IRS Reverses Decision on Gingrich Groups

Posted April 21, 2003 at 3:33pm

In a remarkable about-face, the Internal Revenue Service has restored the tax-exempt status of two groups whose political activity became the basis of the ethics case against former Speaker Newt Gingrich (R-Ga).

The decision to reinstate the tax-exempt status of the Abraham Lincoln Opportunity Foundation and the Howard H. Callaway Foundation — disclosed in two April 4 letters to the groups — has stunned tax experts who monitor the interaction of charitable and political organizations.

“This is an extraordinary decision,” said Fran Hill, a University of Miami tax law professor. “The IRS does not go back and fix things like this. In a reasonable system of tax administration this would not happen. But we of course have a system of tax administration that from time to time is subject to political influence.”

The action marks a complete turnaround by the IRS and came despite a U.S. Tax Court ruling dismissing a lawsuit filed by the two groups. IRS officials refused to comment on the matter, citing confidentiality concerns.

In the wake of a lengthy investigation by the House ethics committee that led to a formal House reprimand and $300,000 fine against Gingrich, the IRS revoked the tax-exempt status of the two groups in 1999.

At that time, the IRS said it was imposing its most serious sanction because the two groups operated on behalf of the private interests of the Republican Party and GOPAC, the political action committee once headed by Gingrich.

The activities of ALOF — a charitable organization that effectively operated as a bank account for GOPAC projects — constituted the heart of the ethics case against Gingrich and had been considered a clear-cut example of the kinds of political activities that are forbidden for tax-exempt organizations.

Steven Miller, the IRS director of exempt organizations, wrote in the letter that the tax agency was rescinding its 1999 decision to revoke “based upon a reconsideration of the merits of your case. As a result, your tax-exempt status under section 501(c)3 is considered to have been in effect continuously from the date of your creation to the present time.”

The letters were sent to Howard “Bo” Callaway, a former Representative from Georgia who once headed GOPAC and ALOF. Callaway could not immediately be reached for comment Monday.

Callaway lost a legal challenge to the 1999 revocation when the tax court dismissed the case.

The IRS reversal has “enormous implications” for the future of charitable groups that want to engage in partisan politics, Hill said. “It’s open season for 501(c)3 groups to serve as political conduits,” she said.

The 1999 decision by the IRS to revoke the tax-exempt status largely mirrored the findings of the House Committee on Standards of Official Conduct, which under the direction of an outside counsel examined a pattern of activity by Gingrich that involved using tax-exempt organizations that operated with greater financial flexibility to fund his political operations.

A television program featuring Gingrich that ran in the early 1990s was financed with a $74,000 loan from GOPAC to ALOF. Charitable contributions raised by ALOF were used to repay GOPAC for these loans.

Donors to ALOF were enticed to make $10,000 donations as a way of gaining a tax-deductible donation to GOPAC. Federal law normally prohibits tax deductions for political contributions.

The donors included the television company started by televangelist Pat Robertson, whose Family Channel donated $47,000 to ALOF after receiving a personal plea from Gingrich in 1990 for “seed money” that would be tax-deductible.

Other donors to ALOF included Callaway; RJR Nabisco Inc.; Colorado Republican activist Bruce Benson; Wall Street executive Tucker Anderson; GOPAC member Joseph Patrone; and Randolph Richardson, heir to the Vicks Vapo-Rub family fortune.

The ethics investigation showed six contributions to ALOF totaling $117,000 in 1991-92 were transferred within days to GOPAC’s account.

The investigation revealed an extensive pattern of money shifting between GOPAC and ALOF as contributors were promised tax deductions for giving money to the charity but received credit for supporting GOPAC’s operations with the same transaction.