Over the past 2 years, many small non-profits in Israel – ranging from yeshivot to medical organizations – have fallen under scrutiny from the IRS. For the past 2 years, Israeli non-profits couldn’t understand the scrutiny. Today it became clear: No Jewish non-profit could be trusted to be legitimate.
While we can understand that the IRS wants to be cautious and certain, it has been absurd in its efforts to invalidate legitimate Jewish non-profits. For example, one major yeshiva in Jerusalem that serves American students was asked by the IRS why they don’t have a website for recruitment. Anyone in the Jewish community knows that major yeshivot (such as Mir, Ponevezh, etc.), particularly in the Haredi world, do not need and will not utilize a website for recruitment. But the IRS doesn’t understand that. And that challenges the credibility and legitimacy of the yeshivot. In another case (for which I have a copy of the letter), the IRS sent a letter to the American Friends of one small Israeli yeshiva demanding proof that none of its students are terrorists. How can we prove that none of them are terrorists? If they aren’t on the US Homeland Security list? Without proof, the IRS may not enable the yeshiva to maintain its tax deductible status. For 2 years, the IRS has been demanding copies of bank statements, questioning how checks get cashed and where the money goes, and demanding enormous time-consuming efforts by small, fully legitimate organizations in Israel that have an “American Friends” support organization in the US.
So what do today’s events mean for the future? All these small non-profits which have been fighting to keep their tax deductible status for the past year or 2 will have to work even harder to gain the confidence of the IRS. One that I know of already lost their tax deductible status without due cause. For example, by law the US non-profits are not required to keep minutes of board meetings. But every Jewish organization under scrutiny has been asked why they did not keep minutes. And why all the board members do not know exactly how every donation given is spent.
The actions of today essentially make every Jewish organization fall into question – is every non-profit set up to cover a money laundering scheme? While the general public may not think so, the IRS activity in the past 2 years definitely gives an impression that they harbor a doubt towards US non-profits that have Israeli affiliations. Organizations that help the poor and handicapped in Jerusalem will have to spend increased funds to have their accountants prove the legitimacy even more to the IRS. Sure, at the end of the day these organizations will pass the test. But they will have to spend much money and invest much time with accountants.
I’m not sure if all Jewish organizations with tax deductible status have been scrutinized over the past year, or just many that have Israel affiliations. I am personally aware of a number of cases, and I have worked with American accountants over the past 2 years who are familiar with many more.
With the fundraising efforts challenging enough in today’s economy, Israeli non-profits must be able to give tax-deductible receipts to their donors. Without IRS approval, US donations can completely dry up and shut down Israeli organizations. The IRS is re-evaluating their approval, and that can have a long-term impact on Israeli society.
Clearly, the fall-out from today is more than the bad press Jews will get on the heels of Madoff.
On behalf of many quality Jewish organizations in Israel that need the tax ID status from the U.S., please ensure that your coverage of the scandal today includes a message to the IRS that not every organization with Jewish or Israeli ties are conducting illegal activities!
(Chevy (Fleischman) Weiss – YWN)