Group Asks IRS to Investigate Chamber of Commerce, Foundations

Dear Commissioner Shulman and Ms. Downing:

As representatives for U.S. Chamber Watch, we request that the Internal Revenue Service immediately initiate audits of the Starr Foundation, the National Chamber Foundation (NCF), and the Chamber of Commerce of the USA (CCUSA). Public documents indicate that the Starr Foundation violated its status as a charitable organization under section 501(c)(3) by making $19 million in grants to NCF that were directed and used to finance NCF's transfer of at least $18 million to CCUSA, a non-charitable organization organized under section 501(c)(6).¹ Public documents further indicate that NCF violated its status as a charitable organization under section 501(c)(3) by transferring substantial unrestricted charitable resources to CCUSA.

Based on U.S. Chamber Watch's research, it appears that charitable funds were transferred by the AIG-affiliated Starr Foundation to the NCF and then to the CCUSA to support the CCUSA's lobbying and electoral agenda -- an agenda that appears to have benefited AIG. These transfers were made while then AIG CEO and Chairman Maurice ("Hank") Greenberg was also Chairman of the Starr Foundation Board, a member of the CCUSA Board, and a member of the Institute for Legal Reform Board (ILR), which is affiliated with the CCUSA. The evidence indicates that the Starr Foundation grants were taxable expenditures; the NCF transfers to CCUSA were likewise taxable and the Government should recover appropriate tax payments from both organizations. Finally, because the NCF transfers constituted a major portion of NCF's activities for the period in question, NCF's status as a charitable organization should be retroactively revoked.

U.S. Chamber Watch was formed to promote greater transparency and accountability in American political processes by shedding light on the funding and practices of the largest special interest lobbyist in America, the U.S. Chamber of Commerce. U.S. Chamber Watch conducts research on the activities of the CCUSA and cooperates with small businesses, investors, and consumer protection, environmental and other public interest groups dedicated to protecting an open American political process.²

I. OVERVIEW

Public documents reveal a series of transactions between the Starr Foundation, the NCF, and CCUSA that appear to violate Internal Revenue Code standards that private foundations and public charities must follow in order to maintain their tax exemptions. In particular, it appears that the Starr Foundation made grants totaling over $18 million to NCF which were then used to finance loans to the CCUSA contrary to requirements that the Starr Foundation's and NCF's activities must be in furtherance of their charitable purposes. The law strictly regulates transfers from charitable organizations such as the Starr Foundation and the NCF to non-charitable organizations such as the CCUSA and taxes transfers that do not comply with the applicable restrictions. The Starr Foundation and NCF have violated these standards.

The Starr Foundation is closely tied to American International Group, Inc. (AIG). The Foundation was established by Cornelius Vander Starr, the founder of AIG, and, during the period relevant to the transactions discussed herein, Hank Greenberg, then the CEO of AIG, was Chairman of the Starr Foundation's Board. During the same period, Mr. Greenberg also was a member of the Board of CCUSA and the ILR, a Chamber affiliate.

In 2003, $15 million in grants were committed by the Starr Foundation to the NCF described on the Foundation's 2004 990PF as earmarked for the "capital campaign in support of the Chamber's educational and research programs."³ These grant commitments were paid to the NCF in two installments -- $5 million in 2003 and $10 million in 2004 -- in addition to $4 million in grants earmarked for the CCUSA's "Leadership Fund" and "the Institute for Legal Reform."

Beginning in November of 2003, NCF made a series of loans to the CCUSA in sums very similar to the grants received by the NCF from the Starr Foundation. In 2003, Starr paid $7 million in total grants to the NCF,⁴ which was followed by an NCF loan of $6 million to CCUSA in November of that year. In 2004, the Starr Foundation paid $12 million in grants to the NCF.⁵ Shortly thereafter, in 2004 and 2005, NCF made two $6 million loans to CCUSA. These loans constituted, respectively, 54% and 81% of NCF revenues for the years in question. The loans NCF made to the U.S. Chamber were payable on demand, and there is no indication that any significant part of the loans has ever been repaid. In total, NCF loaned CCUSA $18,137,127 between 2003 and 2005.

The evidence indicates that the Starr Foundation grants to the NCF were earmarked for subsequent transfer to non-charities (i.e., CCUSA and the Institute for Legal Reform). The Starr Foundation failed to report these transfers as taxable expenditures. The law requires that private foundations, such as the Starr Foundation, must pay taxes on direct grants to non-charities. If a private foundation makes a grant to a charity but earmarks the grant for a non-charity as a secondary grantee, then the private foundation must pay taxes on such a grant.

