Lawmakers Urge IRS to Investigate NRA’s Alleged Abuses

October 16, 2019

The Honorable Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, D.C. 20224-0001

Dear Commissioner Rettig:

We are writing to refer to you for investigation serious accounts of wrongdoing, misuse of funds, and apparent violations of the Internal Revenue Code (IRC) by the National Rifle Association (NRA). These activities appear to defraud NRA members and taxpayers. These apparent abuses are so widespread and systemic that even Oliver North, former NRA president, warned: “There is a clear crisis that needs to be dealt with quickly and responsibly.” In response to numerous accounts of financial mismanagement, he stated: “If true, the NRA's nonprofit status is threatened.”

Public reporting of self-dealing, private inurement of earnings, and possible financial fraud on the part of the NRA and its senior leadership represent serious allegations that demand an independent and thorough investigation by the IRS. Many potential victims — NRA members, and taxpayers — are our constituents, and the NRA is headquartered in Chairman Connolly's district in Northern Virginia.

Staggering Amounts of Spending Funneled to NRA Board Members

According to recent reporting, several NRA board members have personally profited by rendering services to the very organization for which they are expected to provide independent oversight.¹ According to public reports and the NRA's own tax filings, 18 of the 76 members of the board — nearly a quarter — received payments during the past three years from the 501(c)4 that they oversee. These reported payments include the following:

• $610,000 to board member and former president Marion Hammer for consulting and lobbying services;

• $255,000 to board member Lance Olson for fundraising and outreach;

• $400,000 to board member Dave Butz for firearms training and outreach;

• $28,750 to board member Bart Skelton for contributing to NRA publications;

• $50,000 and $23,500 to companies affiliated with musicians, board member Ted Nugent and former board member Craig Morgan, respectively, for musical performances; and

• $3.1 million in sales made to the NRA Foundation by Crow Shooting Supply, formerly led by former board member and former president Pete Brownell.²

The IRC prohibits excess benefit transactions (transactions exceeding fair market value) between social welfare organizations and disqualified persons, such as board members.³ If these transactions exceeded fair market value and were not reported by the organization of the involved board members on an Internal Revenue Service (IRS) Form 4720, they appear to threaten the tax-exempt status of the NRA.

Excessive Salaries and Personal Expenses for Senior Executives

In addition to suspect financial transactions with board members, salaries for senior NRA executives, such as Chief Executive Wayne LaPierre, appear to be excessive. According to the NRA's 2015 tax filings, Mr. LaPierre's compensation exceeded $5.1 million that year, while pensions for NRA staff were frozen.⁴

Using NRA member dues to underwrite lavish personal expenses for the benefit of senior leaders seems commonplace at the organization. For example, Mr. LaPierre reportedly billed $275,000 at a luxury men's boutique and $267,000 for “flights and limousine service for trips to the Bahamas, Florida, Nevada, Budapest, and an Italian lake resort.”⁵

The reimbursement of personal expenses appears to extend to housing accommodations. Public reports allege that $13,800 was billed to the NRA to cover the rent of an apartment for a summer intern.⁶

According to public reporting of a memorandum resulting from an internal audit conducted by NRA accountants, four executives — Doug Hamlin, Executive Director of Publications; Eric Frohardt, Director of Education and Training; Joe DeBergalis, Executive Director of General Operations; and Josh Powell, Mr. LaPierre's Chief of Staff — received, without a supporting contract, “reimbursement of expenses relating to apartments and living expenses beyond HR Policy Manual stipulations and on a permanent basis.”⁷

Former NRA employee Aaron Davis publicly recounted his experience with this culture of profligate spending, stating: “I was doing fundraising dinners where wine was pouring freely, and going to dinners with other NRA executives where the bill would be a thousand dollars — just to go out to dinner!”⁸

Last month, three NRA board members reportedly resigned their posts after other leaders ignored their repeated concerns about rampant mismanagement and profligate spending at the organization.⁹ Even more recent reports allege that the NRA contemplated purchasing a $6 million mansion for Mr. LaPierre in Dallas, Texas — an action that would seem to be a flagrant violation of IRS tax provisions.¹⁰

The IRC expressly prohibits the inurement of an organization's earnings to the benefit of a private individual.¹¹

Extraordinary Legal Fees

In a letter dated April 18, 2019, NRA President Oliver North and NRA 1st Vice President Richard Childress expressed concern about the “extraordinary legal fees the NRA has incurred with Brewer Attorneys & Counselors,” which totaled “approximately $24 million over a 13-month period.”¹² Legal fees for the first quarter of 2019 alone exceeded $8.8 million, or $97,787 per day. Mr. North and Mr. Childress described repeated refusals by Mr. LaPierre and by William A. Brewer III — the son-in-law of Ackerman McQueen co-founder Angus McQueen — to agree to an independent review of the invoices for those legal fees.

According to Mr. North and Mr. Childress, Mr. LaPierre refused requests to review the invoices on February 26, 2019, on March 31, 2019, and on April 8, 2019. Additionally, William Brewer, too, “has personally been actively working to stop an outside, independent review of his own invoices.” This alleged stonewalling of reasonable and commonplace fiduciary efforts to review the invoices of expensive legal counsel raises serious concerns.

Referral for Investigation

The allegations of self-dealing, private inurement of earnings, and possible fraud listed above are deeply troubling. The IRS is in a unique position to review these allegations against the NRA and its senior leaders and determine if these serious allegations of fraud and misconduct have merit. Our Constitution affords the country's nonprofit organizations tax exempt status so that they may work to improve society. Abuses of that privilege are unacceptable.

Concern about Inadequate IRS Resources

Finally, we are concerned that years of budget cuts have reduced the IRS' capacity to investigate allegations of wrongdoing. According to the Congressional Budget Office (CBO), the agency's fiscal year (FY) 2018 budget was “about 20 percent less than it received in 2010,” with the greatest reductions hitting enforcement funding, which the CBO noted coincided with a drop in audits.¹³ The weakening of these vital oversight efforts harms both taxpayers and public confidence in our tax system.

These drastic budget cuts have severely hampered IRS efforts to enforce our nation's tax laws. The agency's FY 2017 budget noted that each additional dollar invested in enforcement can produce $6 in revenue and that the additional indirect savings earned by deterring tax evasion are more than three times that amount.¹⁴ Between 2010 and 2016, however, the IRS was forced to reduce its enforcement staff by 11,600 full time employees (23%). Treasury Secretary Steven Mnuchin expressed concern about IRS staffing levels at his confirmation hearing, stating that staffing “is an important part of fixing the tax gap”¹⁵ and that “if we add people, we make money.”¹⁶

We ask that you contact us immediately if resource shortages are preventing you from investigating the NRA's alleged abuses.

Thank you in advance for your attention to this matter.

Sincerely,

Gerald E. Connolly
Chairman
Subcommittee on Government Operations

Jamie Raskin
Chairman
Subcommittee on Civil Rights and Civil Liberties

cc:
The Honorable Mark Meadows, Ranking Member
Subcommittee on Government Operations

The Honorable Chip Roy, Ranking Member
Subcommittee on Civil Rights and Civil Liberties