Bad Seeds – Why the ACORN Scandal Matters to Other Nonprofits

Bad seeds?

Bad seeds?

The Association of Community Organizations for Reform Now, aka ACORN, was, until the past year, a relatively unknown organization to most Americans.  Founded in 1970 and based in New Orleans, Louisiana, ACORN’s most visible face is that of a 501(c)(3) public charity ostensibly advocating for low- and moderate-income families in the areas of neighborhood safety, voter registration, health care, affordable housing, and other social issues.  ACORN also has a non-charitable arm that lobbies for primarily left-wing causes and candidates, as well as dozens of affiliated splinter groups.  ACORN’s “charitable” division receives millions upon millions of dollars in federal grant money each year.

ACORN’s profile increased dramatically during last year’s presidential campaign, with then-Senator Obama’s candidacy and subsequent victory, himself having been a community organizer with close ties to the group.  The problems for ACORN started when numerous chapters were busted for voter registration fraud.  Estimates go as high as 400,000 falsely registered voters, including Mickey Mouse and Paul Newman.  ACORN’s voter registration program is under investigation in 14 states, with over 30 indictments having been handed down so far with likely many more to come.

The latest fiasco for ACORN comes from the most unlikely of sources:  a couple of 20-something budding independent journalists who visited various ACORN housing assistance offices around the country, posing as a prostitute and pimp.  As of today (September 16, 2009), we know of 4 ACORN offices where workers have been videotaped bending over backwards to help these two kids, dressed like characters from a bad 70′s movie, set up a brothel, commit tax fraud and cover up a child sex slavery ring.  ACORN insists the whole “sting” is fraudulent, but yet it has fired most of the employees shown on the tapes.  To make matters worse, now the federal government has swung into action.  First, the Census bureau severed all ties to ACORN (ACORN had been contracted with to assist in the 2010 census).  A few days later, the Senate voted 83-7 to cut off all HUD (Dept of Housing and Urban Development) funding from the group’s housing division.  And just today, the House will consider legislation to strip ACORN of all government funding.

Why are we talking about this?  Well, for one, most of the main stream media has been ignoring the story, so many of you may not even be aware of what’s going on.  But there is a bigger reason:  legitimate nonprofits, especially those with programs that help the needy with housing and similar programs, stand to be tarnished in the minds of the donating public by virtue of ACORN’s misdeeds.

Over the years, we have worked with hundreds of programs that target the needs of the poor and inner city.  The vast majority of these organizations are small, neighborhood-based charities that truly make a difference in the lives of those they serve.  Many are community development outreaches of area churches offering faith-based solutions to some of life’s most difficult circumstances.  What a tragedy it would be to see these hard-working, struggling organizations suffer guilt by similarity.  Make no mistake:  this story is not going away anytime soon.  ACORN, regardless of whatever good things it may have accomplished here or there, is fast becoming a pariah due to one of two things:  either its unwillingness to run a tight ship or outright criminal behavior.  Either way, it is probably curtains for them.

So how does a legitimate program protect its reputation and funding base?  Americans are some of the most generous people on the planet.  Billions of dollars are donated each year by families all across America.  Witness 9/11, the tsunami, hurricane Katrina…Americans give big.  But nothing will shut off the flow of cash faster than the taint of corruption.  First, if your organization has any ties whatsoever to ACORN or one of its affiliates, you have a decision to make.  Do we stay or do we go?  I think you already know our advice:  run!  Assuming your organization has no ties to ACORN, you need to aggressively reassure your donors that your program is clean and its operations completely transparent.  We sincerely hope that good community programs all across the country will rise up and demand accountability and set the record straight that corruption, cronyism and fraud will not be tolerated among their ranks.

You want to protect your organization?  Stand up for integrity!

We pray that all the good organizations that accomplish so much survive this scandal unscathed.  We believe it will take deliberate action on their part to ensure that outcome.

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About Greg McRay

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

15 Responses to “Bad Seeds – Why the ACORN Scandal Matters to Other Nonprofits”

  1. Oscar H. Blayton September 16, 2009 12:40 pm
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    Your advice to disassociate from Acorn in the very broad manner in which you state it seems to me to be irresponsible. It seems that all the facts are not out yet , nor are they clear at this point. Your article seems to have a “political” flavor, but I sincerely hope that such was not your intent.

    • Greg McRay, EA September 16, 2009 2:11 pm
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      With all due respect, Oscar, politics are irrelevant here. What matters is donor perception…and that is what our advice is based on. ACORN’s guilt or innocence is completely beside the point. Problem is, it’s hard to argue innocence under the circumstances.

      In case you haven’t heard, it was announced moments ago (Sep 16 ’09 – 2:30 pm EDT) that ACORN is suspending all operations pending independent review. This will be interesting…

      • Happylad September 17, 2009 7:08 am
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        Oscar,

        You seem to be making your statements based on the absence of this story in the mainstream media. Go on YouTube and watch the videos. There’s no mistaking the horrendous advice that four ACORN offices gave to these two young people. It’s despicable regardless of political affiliation. I agree with Greg, run!!!

        • Greg McRay, EA September 17, 2009 8:03 am
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          Well said. And, it’s now 5 offices. The ACORN counselor in San Diego offered to help smuggle 13 year old sex slaves through his contacts in Tijauna, Mexico! You can’t make this stuff up!

