Tuesday, September 3, 2013

Precious Few Dollars To Help Dying Children At America's Worst Charity; Authorities Don't Care

I have taken the liberty of sharing an abridged edition of the following (subscribe, it is great) . This a sampling of Paul's phenomenal newsletter.

From the Desk of Paul Streckfus,
Editor, EO Tax Journal



Worst Charities in America
Why do we tolerate charities that are, in essence, rip-offs of donors and taxpayers (who subsidize the misdirected donations through section 170)? I discussed this in email update 2013-100 when I noted the Center for Investigative Reporting and the Tampa Bay Times’ report, “America’s Worst Charities.” To make a ton of money, just set up a “hard to say no to” charity and watch the donations come in, via a paid fundraiser using direct mail or telemarketing. In the “America’s Worst Charities” report, the top four used cancer or kids to bait donors: (1) Kids Wish Network, (2) Cancer Fund of America, (3) Children’s Wish Foundation International, and (4) American Breast Cancer Foundation.

Why are these charity scams tolerated? In my opinion, there is a lot of blame to go around. Start with Congress. With a few exceptions (Senator Grassley comes to mind), most members of Congress aren’t interested in going after these phony charities, especially if they are getting campaign contributions or other benefits from them. Next comes mainstream charities that would prefer to keep the seamy side of the charity business quiet. I suspect a reputable charity such as the American Cancer Society doesn’t want too much attention directed to the fact that the Cancer Fund of America is #2 on the list of worst charities, lest people become concerned about all cancer charities. I think this concern keeps Independent Sector, for example, relatively quiet.

The IRS and the Department of Justice gave up the fight after the 
United Cancer Council case, which the IRS won in the Tax Court, was reversed by the Seventh Circuit in 1999 in an outrageously stupid opinion written by the supposedly brilliant Richard Posner. In a short paragraph that showed Judge Posner’s total lack of understanding of EO tax law, he wrote:

    “We were not reassured when the government’s lawyer, in response to a question from the bench as to what standard he was advocating to guide decision in this area, said that it was the 'facts and circumstances' of each case. That is no standard at all, and makes the tax status of charitable organizations and their donors a matter of the whim of the IRS.”

Somebody needs to tell Posner that “facts and circumstances,” whether we like it or not, is the standard for determining the tax status of most charitable organizations.

With its stunning defeat in 
UCC, I suspect the Justice Department told the IRS it would not defend any more UCC-like cases. So, while I would like to blame the IRS, in particular, Steve Miller and Lois Lerner, for being too timid, I recognize that their hands were probably tied by DOJ and by the IRS Office of Chief Counsel. The result, I believe, is that a charity like Kids Wish Network, discussed below, can go on its merry way, knowing it has nothing to fear from the IRS.  

Keeping Them Honest: Millions for Charity, Peanuts for Dying ChildrenCNN Report, Part 1, August 26, 2013

The headquarters of Kids Wish Network is in a low slung set  of buildings north of Tampa. The green awning carrying the logo of Kids Wish is small and almost impossible to see from the busy road that leads to the parking lot. But the charity itself isn't small in the least. Over the past decade, tax records show it's been highly successful. Add up the money received for the past ten years and more than $127 million has been donated. But those same records also show that $109 million of that has been paid right back to the paid telemarketers who raised it.

Kids Wish Network was the subject a months long investigation published in June by the Center for Investigative Reporting and the 
Tampa Bay Times. CNN joined that investigation as it was nearing its conclusion. That investigation labeled Kids Wish as America's "worst" charity and from the available evidence, it's not hard to see why.

CNN's Drew Griffin talked to three ex-employees of Kids Wish -- two who didn't want their names or identities disclosed. And one who did. The one who told us her story on the record is a woman named Meanda DuBay, who worked for the charity as something called a "wish coordinator" for about six months from mid-2011 until January 3, 2012 when she was fired. She was fired, she says, because she took her concerns and complaint about Kids Wish to the charity's board of directors. Meanda DuBay was fired, she says, about 45 minutes after hitting "send" on emails to board members outlining her assertions.