Similarly, the law requires that public charities, such as NCF, must be organized exclusively for a charitable purpose, not for private benefit. The evidence shows that NCF is not operating as a bona fide charity advancing charitable purposes. First, NCF devoted most of its resources from 2004 to 2008 to unrestricted loans totaling over $18 million to CCUSA, a non-charitable trade organization. It appears that CCUSA, in turn, used these funds with its other assets to advance its special interest legislative agenda and electoral activities. Second, NCF runs a training program, the Center for Leadership Development, for employees and affiliates of CCUSA, including state and local chapters of the chamber, which serves the private interest of CCUSA. This training program is not a charitable activity.

The transfer of funds from the Starr Foundation and NCF to CCUSA appears to be a transfer of charitable funds for non-charitable purposes and for the private purpose of CCUSA. Accordingly, the Starr Foundation grants were taxable expenditures; the NCF transfers to CCUSA were likewise taxable; because the NCF transfers constituted a major portion of NCF's activities for the period in question, NCF's status as a charitable organization should be retroactively revoked; and the Government should recover appropriate tax payments from both organizations.

II. FACTUAL BACKGROUND

A. The Organizations Involved

The Starr Foundation

The Starr Foundation was established in 1955 by Cornelius Vander Starr, the founder of AIG. Its assets consist primarily of AIG stock and in the relevant time period, from 2001 to 2008, Hank Greenberg, the controversial and now former CEO of AIG, was the Chair of the Starr Board. The Starr Foundation is a private foundation designated as a 501(c)(3) under the Internal Revenue Code.

The Foundation currently has assets of approximately $1.25 billion, making it one of the largest private foundations in the United States. It makes grants in a number of areas, including education, medicine and healthcare, human needs, public policy, culture and the environment. In the realm of public policy, the Starr Foundation has typically concentrated its giving on international relations and the promotion of the rule of law and democratic institutions. The Starr Foundation's average grant range is $ 20,000 to $200,000, and its grant maximum is typically $1,000,000.

AIG

Infamous for requiring an $85 billion tax-payer bailout in September 2008, American International Group, Inc. (AIG) is, according to its website, a publically-traded "leading international insurance organization with operations in more than 130 countries and jurisdictions."⁶ Between 2000 and 2005 AIG was engrossed in scandal over "numerous improper accounting transactions."⁷ These practices ultimately led to Securities and Exchange Commission (SEC) suits filed in 2006 against AIG for securities fraud and improper accounting, which the company settled by "paying disgorgement of $700 million and a penalty of $100 million, among other remedies."⁸

Hank Greenberg served as Chairman and CEO of AIG until his ouster in 2005 when the full extent of AIG's accounting scandal became publically known. Greenberg, who also served as a member of the boards of both the CCUSA and the ILR, was also the subject of SEC suits for AIG's accounting improprieties, which he settled for $15 million the day the suits were filed.⁹

The National Chamber Foundation

The National Chamber Foundation (NCF) was created in 1967 to provide analyses of critical economic and policy issues. It became a stand-alone affiliate of CCUSA in 1985, and aims to be "first place policymakers" on developing business issues.¹⁰ NCF's total revenues for 2008, the last year for which tax filings are available, were about $4.7 million.¹¹

NCF has founded several programs, including the Center for Capital Markets Competitiveness, which was established in response to the "complex regulations of the Sarbanes-Oxley Act in 2004".¹² NCF and its Center for Capital Markets Competitiveness also work closely with other CCUSA affiliated entities, including the Institute for Legal Reform (ILR). The ILR is a 501(c)(6) trade association that works on issues of "tort reform" through lobbying and public education.

The president of the National Chamber Foundation is Tom Donohue, who also serves as president and CEO of the Chamber of Commerce of the USA.

The Chamber of Commerce of the USA

The Chamber of Commerce of the USA (CCUSA or U.S. Chamber) describes itself as the world's largest business federation representing more than three million businesses and organizations. It is tax exempt as a 501(c)(6) trade association and is affiliated with a family of other organizations, including NCF, a public charity, from which it has received more than $18 million.

CCUSA engages in a broad range of advocacy and political activities.¹³ Charitable 501(c)(3) organizations such as NCF are prohibited from engaging in electoral advocacy and are allowed to engage only in limited issue-based lobbying. The lobbying activities of the CCUSA far exceed the limited lobbying allowed to charities like NCF. From at least 2003 forward the CCUSA's spending has often exceeded its income and it has had to rely on loans to fund the deficit. In every year since 2003, CCUSA's liabilities have exceeded its assets. NCF's funds have allowed CCUSA to finance its programs through deficit spending.