    • Dan G September 19, 2009 1:45 pm
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      The fact that they didn’t file a return for the “pimp” is irrelivant, IRS CODE STATES: “…if it tends to encourage such conduct” is enough to revoke their status.

      2. IRC 501(c)(3) and IRC 501(c)(4) Organizations

      A. Charity Law

      Exemption recognized under IRC 501(c)(3) is unique in that, unlike exemption under other paragraphs of IRC 501(c), it is grounded in charity law, so that denial of exemption under IRC 501(c)(3) may be based on charity law.

      (1) Substantiality Test

      Violation of constitutionally valid laws is inconsistent with exemption under IRC 501(c)(3). As a matter of trust law, one of the main sources of the general law of charity, planned activities that violate laws are not in furtherance of a charitable purpose. “A trust cannot be created for a purpose which is illegal. The purpose is illegal … if the trust tends to induce the commission of crime or if the accomplishment of the purpose is otherwise against public policy…. Where a policy is articulated in a statute making certain conduct a criminal offense, then …, a trust is illegal if its performance involves such criminal conduct, or if it tends to encourage such conduct.” IV Scott on Trusts Section 377 (3d ed. 1967). Thus, all charitable trusts (and by implication all charitable organizations, regardless of their form) are subject to the requirement that their purpose may not be illegal or contrary to public policy. Rev. Rul. 71-447, 1971-2 C.B. 230; Restatement (Second) of Trusts, Section 377, Comment c (1959). Moreover by conducting criminal activities, an organization increases the burden of government and thus thwarts a well recognized charitable goal, i.e., relief of the burdens of government.

  2. Shawn September 16, 2009 1:51 pm
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    By their good works ye shall know them! A good organization carries an aura of good people that work within it and that are helped without. The good ones should produce enough good that they are known for the good that they do and don’t have to rely upon the non-profit status as a crutch. Shawn

  3. Clarence Barnett September 16, 2009 11:38 pm
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    ACORN is a thorn. Their reputation has been tarnished and just like everyone else whose reputation precedes them; good, bad or indifferent your fan base is affected. Forget political slant, racial overtones, likes and dislikes. It is what it is. They need to clean up their act, right the ship, get rid of bad baggage, admit wrong doing, and let the chips fall where they may. Too many NPOs and churches have been hurt by someone else’s mistakes, wrong doing and naivete in spite of their good deeds. ACORN has been marked as such.

  4. Val September 17, 2009 11:39 am
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    What I want to understand is how a 501(c)3 can be politically active even as lobbyist. I’ll lose my non-profit standing if I even mention politics in any form. Why haven’t they lost theirs for their lobbying activities?

    • Greg McRay, EA September 17, 2009 12:47 pm
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      There are two answers to this question: one that is straightforward and one that is not-so-straightforward. The straightforward answer is that the lobbying activity conducted by ACORN is performed by a 501(c)(4) affiliated entity. 501(c)(4) organizations are not charitable and cannot receive tax deductible contributions. Therefore, even though they are tax exempt, they are allowed to lobby. Think AARP, National Rifle Association, NAACP, etc.

      Here’s where it gets messy. There is evidence (I didn’t say proof) to suggest that ACORN has funded part of its lobbying efforts by transferring money from the 501(c)(3) to the 501(c)(4) in direct violation of the law. Of course, ACORN denies this, but they also tried to deny they had a problem in their field offices until the sheer weight of the obvious crushed that argument. And frankly, their extensive ties to politicians have provided them a certain degree of cover…at least until the last few days. Of all the insane stuff on those videotapes, there is one admission made by an ACORN worker that has escaped much notice…except by us in the nonprofit business. She makes the comment, when discussing the “pimp’s” future campaign aspirations, that ACORN (the charity) is “supposed” to be nonpartisan. From the context of the conversation, her implication was unmistakable: ACORN the charity is anything but nonpartisan. This organization should be turned inside out by the IRS and possibly by the FBI under the RICO statutes, but that is another conversation.

      And…before someone accuses us of being political about this, let me say unequivocally…we are entirely consistent with our counsel and advice on this topic. If we have a client who leans left or right, we preach the same message. Politics has NO place in the 501(c)(3) world. It is completely against the code. Expenditures made for political purposes are a misappropriation of donor funds, no matter which side of the political world you call home. The whole point of our article is to warn nonprofits of the dangers of poisoning donor perception.

  5. Keith W. Mills September 17, 2009 8:35 pm
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    Well stated. Thank you for looking after the NP community”at large.”

  6. Mentoring Minds of Music, NV September 22, 2009 1:16 pm
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    I am a Black single Mom who spends two days a week giving, paying, and loading food for single families of all ethnic backgrounds. Most of these families are white fathers with teenage sons whose Mothers have left. It’s sad that my hard work will be impacted by the Acorn issues.

  7. Sissy Quinn September 24, 2009 8:34 am
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    I just this week received a 501c3 for historic preservation in my community. On page 8 of the booklet I received, it clearly states that my corporation cannot engage in political campaign activities. How come no one brought this up during the recent elections? As I see it it is just another infraction by this more than “shady” group.

  8. Greg McRay, EA September 16, 2009 2:57 pm
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    Thanks for the reprint, Jeffrey!

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