Tax-Exempt Foundations Not Treated Equally

By Rex B. Wingerter

The recent investigation and prosecution of conservative fund-raiser Carl Channel and public relations executive Richard Miller shows that when it wants to, the US government can crack down on groups and individuals fraudulently using non-profit status as a means to raise money for political-military causes.

Charged with conspiring to defraud the government, Channel and Miller admitted in early May that they used a tax-exempt educational foundation as a front behind which money was raised to arm the anti-Sandinista contras. Channel and Miller admitted that the non-profit National Endowment for the Preservation of Liberty had collected more than $2 million from donors who were told that their contributions were tax-deductible. However, much of the money was used not to educate but to buy weapons and ammunition for the contras.

US Unwilling to Investigate American Zionist Groups

The US government's vigorous prosecution of Channel and Miller stands in sharp contrast to its attitude toward the major American Jewish organizations which send hundreds of millions of dollars every year to Israel. Annual tax-exempt, charitable transfers from the US to Israel are estimated at $950 million to $1 billion for the 1980's by Thomas Stauffer. The International Monetary Fund reports that Israel receives an annual $1 billion in private aid from Jewish organizations throughout the world. Israeli authorities in turn estimate that more than 70 percent of that money originates in the US. "The principal sources," Stauffer wrote in his study, published by the Middle East Institute, "are the prominent national Jewish charities, such as the United Jewish Appeal, but significant sums also flow through many smaller channels."

In 1983 the US Treasury Department had the opportunity to investigate the legality of these financial transfers when a suit filed in federal court in Washington, DC called upon the Internal Revenue Service to revoke the tax-exempt status of six US-based Zionist organizations. The plaintiffs charged that the six organizations violated their tax-exempt status by acting merely as conduits for channeling funds to Israel, and that the donations went to purposes that contravened the public policy and national interests of the United States. The plaintiffs argued that the organizations furthered the confiscation of Palestinian land on the West Bank, facilitated the establishment of exclusively Jewish settlements on the confiscated land, and engaged in one-sided pro-Israel propaganda designed to misinform the American people in regard to the Palestine-Israel conflict.

The six organizations charged in the suit were: the World Zionist Organization (American Section); the Jewish Agency (American Section); the United Jewish Appeal; the United Israel Appeal; the Jewish National Fund; and Americans for a Safe Israel. The suit estimated that the six organizations combined accounted for at least $750 million in funds sent to Israel by Americans each year.

Case Dismissed on a Technicality

Instead of investigating the charges and, if justified, recouping the millions of dollars owed the Treasury through lost tax revenue, government lawyers had the case dismissed on procedural grounds. The substantive facts were never heard, despite the plaintiff's weighty evidence.

One Israeli plaintiff, Knesset (parliament) Member Charlie Biton, swore that the funds went directly to departments of the Israeli government and were used to support the leaders of Israel's then-ruling Likud Bloc.

One of the most important plaintiffs was Charles Fischbein, who, until his resignation in March 1984, was the Executive Director of the Washington regional office of the Jewish National Fund (JNF). His official duties included fund-raising.

The US government has refused to investigate charges that funds raised by American Jewish non-profit foundations, such as the Jewish National Fund and the United Jewish Appeal, have gone to help build exclusively Jewish settlements in the occupied West Bank and to help pay for Israel's 1982 invasion of Lebanon.

Tax-Deductible Funds Used for Israeli Army Camp

Fischbein swore in a signed affidavit that he resigned from the JNF because he could no longer close his eyes to the legal and moral violations committed by the organization. He described how he raised and transferred to Israel over $270,000 specifically earmarked for the construction of a sheltered playground for children at Kiryat Shemona, a Jewish village near the Lebanese border. When a prominent Washington, DC Jewish couple pledged $75,000 for the effort, Fischbein arranged to have the playground named in their honor. The JNF later held a dinner in their honor, at which time the playground was officially dedicated to them.

When the couple traveled to Israel to visit the playground in the spring of 1982, however, they found no playground and no construction underway. Instead, Fischbein testified, they found an Israeli army staging area, littered with garbage and beer cans. Upon returning to the US, the couple accused the JNF of raising the funds under false pretenses.

Fischbein subsequently learned that the money for the playground had gone into the general funds of the Israeli treasury, demonstrating that there are no US controls over the use of JNF funds raised in the US.

JNF Donations Used in West Bank, South Lebanon

Fischbein's disillusionment deepened when he took a trip to southern Lebanon in the summer of 1982 with other JNF leaders. Accompanying them was Moshe Rivlin, JNF director in Israel, and Dr. Samuel I. Cohen, JNF executive vice president in the United States. During the bus ride into Lebanon, Dr. Cohen announced that JNF bulldozers were an integral part of the military effort since they had preceded the troops in forging the path of the invasion. He further boasted that the JNF was "up to its ears" in the development of Jewish settlements in the occupied West Bank.

When the group arrived in southern Lebanon, they saw the devastation caused by Israel's bombing and invasion. Fischbein said that when some persons expressed horror at the destruction, Dr. Rivlin's retort was that no one was to express any doubt or misgivings about the invasion. The penalty for dissent, they were warned, wa their immediate dismissal from their positions with US-based JNF offices.

Fischbein states that he was deceived by the JNF into believing that it was a charitable organization. He now recognizes that the tax-exempt funds raised in the US were controlled by the government of Israel and were used to help underwrite Israel's Lebanon war and to continue Israel's control over the occupied West Bank and Gaza.

Similar accusations and evidence offered against the remaining five organizations were ignored by the Internal Revenue Service. That the US government would seek to recoup the tax loss on $2 million raised by Carl Channel and Richard Miller but close its eyes to the tax loss incurred when American Jewish organizations raise at least $750 million per year underscores the special privileges within the US government that American friends of Israel have achieved.

Rex B. Wingerter is a Washington, DC-based lawyer and author of a forthcoming AET monograph on pro-Israel political action committees and the 1986 elections.