As noted above, Tom Donohue serves as the President and CEO of the CCUSA, as well as President of the NCF. During his tenure, Mr. Donohue has overseen the development of a number of CCUSA-related initiatives, including the ILR, which has become a centerpiece of the U.S. Chamber's lobbying apparatus. Lobbying expenditures on behalf of the ILR constituted roughly one-half of the U.S. Chamber's overall lobbying expenditures for each of the years in question.¹⁴

When Mr. Donohue took leadership of the CCUSA, he also instituted what the Wall Street Journal has called his most "striking innovation": a series of special accounts into which donors could put money earmarked for a specific policy purpose. The Chamber is not required to report the sources of its funding, "which makes it an attractive vehicle for those . . . who sometimes like to operate under the radar."¹⁵

B. Summary of the Facts

The Starr Foundation: Contrast between Traditional Giving and NCF Grants

Most of the Starr Foundation's grants are relatively small, below $100,000 and almost all of its grants are at or below $500,000. The traditional pattern of Starr Foundation giving has been to fund scholarships and organizations such as colleges and hospitals.

In contrast to its traditional and legitimate charitable giving, since at least 2000 Starr Foundation gave substantially larger sums to organizations associated with the CCUSA. Specifically, as detailed in the chart below, it gave in excess of $28 million to NCF. From 2000 to 2008 it has usually made grants of $2 million to various programs at least nominally at the National Chamber Foundation (NCF). In 2003 it committed $15 million to NCF's "capital campaign for educational and research programs."¹⁶ In both 2003 and 2004 it designated gifts of $1 million to NCF for the Institute for Legal Reform, a section 501(c)(6) (non-charitable) organization.

        Chart I: Starr Foundation Grants to NCF (cash basis reporting)

2003 was not a banner year for AIG. AIG reported a $1.8 billion after tax charge for 4^th Quarter 2002 to increase its loss reserves, blaming "egregious jury awards and settlements for litigation related to asbestos, medical malpractice and other damages."¹⁸ The value of "AIG stock fell from $55 to $47 in a week, wiping out $23.5 billion in market value."¹⁹

In response, Hank Greenberg teamed up with the CCUSA to call for tort reform. At the Sanford C. Bernstein & Co. 19th Annual Strategic Decisions Conference, Greenberg described AIG working in conjunction with the U.S. Chamber of Commerce to develop a ranking of state and county tort systems and to publicize these rankings so as to frighten policy makers to enact tort reform lest businesses avoid states with bad ratings.²⁰Congressional Quarterly reported Greenberg was one of two architects of the Chamber's successful campaign to defeat Senator Tom Daschle and numerous state Supreme Court justices. Senator Daschle opposed the Class Action Fairness Act.

The Class Action Fairness Act was enacted in 2005, after intense, multi-targeted lobbying by the CCUSA and the ILR, where Greenberg was a member of the board.²¹ This legislation enables respondents to class action lawsuits, such as AIG, to more easily remove traditional state claims to the federal courts. Once in federal court, respondents often claim that plaintiffs cannot maintain class actions in federal court based on state claims for a number of reasons, effectively denying workers and consumers a viable forum in either state or federal court.

Loans from the National Chamber Foundation

In 2003, the year of the $15,000,000 grant commitment from the Starr Foundation, the NCF, a section 501(c)(3) public charity, instituted a program under which it ultimately loaned CCUSA more than $18,000,000, as summarized in the chart below. The NCF described this loan on its 990 tax returns as a "working capital line of credit."²² The loan was designed to be facially commercially reasonable: it bears a stated interest rate of 2.5% over Libor and is secured by a line of credit from Mercantile Safe Deposit and Trust Company.

An analysis of NCF's 990's shows the loan resulted in dramatically reduced funds being available for NCF's charitable programs as the amount transferred constituted 50% or more of NCF's assets and ranged from 100% to almost 400% of its annual income. Furthermore, as discussed below, the bona fides of a loan are irrelevant for a private benefit analysis and an unrestricted "line of credit" loan from a charity to an electorally active non-charity constitutes prohibited electoral activity.

        Chart II: Analysis of NCF's Loans Based on NCF's 990 Tax Returns

              Chart IV: NCF Training Program for CCUSA Affiliates

A. Private Foundations

Private foundations such as the Starr Foundation are subject to a variety of specialized tax rules imposed by sections 4940 through 4946 of the Internal Revenue Code. In particular, section 4945(d)(4) provides that grants to non-charities are taxable unless the grantor foundation exercises expenditure responsibility as provided in section 4945(h).²⁵ An excise tax of 10% of the amount involved is imposed on a foundation making a taxable expenditure and an additional tax of 2.5% is imposed on any foundation manager who agrees to the expenditure knowing it is a taxable expenditure.²⁶

A grant by a private foundation to a charity which then transfers the funds to a non-charity is considered a grant by the foundation to the secondary grantee if the foundation earmarks the grant for the secondary grantee, i.e. there is an oral or written agreement allowing the foundation to select the secondary grantee.²⁷

Taxable expenditures are to be reported on the foundation's Form 990 PF by checking the box on Part VII B at Q. 5a4. Similarly, if a foundation is attempting to avoid a taxable expenditure by complying with the expenditure responsibility rules, a foundation must report its compliance with those rules.

