutiny of the list of Spinka contributors has already begun. Rumors already are circulating, to the effect that one or more of the Spinka contributors have already cut deals with the IRS in order to avoid prosecution (or at least lessen the severity of criminal liability). I do not doubt that those who participated in the Spinka tax scam who have not come forward can expect some unpleasant visitors in the near future.

As for the Rabbi's sentence: The Rabbi got two years when he could have been slapped with three. That the Rabbi has been contrite is no secret. It is almost a given that he has encouraged his donors to make amends, and this has probably played a role in his sentence reduction.

The real question is whether the Rabbi has done more than that in return for the lenity he received. Has he, for example, provided or facilitated the provision of valuable information regarding transactions of others beyond the pale of the Spinka institutions?

Unintended Consequences of Taxation

Tax administration has many collateral consequences, many unintended. And not all of them are bad, either.

Take, for example, Internal Revenue Service Determination Letter Ruling LTR 200826043. This letter ruling, issued 21 March 2008, revoked the tax-exempt status of unnamed organization whose main purpose was "To executive [sic] scientific study and research into the pros and cons of decriminalizing natural consensual sexual behaviors between adults and underagers and decriminalizing what is defined as child pornography. …"

Turns out that the organization's Founder and Executive Director, who is also the sole officer and board member, has a felony criminal record for sex abuse of minors.

The IRS revoked the tax-exempt status not on any morality issues, but because, according to the organization's own documents, its primary purpose is to influence legislation, and not to educate.

Every once in a while, the IRS inadvertently does the right thing.

Grassley's on the Warpath Again

It hasn't posted yet on Senator Grassley's website, but the Senator has taken an interest in the National Museum of the American Indian; specifically, the lavish spending habits of its immediate past Director, W. Richard West, Jr. This includes some very cordon bleu travel and hostelry, as well as $48,500 from the Museum's bank account to commission an official portrait of himself.

Grassley's letter of 3 January 2008 to Roger Sant, Chair of the Smithsonian Board of Regents (which was carried in the 7 January 2008 Tax Analysts newsletter in the LEXIS-NEXIS database, citation 2008 TNT 4-65) is now asking that the Smithsonian give full documentation of these travel expenses, as well as documentation (including e-mails) regarding the approval of those expenses by the NMAI and/or Smithsonian Boards. Grassley's letter no doubt will eventually post on his website and/or elsewhere, and you will then be able to read the details. And I would not be the least bit surprised if some very high-placed toochases at the Smithsonian and/or NMAI get a brisk paddling (and there may be some taxation issues which might attract some attention from some bureaucrats, lowly ranked or otherwise, a few blocks away at 1111 Constitution Avenue).

The folks at the Smithsonian just don't get it! The resignation a few months ago of former Smithsonian Secretary Lawrence Small for similar profligate living off of the Smithsonian's coffers should have been the signal for everyone to pull the purse strings a bit tighter. But Rick West continued to live high off the hog, and apparently, his superiors uttered nary a word of question or disapproval (and, perhaps, may even have inked the voucher papers behind the disbursements).

As reflected in some e-mails obtained by the Washington Post (not my favorite rag, but hey, give credit where credit is due), the mortar and building blocks of the Museum figuratively contain many a nickel and dime from many Native American youngsters who skipped their lunches so that the NMAI could be built. We are talking about Indian Reservations where notoriously abject poverty abounds, and yet, these young boys and girls were willing to make significant cutbacks in their impecunious budgets to help make NMAI a reality. Nobody was asking Richard West to go without lunch; only to buy his lunch and dinner and travel at reasonable prices.

I cannot help but compare and contrast Rick West to Rabbi Avrohom Pam. Rabbi Pam founded the Shuvu Schools in Israel to give the émigrés from the former Soviet Union the adequate Jewish education which the Israeli government failed to provide. The story is told (and I do not doubt it in the least) that Shuvu once needed about $800 to get a particular program for girls off the ground in Haifa. The Rabbi's wife had planned to visit Israel, but ended up forgoing her trip so that the approximately $800 she had intended to use for airfare could go to a more worthy cause.

Uncle Sam is living under conditions of a stressed budget. When my household budget gets tight, we all do what we can to cut out at least the most extraneous items. But there is a tax gap to be filled, and, for the past few years, Congress and the IRS have amply made clear their intentions to give increased scrutiny to tax-exempt organizations.

The message is that we need a healthy tax-exempt sector to continue to do its good works in our society. But if you are going to have the privileges of a tax exemption for your existence, then you are expected to manage your financial affairs with a minimum of waste and inefficiency, and with a lot of transparency. This is especially so if, in addition to your tax exemption, you are the recipient of government funding or other largesse.



Expect to hear more from Senator Grassley on the Rick West affair!

Little Old Man from Pasadena

As blogged here on 9 November 2005 and 16 December 2005, the All Saints Church in Pasadena was under audit by the Internal Revenue Service, the issue being whether, by dint of a single sermon by a guest preacher, the Church engaged in partisan political activity in violation of its tax-exempt status.

