Sekulow’s charitable ties and 1023-EZ regulations

NONPROFIT NEWS

While much of the attention paid of late to potential abuses of charitable entities and charitable funds in connection with the current presidential administration has focused the Trump family itself, June saw the breaking of a similar story in connection with the activities of ardent Trump supporter and defender, Jay Sekulow. Reporting by the Washington Post found that Sekulow and his family members have directly or indirectly received millions of dollars from charitable entities that they control or are otherwise affiliated with in the recent past, generating increased attention to and scrutiny of such entities. In more procedural news, the Department of the Treasury also issued final regulations in June regarding the controversial streamlined application for tax-exemption under Section 501(c)(3), the Form 1023-EZ.

Jay Sekulow’s Charitable Network

On June 27, the Washington Post published an article titled “Trump attorney Jay Sekulow’s family has been paid millions from charities they control.” Sekulow is a personal attorney for Trump — and occasional contributor to the Daily Journal — who is part of the team defending him in the Russia investigations and has been a vocal supporter of Trump on many occasions. Unfortunately for Sekulow, however, a byproduct of his recent increased fame as a Trump-defender has been increased scrutiny of his other activities and business dealings, including those of the nonprofits with which he is associated.

In addition to his role with the president, Sekulow is also the chief counsel for American Center for Law and Justice (ACLJ), a 501(c)(3) tax-exempt organization founded by televangelist Pat Robertson in 1990. The ACLJ website states that it is an “organization dedicated to the defense of constitutional liberties secured by law,” and that it is “specifically dedicated to the ideal that religious freedom and freedom of speech are inalienable, God-given rights.”

However, the ACLJ is just one part of a complex web of charitable and taxable organizations that are either controlled by or compensate, or both, Sekulow and members of his family. Sekulow founded Christian Advocates Serving Evangelism, Inc. (CASE), a California nonprofit religious corporation that is also exempt under Section 501(c)(3), in 1986. The most recent publicly available Form 990 filed by CASE lists its directors as Jay Sekulow, his wife and their two sons. As Sekulow’s fame grew over the years, and fundraising for CASE increased, ACLJ and CASE apparently finalized an arrangement in which donations made to support the organizations are all directed through CASE, likely giving the Sekulows on the CASE Board effective control over both organizations. According to their most recent publicly available returns, the organizations apparently share a single website, and CASE is operating under a d/b/a of “American Center for Law & Justice,” making it difficult to clearly distinguish between the activities of the two entities.

According to the Post article, the nonprofits received nearly $230 million in charitable contributions from 2011 to 2015, and significant amounts of that were paid to members of the Sekulow family or companies they owned. The article reports that, during that period, $5.5 million was paid directly to Sekulow and five of his family members as salary or other compensation; another $7.5 million went to businesses owned by Sekulow and his sister-in-law for television and radio production and agency services; and another $21 million was paid to a small law firm in which Sekulow has a 50 percent ownership stake. Moreover, the article reports that, since 2013, CASE has made grants of $500,000 each year to another 501(c)(3) called Law and Justice Institute, of which Sekulow is also the President. The Institute has then in turn paid $500,000 each year to Advocacy Services, a firm of which Pat Robertson is the president. The ACLJ has also made grants of more than $9 million to three independent foreign organizations that were launched by Sekulow, and he is listed as the chief counsel of each. The article noted that it was unclear from publicly available documents whether Sekulow receives any compensation from such organizations.

No accusation has yet been made that either CASE or ACLJ has violated federal tax law, and it may be the case that the compensation amounts described above do not run afoul of the excess benefit transaction, private inurement, or private benefit rules that apply to 501(c)(3)s. As a California nonprofit religious corporation, CASE also is not subject to the requirement, applicable to California nonprofit public benefit corporations, that no more than 49 percent of its directors be compensated by the organization or related to someone who is compensated. However, the optics certainly aren’t good and give the impression of a series of family-run businesses, rather than nonprofits serving the public good.

The day after the Post article was published, it was reported that the attorneys general in both North Carolina and New York stated that they would be investigating the activities of CASE. Accordingly, we may hear more on this soon.

Final Regulations on Form 1023-EZ

A less exciting, but likely more practically applicable, update is that the IRS and Department of the Treasury recently released final regulations regarding the streamlined application for tax-exemption under Section 501(c)(3), the Form 1023-EZ. The final regulations took effect on June 30.

As background, temporary regulations instituting the use of the Form 1023-EZ became applicable on July 1, 2014. Since the streamlined application became available, tens of thousands of entities have applied for exemption using the shorter application. The final regulations adopted the language of the temporary regulations without substantive change.

Accordingly, it looks like the Form 1023-EZ won’t be going anywhere any time soon. The Treasury announcement of the final regulations did, however, state “The IRS continues to consider improvements to Form 1023-EZ based on its own experience and informal comments received from the public and other stakeholders on the form, including whether to require applicants to submit a brief statement of actual or proposed activities. Because the proposed regulations contemplate that guidance published in the Internal Revenue Bulletin may prescribe the information required of Form 1023-EZ filers, including regarding their proposed activities, the Department of the Treasury (Treasury Department) and the IRS have concluded that the proposed regulations are sufficiently flexible to allow such a revision to the Form 1023-EZ at a future date, as resources permit.” So it may still be that we see changes to the Form 1023-EZ at some point in the future, assuming the IRS has sufficient resources, which may be a very big assumption to make in the current environment.