How Hate Groups Abuse The Tax Code To Fund Their Activities

This article is part of TPM Cafe, TPM’s home for opinion and news analysis. 

The cacophony of radical right-wing violence that reverberated within the communities of Charlottesville, El Paso and Pittsburgh recently resulted in a long overdue decision by the Department of Homeland Security to treat white supremacy as a domestic terrorism threat. While DHS’ rhetorical shift is useful, it is now time for the government and private sector to counter the finances that help fuel white supremacists’ violence.

The radical right in the United States uses both legal and illicit ways to secure funding for its recruitment, propaganda and operational efforts, as a white supremacy extremism report by the Soufan Center makes clear. In particular, these groups have a long history of avoiding taxes. In the mid-1970s, the Internal Revenue Service assembled a special team of agents to counter the tax evasion tactics of groups like Posse Comitatus, a sovereign citizen group, as former Chicago Tribune journalist, James Coates wrote in his book “Armed and Dangerous.”

Illegal acts of tax evasion certainly remain a tactic of the radical right, but groups also use a pernicious and legally available method: claiming a tax exemption based on tenuous claims of charitable or educational work.

By cross-referencing the Southern Poverty Law Center’s list of radical right hate groups with the IRS list of tax exempt organizations, we found that 19 hate groups have at one time received tax exemptions for 501(c)(3) or 501(c)(4) nonprofit groups. Of those 19 groups, five have maintained their exemption or had it reinstated after a brief revocation.

It seems pretty clear that hate groups should not be receiving these exemptions. According to IRS guidelines, to qualify for an exemption under section 501(c)(3) of the Internal Revenue Code, groups must be charitable, religious or educational in nature. The IRS’ definition of charitable includes a line that groups should eliminate “prejudice and discrimination, [and] defending human and civil rights secured by law.” In order to qualify for exemption under section 501(c)(4), an organization must “be operated exclusively to promote social welfare.”

Organizations granted tax-exempt status are not required to pay taxes on most of their revenue or property. Indeed, ThinkProgress reported that seven affirmed white nationalist organizations —including the New Century Foundation, Charles Martel Society, and the VDARE Foundation, which is affiliated with the 2017 Unite the Right rally that left one counter protester dead — accumulated over $5 million since 2016, tax-free. Beyond the tangible financial boons of tax exemption, receiving nonprofit status from the IRS imparts an air of legitimacy to organizations, regardless of the nuances of their beliefs. Simply put, exemptions are akin to a publicly funded subsidy that allows organizations to redirect fungible assets to virulent forms of behavior and conduct that isn’t protected by federal law and shouldn’t be funded by the government.

Federal action to revoke these special tax benefits is not impossible. Bob Jones University, a small university in South Carolina, had its tax status revoked because its admission policies were racially biased. In ruling on the case in 1983, U.S. Supreme Court Chief Justice Warren Burger explained that that Bob Jones’ discriminatory policies were not consistent with IRS charity-related definitions. Not only did the court revoke Bob Jones’ tax exemption status, the court also ordered that the university pay back taxes to the tune of $490,000.

The IRS has also made decisions itself to revoke tax exemption status for a number of sovereign citizen movement groups that secured 501(c)(3) status. Examples include the American Border Patrol organization, a civilian border patrol organization that gained infamy for its tactics of stalking perceived border invaders near the U.S.-Mexico border and maintaining a website that endorses anti-Mexican sentiment, as well as the Oath Keepers, a radical anti-government movement ostensibly made up of former military and law enforcement officers that uses hateful rhetoric and disseminates of unfounded conspiracies.

Yet, the IRS’ willingness to act against hate groups has likely lessened in recent years due to a series of legal battles. In 2017, the IRS ended two legal battles regarding political targeting. Nearly 500 conservative and right wing organizations accused the IRS of unfairly targeting them for further investigation due to their political affiliations. The Justice Department agreed to pay $3.5 million in a settlement to the involved parties, but no criminal charges were brought against IRS officials.

In addition to the legal setbacks, the IRS’ bandwidth for implementing tax exemption-related oversight has been degraded due to a combination of budget cuts and an influx of tax exemption applications, as a ProPublica report last year highlighted. An aversion to legal risk and a dearth of resources are a recipe for federal inaction, the results of which may provide radical right groups the ability to augment their financial power by leveraging tax breaks.

Yet while the political climate and federal setbacks may diminish the appetite to conduct robust investigations of tax abuse, the private sector, particularly financial institutions, are well positioned to curb financial transactions of groups that peddle hate.

One “church” warrants special attention. The Tempe, Arizona-based Faithful World Baptist Church (FWBC), along with its pastor, Steven Anderson, professes to be a church, yet has prayed for the death of President Obama and called for the government to “put homosexuals to death.” Anderson’s church has been labeled a hate group by the SPLC, but perhaps more importantly, he has been banned from travelling to the Netherlands, United Kingdom, South Africa, Canada, and in May 2019 became the first person ever to be banned by Ireland.

Snake charmers like Anderson, under the guise of religion, manipulate susceptible individuals to embrace toxic ideologies, not unlike the leaders of neo-Nazi groups like the Attomwaffen division. Financial institutions and governments should raise the cost of doing business for hate groups like FWBC.

In April 2019, the Bank of America took an important step in shutting down all accounts associated with FWBC. This had a significant impact on Anderson’s hate church. He was quoted as saying, “we can’t even get our money out…they just froze everything.” Bank of America’s decision to sever its relationship with the FWBC was a prudent business move.

In another sector, information technology firm Cloudflare cut its relationship with 8Chan, the infamous freedom message board on which white supremacists share toxic memes, tradecraft and manifestos like those written by the El Paso and Christchurch shooters, who killed scores of innocent civilians because they looked a certain way or followed the tenets of Islam.

Despite the lack of resources, the IRS has a responsibility to investigate charities, churches and schools that openly end-run tax exemption guidelines. The government’s action against Bob Jones University forced the school to change its admissions policies, and later, in 2014, the university regained its tax exempt status. And just as the U.S. government has the leverage to alter behavior, non-government entities have similar power. Financial institutions should take a page out of Bank of America’s playbook and stop doing business with organizations that openly encourage murder, even those that claim to be religious. In doing so, hate groups like Anderson’s and their capacity to spread the gospel of death is diminished.

Jason M. Blazakis is Professor of Practice at the Middlebury Institute of International Studies (MIIS), where he also serves as the Director of the Center on Terrorism, Extremism, and Counterterrorism (CTEC). He worked for the federal government in various capacities for nearly 20 years, the bulk of which was spent with the U.S. Department of State’s counterterrorism bureau.

Conner Freeman is a Certified Financial Crimes Specialist and former researcher at CTEC. He recently received his graduate degree from MIIS and now works as a financial crimes investigator based in Oakland, CA. Conner is also a producer and co-host at “Cash Only: A Financial Crime Happy Hour” podcast.