Outdoors Magazine
January 21st, 2004, 07:13 PM
IRS to Audit Nature Conservancy From Inside
By Joe Stephens and David B. Ottaway
Washington Post Staff Writers
Saturday, January 17, 2004; Page A01
A team of IRS examiners will move into the global
headquarters of the Nature Conservancy in Arlington to begin
auditing the charity, the world's largest environmental
organization.
A letter sent to the Conservancy by the Internal Revenue
Service last month indicates that the audit will be of
uncommon scope for a charity, tax specialists said. The
memorandum proposes a preliminary meeting between four IRS
examiners and the Conservancy's chief financial officer to
discuss logistics, communications, telephone access,
equipment and accommodations. The IRS will examine 2002 tax
returns, the letter said.
"It is unusual," said former IRS commissioner Donald C.
Alexander, now a private tax lawyer. "This is an
extraordinary case. . . . It is an indication of a pretty
strong audit."
Conservancy spokesman James R. Petterson said officials
there have not been told the scope of the examination or its
genesis. In a statement on the group's Web site, the
Conservancy promised to cooperate fully and provide
examiners with workspace, equipment and telephones "as
needed."
An IRS spokesman declined to comment. Alexander and other
specialists said such an audit could take a year or longer.
"If they go into General Motors, this is what they do," said
attorney Sheldon Cohen, a former chief counsel and
commissioner of the IRS. "This is a major audit, of
consequence."
Live-in IRS auditors have become a fact of life at some
Fortune 500 conglomerates but remain rare at nonprofit
corporations, the specialists said. The charity has assets
of more than $3 billion and ranks as the eighth largest
nonprofit of any type in the nation.
The developments follow articles in The Washington Post over
the past year that examined financial irregularities and
conflicts of interest at the Conservancy. One story
described alleged IRS code violations at a Conservancy
project in Virginia, and another disclosed a dozen loans
that the Conservancy extended to its employees. A $1.5
million home loan went to Conservancy board member and
President Steven J. McCormick, who repaid the debt after he
was questioned about it by a reporter.
The stories also reported that the Conservancy had
repeatedly bought land, added some development restrictions,
then resold the properties at reduced prices to its trustees
and other supporters. The buyers made cash gifts to the
Conservancy roughly equal to the difference in price,
thereby qualifying for substantial tax deductions.
In the wake of the stories, the Conservancy banned a range
of practices, saying it would no longer lend money to
insiders, sell land to trustees or drill for oil on nature
preserve land. The charity is conducting a broad internal
review of its management practices and says more changes are
expected.
The Senate Finance Committee began looking into the charity
last year. Investigators have spent months sifting through
internal Conservancy documents, debriefing whistle-blowers
and weighing legislative reforms.
The IRS letter says auditors will examine the Conservancy's
fiscal 2002 tax return, which was filed on what is known as
an IRS Form 990. Past Conservancy tax returns contained
misstatements and omissions.
For example, the Conservancy's 2001 tax return showed that
the charity had lent the utility firm WEPCO, the Wisconsin
Electric Power Co., $2.2 million. The lending was made in
connection with a project aimed at protecting Central
American forests and could have generated greenhouse-gas
credits for the utility.
Conservancy officials later said the WEPCO loans totaled
only $1.5 million. The rest of the money went to
corporations whose names were mistakenly omitted from the
filing, Conservancy Vice President Michael J. Coda said.
"That has no relation to reality," Coda said of the IRS Form
990 filing, during a June 2002 interview in which he
acknowledged the errors.
Months later, the Conservancy filed its 2002 tax return --
which again showed that the loans to WEPCO totaled $2.2
million.
A specialist in nonprofit corporations who reviewed the
Conservancy's tax returns described them as confounding.
"It stunned me," said the specialist, Peter Dobkin Hall, of
Harvard University's Hauser Center for Nonprofit
Organizations. "It's not exactly what I'd call a
transparent organization.
"I find that very peculiar. I couldn't find out a damn
thing about them. It was a brick wall."
Internal Conservancy documents show that the organization's
auditor has complained about problems that could lead to IRS
scrutiny or, in the words of one memo, to "the possibility
of public exposure."
One internal audit report on a Conservancy project known as
the Virginia Coast Reserve -- or VCR -- found numerous
irregularities. Many financial transactions were improperly
recorded, according to the March 2002 report, which is
stamped "Confidential." The IRS was not told for years that
the charity provided some employees with free housing and
use of a car, lapses the report described as IRS violations.
One Conservancy contractor, identified in the report as a
Virginia farmer, received payments though his wife, the
report said.
"VCR negotiated [an employment contract] in the farmer's
wife's name and issued an IRS Form 1099 [which reports
miscellaneous income to the IRS] in her name and social
number even though her husband performed all of the work
under the contract," the report said. "VCR management wrote
the contract in the wife's name so that the farmer could
hide personal income."
