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The recent attention given to allegations that the Ford Foundation funded groups linked to programs of violence and bigotry is the just the latest and most public example of the extent to which international terrorist organizations have been able to abuse our tax laws in obtaining funding from U.S. tax-exempt entities. U.S. tax laws provide an exemption from taxes for charitable organizations based upon the theory that such organizations generally benefit the general public, and serve a public purpose. But as the U.S. Supreme Court has stated, “the purpose of a charitable trust may not be illegal or violate established public policy.” Entities that fund and support terrorist activities do not benefit the public and violate public policy. Their tax exemption is unjustified. The benefits afforded tax-exempt entities may be equated to direct or indirect governmental support. In effect, the tax deduction granted to donors to charitable organizations is subsidized by all U.S. taxpayers. The U.S. government has an obligation to prevent the continued use of U.S. taxpayer dollars to subsidize the activities of those who wish to destroy our nation or engage in global terrorism. The government could increase its oversight of international charities by adopting policies for them similar to the guidelines currently in place regarding racial discrimination in private educational institutions. In 1995, in response to court decisions striking down the use of our tax system to support racial discrimination in private schools, the Internal Revenue Service (IRS) issued rules requiring that all schools seeking tax exemption adopt a policy of nondiscrimination. Educational institutions have since been required to include a statement of nondiscriminatory policy in their governing documents and brochures. The IRS also requires private schools to comply with detailed reporting and record-keeping requirements. These guidelines are a useful model for the IRS to use to crack down on tax-exempt organizations illegally engaged in financing terrorist activities. Certain entities have been identified already as foreign terrorist organizations pursuant to executive orders and regulations. The IRS Form 990 (which all tax-exempt organizations must file) should have specific questions aimed at ensuring that no funding from domestic tax-exempt organizations is channeled illegally. Similar to requirements for educational institutions, the IRS could require that all non-profits whose primary purpose is to fund organizations or individuals outside the U.S. adopt and publicize a statement affirming that they do not support terrorist activities. The Ford Foundation has adopted a similar protocol to prevent further abuses of its international grants. Recipients of funds from the foundation will be required to state that they will not promote violence or terrorism. More than a formality Nonprofits that legitimately fund international humanitarian work may say this proposal would impose new burdens on their already strained budgets, while those involved in terrorist financing would be unlikely to provide any helpful information on Form 990. Such arguments fail to acknowledge the seriousness of the abuse of our current system by terrorist financiers. For example, in 2001, two charities later shut down by the U.S. government were responsible for raising close to $20 million in the United States. The U.S. government must weigh the humanitarian needs of the poor of the world against the safety of its own citizens: The latter need outweighs the burden that additional reporting obligations may impose upon legitimate charities. Information-reporting requirements and the need to be more circumspect in their financial dealings may make it more difficult for allegedly charitable organizations to finance terrorist activities subsidized by American taxpayers. At a minimum, the violent acts of terrorist groups and their supporters here indicate that the U.S. government should take active steps to attempt to restrict the benefits provided them by our system of tax exemption. Would the proposed requirements on Form 990 be tantamount to conditioning tax exemption on an expression of support for a current political regime, amounting to an impermissible infringement on free speech? Certainly not. Such an affirmation should not prohibit any individual or organization from advocating any particular position vis-�-vis terrorist activities and the overthrow of the government. It simply ensures that terrorist financing activities will not be supported by U.S. taxpayer dollars. The courts have distinguished between the constitutional rights of individuals to organize to promote their goals, and any constitutional right such individuals might have to mandate government support for those goals. In 1982, the U.S. Supreme Court upheld the IRS’ ability to deny tax exemption to two schools with racially discriminatory policies, stating that “there can no longer be any doubt that racial discrimination in education violates deeply and widely accepted views of elementary justice.” Similarly, there can no longer be any doubt that organizations that finance terrorist activities seek to violate our most precious rights of life, liberty and the pursuit of happiness. The U.S. government has an obligation to ensure that its laws, and the taxes paid by its citizens, are not used to support individuals and entities that seek to destroy its people and its state. Mindy Herzfeld is an attorney living in Maryland. A more in-depth discussion by Herzfeld of this topic appears in The Tax Lawyer, Vol. 56 (Summer 2003).

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