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November 02, 2012

The Confidence Man, Unmasked, and Asked to Answer to the IRS

It’s an old and familiar story, the confidence man with his bag of tricks, working his scams until the cold light of day shines and unmasks him for all to see.  That’s where Richard Berman finds himself today – exposed as the black bag artist for hire, a man who has made a hefty gain attacking charities, including The HSUS, on behalf of his industry patrons.

Bloomberg News, in a story that broke this morning, has recapped Berman’s long career as a public-relations hit man – attempting to twist charity laws to further the goals of his corporate clients, and not inconsequentially, reaping enormous personal financial rewards. The news account also disclosed that The HSUS has filed an exhaustive complaint with the Internal Revenue Service, an action taken on behalf of our interests and those of other reputable charities. 

In today’s Bloomberg story, Marcus Owens, a former director of the exempt organizations department at the IRS, said in an interview that Berman’s “web of organizations clearly, in my view, is operating for his private benefit and for the private benefit of his clients.”  That’s “a clear violation of the requirements for tax-exempt status.”

Rick Berman's mansion
Corporate lobbyist Rick Berman's mansion in McLean, Va.
Berman's for-profit PR company received the vast share
of money funneled through some of his charities.

“This mess of Berman and his empire of non-profits has gone on for too long,” added Frances Hill, a professor of law at the University of Miami and author of “Taxation of Exempt Entities.” Hill told Bloomberg reporters Mark Drajem and Brian Wingfield it “seems like an appalling abuse of tax-exempt status.”

IRS proceedings are private, and that is how we handled the filing of our 200-page legal complaint. But now that it has been brought to public attention, I can share some details on this blog.

Accompanied by more than 7,000 supporting documents, the complaint details how Berman’s syndicate of phony tax-exempt front groups, all of which are registered charities under section 501(c) of the Internal Revenue Service code, operate essentially as a scheme to defraud the U.S. Treasury and taxpayers of tens of millions of dollars. Collectively, these entities present a pattern of abuse with respect to their formation, receipt and disbursement of grants, and interconnectedness that is characteristic and indicative of abusive tax shelters.  It’s a swindle.

The documents, which include Berman’s own statements, show that his for-profit PR firm, Berman and Co., received the vast share of money funneled through some of his charities – in two cases, more than 90 percent. Astonishingly, Berman signed a contract both on behalf of his charity and on behalf of his public relations company. Imagine if the CEO of a real charity signed a contract with his private company and took 90 percent of the incoming donations?

The complaint could cost Berman’s syndicate of non-profit shells tens of millions in tax liability, including back taxes and penalties, revocation of tax-exempt status, and other legal penalties.

As most people already know, our federal government has long favored the work of charitable enterprises by giving them tax-exempt status under section 501(c)(3) of the Internal Revenue Code. This exemption is the cornerstone of American philanthropy, enabling many of the core activities of our civil society, including faith and worship, education at all levels, public health and disease prevention, feeding the hungry and sheltering the needy, protecting the environment, enhancing culture through the arts and humanities, and, yes, protecting animals from cruelty. Where would we be in our society without these good works?

This section of our tax code was certainly not meant to favor the self-interest and profit-seeking impulses of men like Richard Berman, nor their miserly view on the care and well-being of others. Most assuredly, it’s also not meant to provide a tax advantage to corporations in quest of their business goals, including their attacks on charitable institutions while hiding behind a phony front-group with anonymity.

But the complaint to the IRS sets forth a comprehensive case that Berman did exactly these things. He set out to undermine the work of The HSUS on behalf of financial interests who had a stake in preserving the mistreatment of animals for commercial ends. His absurdly misleading and fatuous advertising and web attacks served no non-profit purpose, the complaint says. Other charities and public interest individuals and causes suffered similar attacks on behalf of corporate clients. Remember, this is a guy who learned his trade defending tobacco companies against those who wanted to restrict smoking in restaurants, and he’s subsequently put those tactics and others to work in targeting not just The HSUS, but also Mothers Against Drunk Driving, the Centers for Disease Control and Prevention, and a host of other groups and entities that make this world a more livable place for people and for animals.

If factory farmers and their apologists, or puppy millers or seal clubbers want to defend their conduct, let them stand up in public and speak, and hire lobbying firms and public relations agencies; they are well-equipped to do so. They shouldn’t join Berman in manipulating the charity tax laws and hide behind him as a front man. Tax advantages properly belong to the best of human labors, not the worst of them.     

Think about it. At a time when our country can least afford it, our nation is, in effect, unwittingly subsidizing Berman’s sumptuous lifestyle, and, in the process, enabling him to erode the network of philanthropic activities that becomes even more critical when government services are constricted or eliminated and when we have an epidemic of animal cruelty, obesity, drunk driving, and other problems that weaken society and diminish the quality of life. His self-enrichment scheme deserves only our moral disgust, and it most certainly deserves no safe harbor in the Internal Revenue Code.    

Because IRS proceedings are confidential, and no outcome or timeline is certain, The HSUS will be calling on state attorneys general and other government agencies and watchdog groups to independently determine the extent to which Berman has undermined federal and state charity statutes and to present findings to the public. The integrity of our tax code and philanthropic system should not be breached in this way. Berman’s conduct is shadowy and corrosive, and only sunlight and transparency, combined with adherence to the rule of law, can make things right.

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