© 2004 The Washington Post Company
--
James Ehlers
Outdoors Magazine
www.outdoorsmagazine.net
By Joe Stephens and David B. Ottaway
Washington Post Staff Writers
Saturday, January 17, 2004; Page A01
A team of IRS examiners will move into the global
headquarters of the Nature Conservancy in Arlington to begin
auditing the charity, the world's largest environmental
organization.
A letter sent to the Conservancy by the Internal Revenue
Service last month indicates that the audit will be of
uncommon scope for a charity, tax specialists said. The
memorandum proposes a preliminary meeting between four IRS
examiners and the Conservancy's chief financial officer to
discuss logistics, communications, telephone access,
equipment and accommodations. The IRS will examine 2002 tax
returns, the letter said.
"It is unusual," said former IRS commissioner Donald C.
Alexander, now a private tax lawyer. "This is an
extraordinary case. . . . It is an indication of a pretty
strong audit."
Conservancy spokesman James R. Petterson said officials
there have not been told the scope of the examination or its
genesis. In a statement on the group's Web site, the
Conservancy promised to cooperate fully and provide
examiners with workspace, equipment and telephones "as
needed."
An IRS spokesman declined to comment. Alexander and other
specialists said such an audit could take a year or longer.
"If they go into General Motors, this is what they do," said
attorney Sheldon Cohen, a former chief counsel and
commissioner of the IRS. "This is a major audit, of
consequence."
Live-in IRS auditors have become a fact of life at some
Fortune 500 conglomerates but remain rare at nonprofit
corporations, the specialists said. The charity has assets
of more than $3 billion and ranks as the eighth largest
nonprofit of any type in the nation.
The developments follow articles in The Washington Post over
the past year that examined financial irregularities and
conflicts of interest at the Conservancy. One story
described alleged IRS code violations at a Conservancy
project in Virginia, and another disclosed a dozen loans
that the Conservancy extended to its employees. A $1.5
million home loan went to Conservancy board member and
President Steven J. McCormick, who repaid the debt after he
was questioned about it by a reporter.
The stories also reported that the Conservancy had
repeatedly bought land, added some development restrictions,
then resold the properties at reduced prices to its trustees
and other supporters. The buyers made cash gifts to the
Conservancy roughly equal to the difference in price,
thereby qualifying for substantial tax deductions.
In the wake of the stories, the Conservancy banned a range
of practices, saying it would no longer lend money to
insiders, sell land to trustees or drill for oil on nature
preserve land. The charity is conducting a broad internal
review of its management practices and says more changes are
expected.
The Senate Finance Committee began looking into the charity
last year. Investigators have spent months sifting through
internal Conservancy documents, debriefing whistle-blowers
and weighing legislative reforms.
The IRS letter says auditors will examine the Conservancy's
fiscal 2002 tax return, which was filed on what is known as
an IRS Form 990. Past Conservancy tax returns contained
misstatements and omissions.
For example, the Conservancy's 2001 tax return showed that
the charity had lent the utility firm WEPCO, the Wisconsin
Electric Power Co., $2.2 million. The lending was made in
connection with a project aimed at protecting Central
American forests and could have generated greenhouse-gas
credits for the utility.
Conservancy officials later said the WEPCO loans totaled
only $1.5 million. The rest of the money went to
corporations whose names were mistakenly omitted from the
filing, Conservancy Vice President Michael J. Coda said.
"That has no relation to reality," Coda said of the IRS Form
990 filing, during a June 2002 interview in which he
acknowledged the errors.
Months later, the Conservancy filed its 2002 tax return --
which again showed that the loans to WEPCO totaled $2.2
million.
A specialist in nonprofit corporations who reviewed the
Conservancy's tax returns described them as confounding.
"It stunned me," said the specialist, Peter Dobkin Hall, of
Harvard University's Hauser Center for Nonprofit
Organizations. "It's not exactly what I'd call a
transparent organization.
"I find that very peculiar. I couldn't find out a damn
thing about them. It was a brick wall."
Internal Conservancy documents show that the organization's
auditor has complained about problems that could lead to IRS
scrutiny or, in the words of one memo, to "the possibility
of public exposure."
One internal audit report on a Conservancy project known as
the Virginia Coast Reserve -- or VCR -- found numerous
irregularities. Many financial transactions were improperly
recorded, according to the March 2002 report, which is
stamped "Confidential." The IRS was not told for years that
the charity provided some employees with free housing and
use of a car, lapses the report described as IRS violations.
One Conservancy contractor, identified in the report as a
Virginia farmer, received payments though his wife, the
report said.
"VCR negotiated [an employment contract] in the farmer's
wife's name and issued an IRS Form 1099 [which reports
miscellaneous income to the IRS] in her name and social
number even though her husband performed all of the work
under the contract," the report said. "VCR management wrote
the contract in the wife's name so that the farmer could
hide personal income."
© 2004 The Washington Post Company
--
James Ehlers
Outdoors Magazine
www.outdoorsmagazine.net