How US "charities" break tax laws to fund Israeli settlements

By Mike Coogan – The Electronic Intifada – 3 September 2011

In spite of US government statements about its displeasure with the expansion of Israeli settlements, US based organizations are abusing the 501(C)3 section of US tax codes to provide billions in subsidies to do exactly that.

There are hundreds of these tax-exempt, so-called charities funneling money to illegal Israeli settlements, often with the names no more creative than “American Friends of name an Israeli settlement.”

One such organization, American Friends of Ariel Inc., paints a picture of how these US based front groups collect tax-deductible donations, and use them to build and expand illegal Israeli settlements, and in some cases, purchase weapons for the settlers within them. In many cases, including that of American Friends of Ariel Inc., the organization does not make substantial efforts to disguise the fact that the US based tax exempt entity is nothing more than a shell organization being used to transfer money abroad.

For example, the president of American Friends of Ariel, Ron Nachman, also happens to be the longtime mayor of Ariel. The sole programmatic function of American Friends of Ariel is to transfer funds to a non-exempt organization based in Ariel called the Ariel Development Fund, also controlled by Nachman, which describes itself simply as the “fundraising arm of the city of Ariel.” Under Ron Nachman’s leadership, American Friends of Ariel transferred more than $5 million to the Ariel Development Fund over the last several years.

It is worth noting that much of the funding for American Friends of Ariel has come from Christian Zionist groups, and in general, these groups have played an increasingly dominant role in the financial and political support for the illegal Israeli settlement enterprise.

Devastating impact

The work of American Friends of Ariel Inc., and the many tax-exempt organizations like it, is having a devastating impact on local Palestinian communities. A recent report by the UN Office of Humanitarian Affairs, covered by the Ma’an News Agency, described the “alarming trends of forced displacement of Palestinians in Area C” as a result of settlement expansion, and found that “more demolitions have taken place so far in 2011 than in all of 2009 and 2010 combined” (“UN: Marked increase in forced displacement of Palestinians,” 21 July 2011).

In addition to the gross human rights violations inherent in illegal Israeli settlement expansion, US taxpayers simply cannot afford to build homes and walls in illegal Israeli settlements while record numbers of Americans are losing their homes, and unmet domestic needs in the US are at an all time high.

American Friends of Ariel, and the vast number of organizations like it, not only violate Palestinian human rights, they violate US laws. American Friends of Ariel Inc. flouts US laws in two ways.

The first has to do with the structure of the organization, and the fact that most of these tax exempt 501(c)3 organizations are simply shells that transfer money to non-exempt organizations abroad, and the second deals with the exempt purposes set forth by the Internal Revenue Service (IRS) and Treasury Department.

The rule concerning the use of tax exempt entities as conduit organizations is clear, and states that “the code would be nullified if contributions inevitably committed to a foreign organization were held to be deductible solely because, in the course of transmittal to a foreign organization, they came to rest momentarily in a qualifying domestic organization” (Section 170(c)(2)(A)). That is exactly the case with American Friends of Ariel Inc., and hundreds of organizations like it, a fact which is abundantly clear upon review of their publicly available 990 tax forms.

Exacerbating poverty and neighborhood tensions

The second major legal violation occurs because these organizations fundamentally violate the purpose for which charities can be organized, namely to provide “relief of the poor, the distressed, or the underprivileged; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

Illegal Israeli settlements, mostly built on expropriated land and operated with stolen resources, exacerbate poverty and systematically create an underprivileged class of people. Race-based colonies inherently increase neighborhood tensions, and they effectively annex occupied Palestinian land through a system of apartheid infrastructure that has been detrimental to Palestinian communities across the West Bank, including occupied East Jerusalem.

The raison d’etre of illegal Israeli settlements is rooted in institutionalized discrimination, and therefore technically violates IRS regulations on a daily basis in the same way that Bob Jones University violated those same regulations barring discrimination (Bob Jones University v United States).

In 1983, the Supreme Court ruled that the IRS had the authority to revoke the tax-exempt status of Bob Jones University because they openly discriminated against interracially married individuals. The court ruled that such behavior was “wholly incompatible with the concepts underlying tax exemption,” and clarified by stating that “whatever may be the rationale for such private schools’ policies, racial discrimination in education is contrary to public policy.” Fundamental human rights like equality are not confined by jurisdiction, and organizations operating abroad are similarly bound to respect and uphold them.

The numerous and flagrant violations of the tax-exempt purposes set forth by the IRS and Treasury department should be reason enough to revoke the tax-exempt status of these organizations. It is hard to imagine the US playing any constructive role as an “honest broker” when in addition to providing $3 billion in annual military aid to Israel, Americans are also being forced to subsidize the construction and expansion of the same illegal settlements that our government is politely telling Israel are very unhelpful.

Because of the US government’s unwillingness to equally enforce the law, or use the proverbial stick instead of just carrots, money that would otherwise be going into our national treasury to pay down the debt or build affordable housing in the US, is instead being used to construct and defend Jewish-only colonies in the occupied West Bank.

Mike Coogan is a member of Virginians for Middle East Peace.

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