As Col Sullivan pointed out, the American Patriot Foundation (APF)  is soliciting tax-deductible donations to pay for LTC Lakin’s legal defense. This made me wonder about the nature of APF.

APF is a 501(c)(3) and 509(a)(1) tax-exempt public charitable organization established in 2003.  I’ve seen the Form 990 for 2003 and the IRS determination letter dated Dec 2003, but can’t find any more recent information.  However, from this alone, assuming it’s all true, I can relate the following:

Contributions to APF may be deducted from federal AGI (if the taxpayer itemizes), up to the normal cap of 50% of AGI. This means that contributors might not pay federal income tax on the income used to make the contribution. This is not a big deal, as the Tax Policy Center (TPC) informs us that 47% of American households owed no federal income tax in 2009. I’m going to do a little stereotyping and assume that these are the same households that would contribute to LTC Lakin’s defense fund.

Assuming that some donations would come from individuals who would owe federal tax on the income used to fund the contribution, the highest marginal federal income tax bracket is 35%, meaning the Treasury is potentially losing a maximum of 35 cents on every dollar contributed to APF (35% is also the highest capital gains rate).  However, TPC also informs us that in 2007 less than 1% of federal filers reached the highest marginal income tax rate. In fact, in 2007, less than 5% of filers had a top marginal rate greater than 25%, and 22.7% of filers (not households) owed no income tax.

There’s also the matter of APF not paying taxes in the income it receives in the form of contributions to the defense fund. Like federal personal income taxes, federal corporate taxes are bracketed, though they are applied only to “profit,” not “income.” So, even if APF were subject to these taxes, it presumably wouldn’t pay them on amounts actually paid to the defense team. Given this, I’ll skip any discussion of the many other ways APF could organize in order to avoid paying corporate income taxes on contributions, whether the contributions were themselves deductible or not to the contributor.

Finally, when APF pays the actual legal expenses (half a million seems steep, but perhaps they’re anticipating ACCA, CAAF, and SCOTUS battles), those payments will be taxable to the recipient individual or organization.

Sure, this is all a simplification of a complex tax code, but it addresses the question of whether we are subsidizing LTC Lakin’s defense (other than through his detailed military defense counsel) through the tax treatment of contributions to his legal defense fund. I think the answer to that question is no. There are some tax-exempt transactions in the chain between contribution and defense team, but the for-profit activities of the defense team are taxed just like all other for-profit activities. It’s fair to say that there are better places for your charitable giving, but I think saying that “the  U.S. Treasury is subsidizing the Lakin defense effort” is going too far.

22 Responses to “Inside the American Patriot Foundation”

  1. ret1sgt says:

    I would think that if the IRS hasn’t looked into the Orly Taitz fiasco by now, then they have bigger fish to fry.

    Think about all the public indignation that would follow from an investigation of these “patriotic organizations”…The public would force President Obama to drop the charges and release LTC Lakin…Dream on…

  2. Dwight Sullivan says:

    Zach,

    A very interesting post. But let’s assume that there would be a legal defense fund regardless of whether contributions to it are tax deductible. If so, then wouldn’t any amount of contributions to the actual fund cost the federal treasury money where: (a) the contributor would have contributed to the fund even if the contributions were not tax deductible; (b) the contributor paid some amount of federal income tax; and (c) the contributor didn’t reach the 50% charitable contribution cap in non-Lakin charitable contributions? If so, then I think it’s fair to say the federal treasury is subsidizing the fund, though granted that subsidy is rather modest (a point JO’C also convincingly made previously). There would be no subsidy only under the assumption that no legal defense fund would exist if contributions to it weren’t tax deductible.

    Of course, it’s unknowable to what extent actual contributions to the fund meet the three criteria set out above. My guess is that there’s a fairly considerable overlap, but my guess isn’t any better than the guess of others who think there’s little overlap.

