IRS Rules Permit Charities To Say Little About Money Sent Overseas

Changes Mean No Way To Know Where Donations Go

kurt hoffman

By Josh Nathan-Kazis

Published April 09, 2013, issue of April 12, 2013.
  • Print
  • Share Share
  • Multi Page

Want to know how an American charity is spending your donated dollars overseas?

Tough luck.

That’s the effect of an Internal Revenue Service rule change that is making it increasingly difficult for donors and watchdogs to track American not-for-profit dollars after they leave the United States.

Former IRS officials have criticized the little-noticed 2008 change, which lifted the requirement that charities in the United States report to the IRS and the public the identities of overseas charities to which they have sent money.

Charities still have to tell the IRS and the public the names and amounts they donate to other American charities. When American charities send money out of the country, however, they need to say only the region of the world where they sent it and the amount they gave.

That means that an American charity such as One Israel Fund, which in 2003 reported sending tens of thousands of dollars to settlements in the West Bank, now needs only to acknowledge that it sent grants to the “Middle East” for “Security,” among other purposes, as One Israel Fund did in its 2010 disclosure.

Though the rule change isn’t new, it’s been little-noted outside of not-for-profit compliance circles. Some tax law experts contacted this March by the Forward were still unaware of the change.

“That’s just the opposite of what we were moving towards, which was more accounting responsibility,” said Sheldon Cohen, who led the IRS during the 1960s.

Marcus Owens, who led the IRS’s charities section, known as the Exempt Organizations Division, from 1990 to 2000, said that the rule change does not just leave donors in the dark. “It reduces the amount of information available to the IRS,” he said.

The loosened requirements mean less oversight of foreign grants, which are sometimes exploited by fraudsters and, in Israel, by politicians whom American donors support while taking a tax deduction at the same time.

“I’ve seen lots of organizations that… would give grants to entities that don’t appear to exist outside the country — schemes,” Owens said. “There were places in this world that sort of specialized in taking money from charities and putting it in people’s pockets.”

The change came amid a broad redesign of the Form 990, a public annual filing that is filled out by most U.S. not-for-profit organizations and gives the IRS, donors, the news media and watchdogs a means of monitoring charity activities. The redesign of the Form 990 included other tweaks that required greater transparency of not-for-profits. Not so the change to the section on foreign grantees.

“I think it’s kind of amazing,” said William Josephson, former head of the Charities Bureau in the Office of the New York State Attorney General. “Who are foreign recipients is just as important as who are domestic recipients, perhaps even more important.”

The IRS declined to comment for this story. In justifying its rule change at the time, the agency cited concerns from some not-for-profits that identifying overseas recipients of U.S. dollars in publicly available documents could pose a security risk for those groups.

The IRS’s justifications fail to explain why those security concerns apply to overseas grantees of public charities but not to overseas grantees of private foundations, another category of U.S. not-for-profits that still must report the names of their grantees.

Owens, the former IRS charity official, said that the security concern was valid in certain countries, but not across the entire world. “Once you get beyond a short list, there really aren’t a lot of issues with respect to listing grantees in Israel, for example, or France or Great Britain,” he said, listing places where many American donors direct funds. “I think it has turned into a way for charities to appear to be more transparent, but in fact be less transparent.”

But the IRS, having made the change in its 990 forms to accommodate security concerns on grants to some countries, says tax statutes require the same treatment for all countries. In 2007 the IRS said that it would change the new Form 990 to require the names of foreign grantees if at some point in the future the IRS would be able to selectively redact the form before it was publicly released. That has not yet happened.

Meanwhile, Form 990 filings have grown more opaque. In 2007, American Friends of Hebrew University reported sending $45 million to The Hebrew University of Jerusalem. In 2010, that same group reported that it had sent $34 million to the “Middle East/North Africa” for “general purposes, scholarships, research, capital projects.”

Donors are unlikely to be confused by that group. Elsewhere in their 2010 Form 990, the organization writes that its “primary exempt purpose is to support Hebrew University and other educational institutions.”

In cases of other, more controversial charities, however, journalists and other watchdogs will now find it far more difficult to track their activities.

One Israel Fund is a Long Island-based charity that provides security and social services to Jewish settlements in the West Bank. In its 2003 Form 990, One Israel Fund listed grantees like Adei Ad, a tiny West Bank outpost that the Israel Defense Forces has repeatedly attempted to dismantle. Other grantees that year included Kiryat Arba, a larger settlement near Hebron, and the settlements of Otniel and Hashmonaim.

Under the new regulatory regime, One Israel Fund’s disclosures provide far less information about which settlements it supports. In its latest available Form 990, filed in 2010, One Israel Fund reported that it sent roughly two dozen grants to the “Middle East.” Ranging from $5,000 to $130,000, the organization characterized the grants variously as supporting “humanitarian needs” and “security,” among other purposes.

