The Forward has published a revealing expose of the ways in which anti-jihadi entrepreneur, Steve Emerson, has exploited loopholes in IRS regulations to refuse to comply with the most basic provisions of the 501c3 code. Not only is his refusal to adhere to the rules astonishing but the excuses he uses for his behavior are even more so:
Steven Emerson has made his reputation by scrutinizing American Muslim organizations and individuals, trying to uncover their possible ties to terror groups. But lately he is being scrutinized himself, by a Nashville, Tenn., daily newspaper digging into the finances of his operation.
Now, under pressure to introduce more transparency to his tax-exempt charitable organization, Emerson is attempting to explain how and why the Investigative Project on Terrorism Foundation avoids revealing much of the information that charities are routinely required to disclose.
Emerson, it turns out, succeeds in veiling his foundation’s data by channeling the tax-deductible funds he raises into a for-profit company that he controls.
Emerson said security considerations have forced him to avoid disclosing a lot of information that is usually made public by tax-exempt charities. Such disclosures include the names of his group’s board members, the names and salaries of its highest-paid employees and detailed information on the group’s finances.
The spotlight pointed at Emerson, and his foundation’s business activity comes as the IPTF has injected itself into the heated debate over the Park51 Islamic center in New York, publishing reports highly critical of the Muslim leaders behind the project. But it is his criticism of the leaders of another planned mosque, this one in Murfreesboro, Tenn., that drew the interest of The Tennessean, Nashville’s sole daily newspaper, and led to the paper’s October 24 investigative report on Emerson’s tax status.
“Emerson is a leading member of a multi-million-dollar industry of self-proclaimed experts who spread hate toward Muslims in books and movies, on websites and through speaking appearances,” the report claimed.
In its wide-ranging article, The Tennessean reported that while the IPTF is recognized by the Internal Revenue Service as a tax-exempt charity, it in fact distributes almost all of its contributions to SAE Productions, a for-profit company that Emerson founded in 1994 and continues to control, as he does the IPTF.
Citing publicly available tax filings, the paper reported that Emerson’s foundation paid $3,390,000 to SAE in 2008 — the foundation’s only significant expenditure. It was the Emerson-controlled for-profit firm that then made all expenditures on the foundation’s behalf.
This is how Emerson’s foundation avoided the IRS’s detailed disclosure requirements for charities regarding their expenditures. Indeed, under this setup, even the IRS’s own tax-exempt division is in the dark on how Emerson uses his revenues.
Yet a careful look at Emerson’s correspondence with the IRS shows that the tax authority in fact approved Emerson’s IPTF for tax exemption only after Emerson assured the tax agency that “there are no, and will be no, financial/business transactions between officers, board members or relatives” of the IPTF and its subcontractor.
In other words, Emerson promised the IRS that his non-profit and for profit groups would have nothing to do with each other, when indeed they are inextricably intertwined. In other words, Emerson lied to the IRS, which so far has done nothing to correct the situation. What’s more Emerson has the chutzpah to claim:
“All of this was approved by our outside legal and accounting experts,” he wrote.
If so, they too may have a few questions to answer from IRS investigators (or so I hope). Experts on non-profit law also disagree:
William Josephson, a former head of the New York State Department of Law’s Charities Bureau, told the Forward, “Donors to IPTF get a tax deduction for in fact supporting a taxable entity. In effect, it’s just whitewashing the contributions.”
And Bruce Hopkins, a nationally recognized expert on charities law, said that Emerson’s later disclosure of the relationship between the ITPF and SAE in annual tax reports “does not mean that the IRS is okay with this practice.” Due to staff shortages, he explained, the IRS does not usually review these returns and does not compare them with the original request for tax exemption.
“Normally, the agency doesn’t like exempt organizations using taxable entities to carry out their programs,” Hopkins said. “As you can imagine, this is exacerbated where there is common control, as is the case here.”
