Commissioner Charles Rossotti
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224

CC: Southeast Key District
Internal Revenue Service
EP/EO Division, Customer Service
P.O. Box 13163
Baltimore, Maryland 21203

U.S. Attorney Mary Jo White
Southern District of New York
One Saint Andrew's Plaza
New York, New York 10007

Rep. Peter Hoekstra
Subcommittee on Oversight and Investigations
U.S. House Committee on Education and the Workforce
2181 Rayburn House Office Building
Washington, D.C. 20515

RE: Complaint on the Activities of an Exempt Organization.

Dear Commissioner Rossotti:

This is a formal request that the Internal Revenue Service open an investigation into possible violations of tax law by Citizen Action.

Citizen Action has been classified as an exempt organization under 26 C.F.R. 1.501(c)(4) and is/was located at 1730 Rhode Island Avenue, N.W., Suite 403, Washington, D.C. 20036.

In testimony on October 14, 1997, before the U.S. House Subcommittee on Oversight and Investigations of the Committee on Education and the Workforce, Chairman Peter Hoekstra stated: "In throwing out the [Teamsters] election, the federal election officer, Barbara Zack Quindel, noted that her investigation had uncovered, 'a complex network of schemes to funnel employer and [International Brotherhood of Teamsters] funds into the [Ron] Carey campaign.' The complexity of these schemes is evidenced by the subcommittee's attempt to outline the flow of money between the Teamsters, the November Group, Citizen Action, and others is nothing short of mind-boggling, if not bizarre."

The 1996 Teamster election was nullified in August because of an embezzlement scheme to fund Ron Carey's campaign. In court documents, including guilty pleas of three Carey campaign associates -- Martin Davis, Jere Nash and Michael Ansara -- to charges of conspiracy and other crimes, Citizen Action was implicated as a party to this money-laundering scheme.

Attached is an October 6, Washington Post article that details most of what is publicly known about Citizen Action's
involvement in the money-laundering scheme. The there are three ways in which Citizen Action was reportedly involved:

(1) The Teamsters donated $475,000 to Citizen Action, and in return, Citizen Action allegedly helped channel some of that money to the Carey campaign. The article provides one example transaction to illustrate how the money was routed. In this example, Citizen Action paid off a previously forgiven 1990 loan for $25,000 plus interest, and then the lender, Jeremy Sherman, sent $35,000 to the Carey campaign. This appears to be just one example of how the some of the $475,000 was allegedly laundered through Citizen Action.

(2) Citizen Action reportedly sent $75,000 to Michael Ansara's Share Consulting for work that was never done. The $75,000 allegedly went instead to reimburse Ansara's wife, Barbara Arnold, in part for her $95,000 contribution to the Carey campaign. This may also have been part of the $475,000 plan.

(3) Citizen Action reportedly paid $100,000 to Martin Davis' November Group after receiving $150,000 from the AFL-CIO's Richard Trumka which he allegedly received from the Teamsters. This $100,000 reportedly went to help pay for a large direct mail effort that the November Group was executing for the Carey campaign.

Attached are three flow charts that describe these alleged money-laundering schemes.

Not only do Citizen Action's activities raise concerns about potential Landrum-Griffin Act violations and potential criminal acts, but Citizen Action may have also violated their status as an exempt organization.

26 C.F.R 1.501(c)(4)(a)(1)(ii) states: "A civic league or organization may be exempt as an organization described in section 501(c)(4) if...[i]t is operated exclusively for the promotion of social welfare." 26 C.F.R 1.501(c)(4)(a)(2)(i) goes on to state: "An organization is operated exclusively for the promotion of social welfare if it is primarily engaged in the promoting in some way the common good and general welfare of the community."

Participation in allegedly illegal money-laundering schemes to aid a candidate for union office does not appear to be a part of the definition of "operate[ing] exclusively for the promotion of social welfare" or "primarily engaged in the promoting in some way the common good and general welfare."

Further, 26 C.F.R. 1.527-5 states: "Expenditures by a political organization that are illegal or for an activity that is judicially determined to be illegal are treated as amounts not segregated for use only for the exempt function and shall be included in the political organization's taxable income."

At the very minimum, it appears that Citizen Action's financial activities during 1996 ought to be investigated by the IRS. And, if violations of tax law did occur, the IRS should consider revoking Citizen Action's exempt status.

Additionally, attached is an October 31, Washington Post article which states that Citizen Action is closing its Washington office. In the interest of preserving documents valuable to any investigation by the IRS, immediate action may be required.


Sincerely,


Kenneth Boehm, Esq.
Chairman


Enclosures:

(1) Washington Post , "Teamsters Election Scandal: Liberal Activism Gone Awry," October 6, 1997.
(2) Washington Post , "Consumer Group Tied to Teamsters Decides to Shut Down National Office," October 31, 1997.
(3) NLPC Chart: "Example 1-Payment of Previously Forgiven Loan."
(4) NLPC Chart: "Example 2-Payment to Share Consulting."
(5) NLPC Chart: "Example 3-Payment to the November Group."

Organized Labor Accountability Project

NLPC Home Page