July 22, 2004 | Read Time: 2 minutes
New York officials in the past five months ordered officers and directors of numerous charities to repay more than $500,000 in loans they received from the organizations, the state’s top charity regulator told a Senate hearing last month.
William Josephson, assistant attorney general-in-charge in the New York State Charities Bureau, said the attorney general’s office ordered the repayments as part of an investigation spurred by information from a special report on loans by charitable organizations published by The Chronicle in its February 5 issue. The report showed that more than 1,000 charities across the country had outstanding loan debts from officers and directors totaling $142-million.
“Our examination is continuing,” Mr. Josephson added during his testimony at a Senate Finance Committee hearing on financial and legal abuses at charitable organizations. He said accountants in the charities bureau are in the process of examining 165 nonprofit groups in New York listed by The Chronicle as having made loans to their officers or directors.
Mr. Josephson said that while investigating one organization’s loans, his staff members came across other possible improprieties.
Meanwhile, the Hawaii attorney general’s office announced that it has completed an inquiry into charity loans that it began because of the Chronicle report.
In a news release, Attorney General Mark J. Bennett said that he has identified several nonprofit organizations that had made loans to officers or directors.
The statement said that Mr. Bennett has notified the groups “that such loans are not permitted under Hawaii law and that future similar transactions could result in personal liability by directors and officers and result in enforcement action.”
Utah Group
A Utah organization examined by The Chronicle has also come under government scrutiny. The Internal Revenue Service has reclassified the Wishes Are Forever Foundation, in Salt Lake City, as a private foundation — limiting the tax deductibility of donations to the organization.
The IRS does not explain publicly the reasons for its rulings. Marc Owens, a Washington lawyer who specializes in nonprofit law and who is the former head of the service’s division that oversees charities, said the ruling could mean that Wishes Are Forever was unable to show that it receives support from a wide range of sources, as charities must do.
The group’s founder, Richard H. Bradley, a lawyer in Salt Lake City, also helped set up at least a half-dozen charitable organizations, known as supporting organizations, whose main purpose was to make grants to Wishes Are Forever.
Under federal tax law, however, supporting organizations cannot give their funds to a private foundation, meaning that all those groups must either find another charity to support or themselves become private foundations, according to Mr. Owens.
All of those supporting organizations had also made loans to their officers or directors, totaling approximately $2-million. Since federal law prohibits private foundations from making loans to officers and directors, those groups and their donors could find themselves in legal trouble.
Mr. Bradley did not return phone calls seeking comment.
