In Reversal, IRS Says Group That Urges Less Aid to Israel is a Charity

The Internal Revenue Service has given up its efforts to deny charity status to an organization that seeks to reduce the amount of federal money that goes to Israel.

The I.R.S. declined to comment on its reason for deciding to grant charity status to the Council for the National Interest Foundation in Washington or on any other aspect of the controversial case, citing federal law that prohibits such discussion.

But Eugene Bird, president of the council, said he thinks the I.R.S. reversed itself chiefly because the government realized that it would be wrong to deny the exemption “simply because we were opposing the government of Israel’s policies, which should not even enter into the discussion.”

Mr. Bird said he also believes that the I.R.S. was influenced by the council’s charge in U.S. Tax Court that the government did not fairly apply its tests for tax-exempt status to all non-profit organizations that focus on Middle East issues.

Formed in 1990, the Council for the National Interest Foundation set out to educate the public about Middle East political developments and American foreign-policy options through newsletters and seminars. The organization was created by the Council for the National Interest, an advocacy group founded by former U.S. Rep. Paul Findley, Republican of Illinois, that has long criticized American military and financial assistance to Israel.

Four years ago, the I.R.S. told the Council for the National Interest Foundation that it had rejected its application for a tax exemption under Section 50(c)(3) of the Internal Revenue Code, which meant that its supporters could not claim charitable-contribution deductions for their gifts to the group (The Chronicle, March 23, 1995).

In a 1994 letter to the organization, the I.R.S. explained that it had reviewed the council’s publications and work and flunked the group for two main reasons:

* A significant part of the council’s activities was “attempting to influence legislation by propaganda or otherwise.” Under federal law, organizations classified as charities can devote only a limited amount of their efforts to lobbying.

* The council’s purpose was not educational. An organization can be classified as a charity if it advocates a point of view, the I.R.S. said. But information that a group gives the public may not be “distorted and disparaging,” which could result in the public being swayed from forming an independent opinion or conclusion. “Your biased presentation does not promote public education concerning Middle East political development and American foreign-policy issues and options for that region,” the government said.

The I.R.S. criticized the council for not providing evidence to back up claims published in its newsletters. For example, the I.R.S. said, the council quoted Faisal Husseini, a Palestinian activist, as saying: “Instead of arresting activists against the occupation, the Israeli authorities are conducting a campaign to kill them.” The I.R.S. said that if the council wanted to use such a quote, it would have to provide evidence to substantiate the claims.

Mr. Bird denied that his group had improperly lobbied or had intentionally tried to mislead the public. “We’re not an anti-Israel organization, we keep emphasizing that,” said Mr. Bird, a former foreign-service officer. He added that the I.R.S. would not be justified in ruling against the council on that basis in any event.

Non-profit tax experts agreed, saying that the government seemed to treat the council unfairly because of the group’s controversial views.

After losing two appeals to I.R.S. officials, the Council for the National Interest Foundation last year sued the revenue service in U.S. Tax Court, demanding its charity status. The suit said that the revenue service had misapplied its tests for tax-exempt status and that one standard was unconstitutional.

Moreover, the council said that the I.R.S. had not been consistent in applying its tests for tax-exempt status “with regard to organizations disseminating information about Middle East topics.” As part of its evidence, the council provided copies of advertisements placed by charities that support Israel.

Mr. Bird said that the I.R.S. initially asked the council to delete the names of those organizations from its court filing. Before the organization responded, the I.R.S. requested a meeting at which the government conceded that the council did qualify as a charity, he said.

“I think the I.R.S. decided to fold before the problems with the way they handle the other organizations ever became a criticism of the I.R.S.,” said Mr. Bird.

The government told the council that it could choose to lobby under federal law and regulations that allow charities to spend a set percentage of their total budgets on efforts to influence legislation, Mr. Bird said.

In October, the Council for the National Interest Foundation and the I.R.S. settled the Tax Court case, and the I.R.S. said that the council qualified as a charity dating back to August 28, 1992 — the day it first applied for charity status. The council is now awaiting a formal letter from the I.R.S. that confirms the group’s status.

Mr. Bird said he figures that the delay in obtaining charity status cost the group more than $200,000 in charitable contributions and foundation grants over the past three years.

Said Mr. Bird: “We will now make up for lost time and hope that the I.R.S. has learned a lesson.”