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The Speaker and Section 501(c)3 of the Federal Tax Code


I know as soon as you see that you want to turn the page. 501(c)3 sounds like the epitome of arcane. I thought so myself until I started looking into it and realized that section 501(c)3 of the Federal Tax Code is where the next act in the drama of Speaker Newt Gingrich will be played out.

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The Internal Revenue Service has received a lot of files from Ethics Committee Special Counsel James Cole. One of the things the files show is that in 1990 and 1991, the Abraham Lincoln Opportunity Foundation borrowed $74,500 from Mr. Gingrich's political action committee, GOPAC, to help pay for a televised town hall meeting.

The foundation paid back to GOPAC $117,000 - $42,500 more than it borrowed. The foundation is a 501(c)3 foundation, that is tax-exempt, and contributions to it tax-deductible, because it claims to be a charity. Its stated purpose: to help inner-city children.

The law is quite clear that no assets or resources of a 501(c)3 organization may be used for political purposes. The law spells out that a specific candidate need not be identified to call it political activity.

At issue is why the foundation gave GOPAC some $42,000 supposed to be used for inner-city children. GOPAC responded with bills for rent, postage, and staff services it said were performed for the foundation.

It's not clear when the bills were written. When the foundation's accountant was asked to show that the money was spent for non-partisan purposes, she asserted constitutional privilege, refusing to respond.

We're dealing with just one facet of what promises to be a thoroughgoing investigation by the IRS. If the Lincoln Foundation is found to have used tax-exempt money to help Gingrich, he would have to answer for benefits to him, and contributors might have to reimburse the IRS for their tax deductions - and possibly be subject to fines.

A leading tax authority, who doesn't wish to be identified, summed up the situation this way: "When checks flow from a tax-exempt foundation to a related political organization, exorbitantly in excess of what was alleged borrowed; when vouchers are prepared after the fact to justify the discrepancy; when these vouchers do not match the purported quid pro quo provided by the political lender; and when the accountant responsible for reporting the transaction refused to provide answers by asserting a constitutional privilege, i.e., Fifth Amendment, then someone clearly has a very serious tax problem."

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You see how fascinating 501(c)3 is?

* Daniel Schorr is senior news analyst for National Public Radio.

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