In 2006, the IRS even demanded a letter signed by him confirming that there would be no transactions between his non-profit entity and the “subcontractor” (i.e. the for profit entity). He has yet to submit such a letter.
In 2007, the IRS asked him to provide further information why he has created this arrangement and his excuse was simply unbelievable:
Emerson replied that because of his work, he himself had been “the target of a death threat [that] can be confirmed by current and former U.S. government officials.” The proposed arrangement, Emerson argued, “furthers the legitimate business purpose of maximizing fundraising activities” for IPTF, while providing added security for “the staff conducting its work.”
He also told the IRS an independent entity would guarantee there was no conflict of interest between his non-profit & for profit entity. When The Forward asked him for the identity of this third-party expert, Emerson again refused on grounds that the entity did not wish itself to be known due to danger of security threat.
And he continues to dish out self-serving nonsense like this:
Emerson added, “This is an unusual arrangement, but one that I had to implement because of the overriding needs of security. It was also fully disclosed to the IRS.
…I have to take into account the fears of employees and our auditing firm and lawyers, who do fear that being publicly named, they will be targeted…. When they look at the threats I have endured, as well as the threats made against [the IPTF], I am morally bound to respect their fears.”
And upon receipt of this nonsense, the IRS actually approved the tax exempt status of his group. It should be noted that this arrangement also shields all donors to Emerson’s work from the usual transparency as their identity is hidden behind the for-profit group. Thus, their names will never appear on an IRS 990 as all other non profits much reveal.
This is simply smoke and mirrors. A man who earns his living off scaring the pants off people about the alleged global jihadi terror threat blames guess who for the fact that he can’t seem to adhere to U.S. non-profit regulations. Steve Emerson has no more right to claim secrecy on these matters than any other non-profit whose officers may’ve been subject to death threats. And I assure you there are many who have been and somehow still manage to satisfy the regulations concerning non-profits.
The Tennessean profile referenced above is even more hard-hitting than the Forward’s piece. Here’s how it begins:
Steven Emerson has 3,390,000 reasons to fear Muslims.
That’s how many dollars Emerson’s for-profit company — Washington-based SAE Productions — collected in 2008 for researching alleged ties between American Muslims and overseas terrorism. The payment came from the Investigative Project on Terrorism Foundation, a nonprofit charity Emerson also founded, which solicits money by telling donors they’re in imminent danger from Muslims.
Emerson is a leading member of a multimillion-dollar industry of self-proclaimed experts who spread hate toward Muslims in books and movies, on websites and through speaking appearances.
Leaders of the so-called “anti-jihad” movement portray themselves as patriots, defending America against radical Islam. And they’ve found an eager audience in ultra-conservative Christians and mosque opponents in Middle Tennessee.
The Tennessean quotes a different non-profit expert who describes Emerson’s finagling with non-profit regulations in even stronger terms than the Forward’s experts:
“Basically, you have a nonprofit acting as a front organization, and all that money going to a for-profit,” said Ken Berger, president of Charity Navigator, a nonprofit watchdog group. “It’s wrong. This is off the charts.”
Among the more lunatic beliefs Emerson espouses are that 80% of American mosques are jihadist. He also claimed to have hours of videotape that would prove that Cordoba House’s Imam Rauf is an extreme Islamist who would not long last as leader of the project (Rauf is somehow still leading the project).
The newspaper expose also includes the charge that in 2002-03, without having tax-exempt status, Emerson accepted $600,000 from the far-right Smith Richardson Foundation. Unless Emerson arranged for another non-profit to act as a pass through for this gift, it would appear IRS regulations were violated in this instance as well.
Seems the guy has some explainin’ to do.
Eli Clifton has discovered a back door through which to expose some right-wing funding for Emerson’s work. Over $1-million has been given by the Cathage Foundation (a part of the Scaife family foundations) to another non-profit group, the Counterterrorism & Security Education and Research Foundation, which was required to reveal this gift to Emerson on its own IRS 990.