The IRS has closed its investigation of the Church, and the Church's attorney, Marcus Owens, now questions the procedures (or lack thereof) used by the IRS in the course of the audit. Having once been in the employ of the Service, I share Marc Owens's concern over the lack of accountability within the IRS (which Mr. Owens, having once occupied an IRS position far higher than my own, must also personally appreciate).

Now that the audit has been closed, Marc Owens's letter seems to be the ceremonial first ball in a brand new ballgame. There may well be repercussions on account of the IRS's laxity with the statutes and regulations.

I certainly have no affinity for the All Saints (Episcopal) Church as far as its religion or politics go. They are idiotarian moonbats, plain and simple. My concern is the behavior of the IRS.

Is the IRS justified in revoking the tax-exempt status of a church on account of a single sermon by a preacher? To that question, I will answer, with broad shoulders, a definitive "Yes!"

But if indeed the IRS seeks ensure that tax exemptions are only accorded to those entities which qualify, and which follow all of the rules (including the ban against political activity), then they have very fertile ground to plow in many American mosques, whose fare regularly entails preaching far more subversive and dangerous than the anti-Bush sermon heard at All Saints.

The IRS should stop picking on a little old man in Pasadena, and get down to the real business of the real tax money.

Ambulance Disservice

When the recent scandal regarding misuse of funds at various Long Island volunteer fire companies was breaking, I was ready to bet the mortgage money that there were more such instances in other localities, perhaps a bit more egregious. Unfortunately, nobody took me up on the wager.

Harvey S. Grossman, the ex-Treasurer of the Plymouth Community Ambulance Association has just been sentenced to 5 to 20 years for using over $2 Million in PCAA funds for personal expenses such as furniture, home improvements, travel, jet skis, his daughter's bat mitzvah party, racing his stock car, et cetera.

Co-defendants Jeff Cohen and George Gilliano, who didn't embezzle nearly as much as Grossman did and who apparently cooperated in making the case against Grossman, are slated for sentencing in a week and a half. The way I'm calling it: Jeff and George have good odds for seeing some amount of jail time, but not nearly as much as Harvey got.

And the way I'm calling it for Harvey: In 5 years, when he theoretically becomes eligible for release, the IRS crackdown against abuses by nonprofit organizations will have raised the public consciousness so as to make it politically unwise to spring Mr. Grossman the first time up. But he is likely to behave reasonably well in prison, so he is quite unlikely to stay in for the entire 20 years.

[Disclosure: A number of years ago, under circumstances having no relevance to the Blog and having no relevance to ambulances, I had several occasions to respectively meet both Harvey and Jeff. I do not recall ever meeting with George Gilliano.].

It is a maxim among tax enforcement personnel, in whose ranks I formerly served, that whenever money changes hands, information also changes hands. I have no particular personal ill will towards Harvey or Jeff (or, for that matter, George), but am taken aback by the crass stupidity respectively displayed by two individuals of above-average intelligence. The embezzled funds were, by and large, filched via credit card and check, two money transfer modes which tend to leave clear verifiable trails of information. If Harvey would have been content with less than two million bucks, he could have found some indirect ways to transfer assets without the tracking inherent in credit card postings and checking account drafts. Like syphoning a few gallons of gasoline from an ambulance every week, grabbing an occasional gallon of windshield washer fluid, et cetera.


This, by the way, is quite likely just the beginning of Harvey's and Jeff's and George's legal problems. Surely the IRS smells some tax potential in their cases. Embezzled funds count as gross income for taxation purposes, so Harvey, Jeff and George can expect to hear from the IRS (if they have not been contacted by the IRS already).

But never mind the income tax. The Internal Revenue Code also provides for what are euphemistically called "excise taxes" on improper transactions between tax-exempt organizations and the key personnel thereof. Without going into the complex convolutions of the Internal Revenue Code, there are instances, possibly applicable to at least some extent here, where the "excise tax" is equal to twice the benefit received! It is also worth noting that where there are more than one individuals involved in the scheme, they all can be jointly and severally liable for this "excise tax."

So, in addition to having to reimburse the PCAA, Harvey, Jeff and George most likely have some accounts to settle with the IRS (and, for that matter, the Pennsylvania Department of Revenue).

And if that were not problematic enough, I will note that the Form 990 which tax-exempt organizations are required to file with the IRS is, unlike other tax returns, open to public inspection. It takes a while for these forms to post on the Internet, but the PCAA 990s for 2003 and 2004 were each signed by Harvey. One need not be a tax lawyer with a MBA to know that Internal Revenue Code provides criminal penalties for filing false tax returns. Well, the IRS knows where to find Harvey for the next 5+ years.

I do feel bad for Jeff and Harvey (and George, too, even though I have never met him). But I feel even worse for the taxpayers of Plymouth Township.