Kids Wish Network has filed a civil defamation lawsuit against her but along with that, convinced the FBI to raid her house, confiscate her computers and conduct a full blown investigation for several  months, all based on the charity's claim that Mrs. DuBay stole confidential electronic information. The FBI ended its investigation with no charges filed and returned all of the seized computers belonging to her and her husband.

It's a story about millions of charitable dollars flowing into a charity that says it helps dying kids.

Millions for Charity, Peanuts for Dying ChildrenCNN Report, Part 2, August 27, 2013

A former employee of the Kids Wish Network charity says that when it comes to pictures of seriously ill children charity executives wanted to promote on websites and in brochures, the sicker the better.

Speaking to
 CNN in silhouette because he feared reprisals, a man who worked at the Tampa-area charity for nearly a year says he was told that a photograph he had chosen of an ill child, in effect, looked too healthy. When CNN's Drew Griffin asked him to elaborate, he said, "they want what will make them the most money."

That's just one example from the second of a two part CNN investigation into Kids Wish Network, a charity that according to tax returns has taken in $127 million in donations over the past decade, but spent precious little -- less than three per cent in cash -- to help dying children.

This was part of a months long investigation with the Center for Investigative Reporting and the 
Tampa Bay Times.


CNN’s On-Air Response
• The basic facts remain (based on Forms 990): $127 million in cash received over 10 years, $109 million to fundraisers, less than 3% in cash to kids.

• Kids Wish Network is counting receipt of gifts-in-kind that are then re-gifted (no cash involved), and counting as program services telemarketers explaining what Kids Wish Network does.

• No criminal charges have been brought by either the Pasco County Sheriff’s Office or the FBI against Meanda DuBay.

• CNN continues to offer Anna Lanzatella, Kids Wish Network’s executive director, a live interview in a respectful manner with no editing. 






Nonprofit Imperative gathers its information principally from public documents...some of which are directly quoted. Virtually all cited are in some phase of criminal proceedings; some have not been charged, however. Cites in various media: Featured in print, broadcast, and online media outlets, including: Charity Navigator, Vermont Public Radio, Miami Herald, National Public Radio (NPR), Huffington Post, The Sun News, Atlanta Journal Constitution, Wall Street Journal (Profile, News and Photos), “Betrayal”, (a movie), NBC (on Charity Fraud…TBD), FOX2, ABC Spotlight on the News, WWJ Radio, Marie Claire, Ethics World, Aspen Philanthropy Newsletter, Harvard Business Review, Current Affairs, Charity Navigator, The Chronicle of Philanthropy, St. Petersburg Times, Board Room Insider, USA Today Topics, Accountants News, Newsweek.com, Responsive Philanthropy Magazine, New York Times, Portfolio Magazine, The Virgin Islands Daily News, NANKAI (China) BUSINESS REVIEW, National Religious Broadcasters newsletter, The Charity Governance Blog, American Chronicle, Palm Beach Post, Detroit Free Press, Oakland Press, Nonprofit World, Socially Responsible Business Forum, PNNOnline, Ohio Nonprofit Resources, Nonprofit Good Practice Guide, Nonprofit Startup Guide, Nonprofit Blog, National Coalition of Homeless Newsletter, Finance and Administration Roundtable Newsletter, MichiganNonprofit.com, CORP! Magazine, Crain’s Michigan Nonprofit, ncrp.org, PhilanTopic, Nashville Free Press, Nonprofit Law Blog, Seniors World Chronicle, Carnegie Reporter, Assoc. of Certified Fraud Examiners Examiner, msnbc.com, Worchester (MA) Telegram and Gazette, Carnegie Corporation of America, EO Tax Journal, Wikipedia: Non-profit Organizations; Parent: Wise Austin, Accountants News, Veterans Today, Answers.com, Far-roundtable, #Nonprofit Report, nonprofithelpnews, nonprofit news; National Enquirer, Northwest Herald, The HelpWise Daily, The #Nonprofit Report, Wikipedia (Nonprofit Organization), Answers.com, Nonprofits: On the Brink (2006) Silence: The Impending Threat to the Charitable Sector (2011)
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