    It would be interesting to revisit the American Patriot Foundation’s forms with an eye to how much it collected for LTC Lakin’s defense fund. (My guess is that contributions for that purpose wouldn’t be separately reported — is that right, Zach? But even if not, it might be possible to make some educated guesses based on differences between various years’ receipts.) Zach, will forms providing the American Patriot Foundation’s charitable contributions for this year become publicly available at some point? If so, do you know when that point is?

    (p.s. — is the correct spelling “Zach” or “Zack”?)

  3. Late Bloomer says:

    [QUOTE]It’s fair to say that there are better places for your charitable giving, but I think saying that “the U.S. Treasury is subsidizing the Lakin defense effort” is going too far.[/QUOTE]

    True statement.

    Also, my own casual observation tells me that not a lot of folks itemize, lending even further credence to your point.

  4. Michael Lowrey says:

    Late Bloomer,

    Whether people itemize depends heavily upon whether they have a mortgage or not. Would argue that military personnel are not a good sample of how common itemizing is within society as a whole as those in the military tend to move around every few years, making buying a house less attractive.

  5. Zachary Spilman says:

    Reaching back to my days working with non-profits, I recall that disclosure to the IRS usually goes only to broadly identifying the largest functional areas (by expense) and single-source contributions that exceed a certain threshold. Also, APF is a Washington, D.C. corporation, so there’s an annual report out there that should provide additional details into specific sources of revenue and expenses, but I doubt there will be any report that will detail the defense fund as a separate category.

    This raises an important point that I neglected in my original post: Contributions to APF for Lakin’s defense fund may not actually go to fund his defense – APF ostensibly has a mission that’s broader than this case, and it’s this mission that the Treasury is subsidizing. Those who contribute blindly are doing so in good faith, which may or may not be deserved. Of course, without APF’s involvement, the contributions wouldn’t be deductible by the contributor. Still, as I did discuss, I really don’t believe the contributors are paying much federal income tax anyway.

    That said, there’s a viewpoint-discrimination argument to be made here. It could be argued that AFP’s decision to funnel money to LTC Lankin’s defense isn’t deserving of charitable status, but traditional First Amendment protections reserve that determination to the individual.

    And I prefer Zack.

  6. Some Guy says:

    The NY Times recently examined the claim that “47% of American households pay no federal income tax.”
    http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html?partner=rss&emc=rss

  7. Some Army Guy says:

    Really? This is what I get from a blog devoted to military justice issues — a discussion about us “subsidizing” a Soldier’s defense (no matter how off his rocker) because of our nation’s nonprofit tax policy?

    I bet we could dozens and hundreds of nonprofits that we could throw barbs at and wonder why we “subsidize” them. But that has practically nothing to do with the legal case here.

  8. Some Army Guy says:

    BTW — Thanks for the informed conclusion. My post was aimed at the general discussion that’s been going on about us “subsidizing” the defense.

  9. Zachary Spilman says:

    The Grey Lady strikes again. The misstatements and outright falsehoods in that article are pretty obvious, and are par for the course. Still, I focused on the percentage of filers that would owe income tax because that was an easy way to get to some broad numbers. If we’re going to start discussing how wealthy taxpayers can use charitable giving to reduce their taxes on unearned income (bearing in mind the impact of the AMT), we’re going to need a different blog.

  10. Zachary Spilman says:

    No, I think it’s fair. This is a pretty high-profile case (unfortunately).

  11. Anonymous says:

    What outright falsehoods? Looks pretty accurate to me.

    Folks like to talk about a very narrow area Federal Income taxes, ignoring SS tax, and Medicare tax which the poor pay on 100% of their income and the rich do not.

  12. Dwight Sullivan says:

    Actually, I think this discussion has demonstrated the usefulness of a blog. I made a statement based on an assumption. Zack then made a much more informed response using, you know, facts. As a result of this, my understanding of the situation is certainly greater — and perhaps the same is true for some of our readers.

