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.