More evidence that Salem Health violated IRS rules on political donations

Last Thursday I filed a complaint with the Internal Revenue Service (IRS) against Salem Health, the parent company of Salem Hospital. You can read all about it in "Salem Health hit with IRS complaint for $50,000 anti-payroll tax PAC donation." 

Also, in a piece recently published by The Lund Report: "Salem Health Hit with IRS Complaint Over Political Gift Giving."

I've heard from a few people who question whether Salem Health really did anything wrong when this tax-exempt organization gave $50,000 to the Create Jobs PAC set up by the Salem Chamber of Commerce. 

My answer is, only the IRS can decide this. But there is enough evidence pointing to a violation of IRS regulations to warrant an inquiry. 

The situation is pretty simple. I laid out the basic facts in my first blog post. 

The Create Jobs PAC is opposing Measure 24-388, which would institute a small payroll tax to pay for much needed improvements to Salem's Cherriots bus system. However, the Create Jobs PAC is not a "measure committee," which only takes positions on ballot measures.

It is a "miscellaneous committee."

Meaning, a Political Action Committee that can both support or oppose candidates running for public office, and support or oppose ballot measures. So donations to the Create Jobs PAC goes into a pool of money that can be used for several purposes -- including supporting individual political campaigns. 

This seems to be an IRS no-no, as described in "Frequently Asked Questions About the Ban on Political Campaign Intervention by 501(c)(3) Organizations." However, a tax-exempt 501(c)(3) organization such as Salem Health can donate to a ballot measure committee -- which the Create Jobs PAC isn't. 

11. May a section 501(c)(3) organization make a contribution to a political organization described in section 527 (such as a candidate committee, political party committee or political action committee (PAC))?

No, a section 501(c)(3) organization may not make a contribution to a political organization described in section 527 (such as a candidate committee, political party committee or political action committee (PAC)). Nor may such an organization establish and maintain a separate segregated fund under section 527.

12. May a section 501(c)(3) organization make a contribution to a ballot measure committee (committees supporting or opposing ballot initiatives or referenda)?

Yes, a section 501(c)(3) organization may make a contribution to a ballot measure committee (committees supporting or opposing ballot initiatives or referenda), but it must include such contributions in its lobbying calculations for purposes of determining whether a substantial part of its activities consist of attempting to influence legislation.

Now, the Secretary of State web site has detailed information on PACs registered in Oregon. When I clicked on the "History" link on the Create Jobs PAC page, I learned that this PAC has morphed over the years. 

In 2006 it was called "Help the Chamber of Commerce Keep Salem Liveable." Originally it was a Measure PAC committee that supported three annexation measures being voted on. In 2009 it became a Miscellaneous PAC commitee that can support/oppose specific candidates or ballot measures. 

Soon thereafter the name was changed to Create Jobs PAC. The current "Nature of Committee" statement is support measures and candidates who favor private sector job creation.

So Salem Health donated $50,000 to a PAC that supports individual political candidates.

Again, this seems to be prohibited, given the language in the #11 FAQ above. A tax-exempt 501(c)(3) organization may only make a contribution to a ballot measure committee -- which the Create Jobs PAC stopped being in 2009.

It is up to the IRS to decide how to handle my complaint. If it turns out that Salem Health did indeed violate IRS regulations, another FAQ shows that the penalty can be severe.

13. What happens if an organization engages in prohibited political campaign activity?

Violating this ban may result in denial or revocation of the organization’s tax-exempt status and the imposition of an excise tax on the amount of money spent on the activity. 

Update: I just shared these thoughts with someone who emailed me about this issue. The analogy I came up with sure seems to apply here.

The more I check into the IRS rules, the more valid this complaint appears to me. An analogy helps out in understanding the situation.

 

A street person holds a sign asking for food money. You give him $5, saying “Be sure you don’t use this for beer; I’m giving it to you for food.” But once he stuffs the money in his pocket, it gets mingled with all the other cash he has. There’s no way to know what your $5 bill went for, since one bill looks like any other.

 

In the case of the $50,000 donation from Salem Health, the co-mingling of money is even less traceable. A mark can be put on paper money. No mark follows money once it is deposited in the Create Jobs PAC checking account.

 

If you look at the transaction history of that PAC on the Secretary of State’s web site, there’s just a string of payments (along with donations) going to various businesses, campaigns, and such. As someone from the Elections Division told the friend who researched this issue before I filed the complaint, there’s no way to trace how money donated to a “miscellaneous” PAC is used.

 

It could be used to support a ballot measure campaign; it could be used to support an individual running for public office. The former use is OK for tax-exempt organizations to support; the latter isn’t.

 

This is why the IRS FAQs cited in my second blog post say an organization like Salem Health can contribute to a Measure PAC, but not to a Miscellaneous PAC that can support/oppose political candidates along with supporting/opposing individual political campaigns.

 

A Miscellaneous PAC like the Create Jobs PAC just has a single co-mingled checking account that can be used for a purpose at odds with IRS regulations guiding donations from 501(c)(3) organizations.

Comments

[Jim Scheppke]

Seems pretty cut and dried to me Brian. The Create Jobs PAC (affiliated with the Salem Area Chamber of Commerce) that is Chaired by T. J. Sullivan needs to give the money back to Salem Health right away to put this matter to rest. If they do not, they risk spending Salem Health's co-mingled money on candidates. I would expect them to begin spending on next May's local elections not long after this November 3rd election. If I were Norm Gruber, the CEO of Salem Health, I would have asked for my money back by now.