One Israel Fund did not respond to a request for comment from the Forward.

It’s clear that many not-for-profits were flouting the disclosure requirement before the rules changed. Friends of the Israel Defense Forces, a New York City-based charity, stopped revealing the names of its foreign grantees as early as 2000. Today, the organization declines to make the names of those grantees public.

“Our executive committee has made that determination, and we feel that it’s the appropriate thing,” said Jonathan Bernstein, the group’s chief financial officer. “It’s a privacy protection reason. You know, it’s a combination of reasons. Security’s a part of it also.”

Friends of the IDF raised $27 million at a March fundraiser.

“It’s quite amazing how we pretend to have accountability and disclosure when in so many places, what you really would want to know — the main points — are hidden,” said Daniel Borochoff of CharityWatch, a charity monitoring group.

Other charity watchdogs were less alarmed. “They can disclose if they wish to, but are not required to,” said Bennett Weiner, chief operating officer of the BBB Wise Giving Alliance, a national charity monitor. Weiner said he backed more transparency, but that the new rules had not directly hindered his organization’s monitoring work.

“I think more disclosure is better than less,” Weiner said. “In terms of what impact it’s had, I haven’t seen that much.”

Charity Navigator, which, like the BBB Wise Giving Alliance, rates charities, said that the change had not affected its rating process. Charity Navigator’s rating system does not measure a charity’s impact, but rather its organizational efficiency. A spokeswoman, however, said that the group disagreed with the rule change in principle.

“In general we would prefer more transparency, and most donors would want to know who the grantees are,” said Sandra Miniutti, Charity Navigator’s vice president of marketing and CFO. “That’s an important thing to know if you’re supporting a charity that does work internationally.”

Contact Josh Nathan-Kazis at nathankazis@forward.com or on Twitter, @joshnathankazis


The Jewish Daily Forward welcomes reader comments in order to promote thoughtful discussion on issues of importance to the Jewish community. In the interest of maintaining a civil forum, The Jewish Daily Forwardrequires that all commenters be appropriately respectful toward our writers, other commenters and the subjects of the articles. Vigorous debate and reasoned critique are welcome; name-calling and personal invective are not. While we generally do not seek to edit or actively moderate comments, our spam filter prevents most links and certain key words from being posted and The Jewish Daily Forward reserves the right to remove comments for any reason.





Find us on Facebook!
  • "We will do what we must to protect our people. We have that right. We are not less deserving of life and quiet than anyone else. No more apologies."
  • "Woody Allen should have quit while he was ahead." Ezra Glinter's review of "Magic in the Moonlight": http://jd.fo/f4Q1Q
  • Jon Stewart responds to his critics: “Look, obviously there are many strong opinions on this. But just merely mentioning Israel or questioning in any way the effectiveness or humanity of Israel’s policies is not the same thing as being pro-Hamas.”
  • "My bat mitzvah party took place in our living room. There were only a few Jewish kids there, and only one from my Sunday school class. She sat in the corner, wearing the right clothes, asking her mom when they could go." The latest in our Promised Lands series — what state should we visit next?
  • Former Israeli National Security Advisor Yaakov Amidror: “A cease-fire will mean that anytime Hamas wants to fight it can. Occupation of Gaza will bring longer-term quiet, but the price will be very high.” What do you think?
  • Should couples sign a pre-pregnancy contract, outlining how caring for the infant will be equally divided between the two parties involved? Just think of it as a ketubah for expectant parents:
  • Many #Israelis can't make it to bomb shelters in time. One of them is Amos Oz.
  • According to Israeli professor Mordechai Kedar, “the only thing that can deter terrorists, like those who kidnapped the children and killed them, is the knowledge that their sister or their mother will be raped."
  • Why does ultra-Orthodox group Agudath Israel of America receive its largest donation from the majority owners of Walmart? Find out here: http://jd.fo/q4XfI
  • Woody Allen on the situation in #Gaza: It's “a terrible, tragic thing. Innocent lives are lost left and right, and it’s a horrible situation that eventually has to right itself.”
  • "Mark your calendars: It was on Sunday, July 20, that the momentum turned against Israel." J.J. Goldberg's latest analysis on Israel's ground operation in Gaza:
  • What do you think?
  • "To everyone who is reading this article and saying, “Yes, but… Hamas,” I would ask you to just stop with the “buts.” Take a single moment and allow yourself to feel this tremendous loss. Lay down your arms and grieve for the children of Gaza."
  • Professor Dan Markel, 41 years old, was found shot and killed in his Tallahassee home on Friday. Jay Michaelson can't explain the death, just grieve for it.
  • Employees complained that the food they received to end the daily fast during the holy month of Ramadan was not enough (no non-kosher food is allowed in the plant). The next day, they were dismissed.
  • from-cache

Would you like to receive updates about new stories?




















We will not share your e-mail address or other personal information.

Already subscribed? Manage your subscription.