  13. Zachary Spilman says:

    Folks like to talk about a very narrow area Federal Income taxes, ignoring SS tax, and Medicare tax which the poor pay on 100% of their income and the rich do not.

    Exactly my point.

    The article says: “About three-quarters of all American households pay more in payroll taxes, which go toward Medicare and Social Security, than in income taxes.”

    Well, these payments are general revenue that Congress spends on whatever it wants. FICA taxes do not “go toward Medicare and Social Security.”

    As to your point, FICA taxes max out because benefits max out.

  14. Zachary Spilman says:

    Zack then made a much more informed response using, you know, facts.

    First time for everything.

  15. Anonymous says:

    that’s your error?

    The payments do in fact go towards those two areas, the problem is that Congress has a long history of using them for general welfare, which is why we had the discussion of a SS “lockbox”, which Gore was unfairly derided for proposing.

    Regardless, in a discussion about whether or not 47% of Americans pay no Federal taxes, whether the NYT was correct on where the money goes seems a rather insignificant point.

    As for FICA taxes, I know that benefits max out, but that has little to do with the fact that everyone partakes of those benefits but as a percentage of their income the poor (and middle class) take a larger hit than those over whatever the cutoff is now (88K?).

    This makes it, arguably, a regressive tax system, not a progressive one like the income tax.

    But even if I were wrong, YOUR point was that SS and Medicare taxes go to general welfare, not solely benefits, so if we accept your premise, then the benefits maxing out argument fails.

  16. CDR Kerchner says:

    Concerned Americans Have Good Reason to Doubt that Putative President Obama Was Born in Hawaii.

    http://puzo1.blogspot.com/2010/04/concerned-americans-have-good-reason-to.html

  17. Anonymous says:

    Cukoo alert.

  18. Anonymous says:

    Let me make sure I understand that drivel:

    He forged his COLB, swept his record clean of all dastardly references to his true birth place, Kenya, shut up the FBI, CIA, got the officials of Hawaii to lie, including the Republican Governor of Hawaii,

    but somehow he can’t come up with one “forged” document from the hospital? I mean if he’s so good at forging, you’d think he’d have forged docs from the hospital showing he was in fact born in Hawaii.

    Of course, even if he was, we’ll get to hear about his dad being British which makes him not a natural born citizen yadda yadda.

    You are an idiot. I hate name-calling but in this case, I think it isn’t name-calling, it’s short-hand.

  19. John O'Connor says:

    The federal government subsidizes the cost of every court-martuial accused’s defense by providing a defense counsel. As Zac(h)(k) points out, the costs associated with civilian counsel might provide a tax deduction for the donor, but the lawyer being paid will have to turn around and pay taxes on those funds.

    If anyone wants to start up a list of “unworthy” charities the contributions for which would not be deductible, so that the overall tax rates might be reduced or the deficit lowered, I’m game.

  20. ellie says:

    Assuming APF takes in $25,000 or more in the fiscal year, they must file a 990 form with IRS, which is available to the public.

    The 990 filing is due 5-1/2 months after close of the fiscal year. A three month extension is automatically granted, and one more three month extension. After filing, it takes about 2 months to appear on Guidestar.

    If we assume their fiscal year ends 12/31/2010, we should be able to view it between around July 2011 and (worst case) January 2012.

    I have requested a copy (some 30 pages) of their application for tax exempt status. It must be provided to anyone who requests it within 30 days, by law.

    I am curious about what their stated ‘purpose’ is, and if it relates to paying for an individual’s legal costs.

  21. ellie says:

    it might be possible to make some educated guesses based on differences between various years’ receipts

    APF has not filed a 990 since 2003, indicating that they have not collected over $25,000 in any fiscal year.

  22. Anonymous says:

    Not sure if this was discussed before (and unrelated to tax implications), however, assuming President Obama was not qualified and such a fact would generally be a legal defense; it seems significant to me (at least to the disobeying order charge) that LTC Lakin never stated that the president was not qualified to hold office, merely that the president may not be qualified to hold office.