B. Public Charities

Eligibility for Exemption

To qualify as a charitable organization, an organization must be organized and operated exclusively for charitable purposes. To meet the operational test, a charity must engage primarily in activities to accomplish charitable purposes. If more than an insubstantial part of its activities are not in furtherance of an exempt purpose, it will not be exempt.²⁸

The operational test is also expressed as the requirement that a charity not confer a greater than insubstantial private benefit.²⁹ To maintain exemption any private benefit must be both quantitatively and qualitatively insubstantial.³⁰ While most cases of private benefit arise with regard to individuals, a court used this concept to revoke the exemption of American Campaign Academy.³¹ American Campaign Academy ran training programs for political campaign operatives and almost all took jobs with Republican affiliated political entities. The primary benefit accrued to the students but the existence of the secondary benefit to the employers was fatal to the organization's exemption.

The commensurate test is another variation of the operational test.³² A charity must maintain program activities that are commensurate in scope with its financial resources. The program must be both real and, in light of its financial resources, substantial.

Taxes on Political Expenditure of Charities

Political expenditures by charities are subject to a 10% tax on the organization and a 2.5% tax on organization managers who knowingly agree to make such an expenditure.³³

If a non-electoral organization such as a charity transfers funds to an organization engaged in electoral activity, the transferred funds are treated as political expenditures prohibited to charities unless the transferor takes reasonable steps to ensure that the transferee does not use the funds to engage in electoral activity.³⁴

C. Statute of Limitations

Either a three-year or six-year statute of limitations applies to federal tax controversies. Facts warranting a six-year statute of limitations include the failure to disclose an item subject to the section 4945 excise tax and the failure to disclose an item subject to the section 4955 tax on political activity.³⁵ Furthermore, a diversion of a substantial amount of a charity's corpus and income from its exempt purpose supports a revocation of its section 501(c)(3) status retroactive to the year when the first major diversion occurred.³⁶

IV. ANALYSIS

A. Starr Foundation Grants to National Chamber Foundation

The Chart entitled "Starr Foundation Grants to NCF" (Chart I) enumerates the grants from the Starr Foundation to NCF for years 2000 through 2008. Direct and circumstantial evidence indicates grants from the Starr Foundation to NCF were earmarked for subsequent transfer to non-charities such as the ILR and CCUSA.

The Starr Foundation's Form 990 for 2003 and 2004 list grants of $1 million each to the NCF for the ILR, a non-charitable organization. Direct evidence of earmarking is provided by Starr Foundation itself on its tax return signed under penalties of perjury.

Accordingly, these are taxable expenditures under section 4945 and Starr, Greenberg and potentially other Starr Foundation managers are chargeable for the taxes imposed by section 4945. Earlier grants to NCF for "legal reform campaign" appear to have been earmarked for ILR or CCUSA whose staff undertakes most of the program work for ILR. The use of these "charitable" funds should be investigated.³⁷

All available evidence indicates that the 2003 grant commitment of $15 million to NCF was earmarked for the CCUSA. The timing of the Starr Foundation grant and the loan coincide; without the Starr Foundation grant, NCF would not have had the funds necessary to make the loan; Starr Foundation's attempt to justify the unusually large grant as for a "capital campaign" does not bear factual analysis; the loaned funds are described on NCF's 990 as "working capital line of credit" and therefore are unrestricted and available for the purposes section 4945 was enacted to prohibit.³⁸

The loans from NCF to CCUSA are pursuant to a note dated November 6, 2003, the year of the $15 million Starr Foundation commitment. An analysis of the NCF 990's for years 2000, 2001 and 2002 show no loans to CCUSA or any other entity before this major grant from the Starr Foundation. Again, absent the Starr Foundation grant, NCF would not have had the funds to make the loan. In 2002 before Starr Foundation's $15 million loan commitment, NCF's assets were slightly over $2 million.

As cover for the disproportionally large grant, Starr Foundation characterized the grant on its 990PF as for NCF's "capital campaign in support of the Chamber's educational and research programs."³⁹ However, in contrast to legitimate capital campaigns, which raise large sums for endowment from many diverse donors, the Starr Foundation grant appears to be the only major grant for the "capital campaign." In 2003, when the $15 million Starr Foundation award was committed, NCF reported only a total of $20,607,122 in contributions; bona fide capital campaigns do not typically receive 82% of their donations from a single source. The year 2004 shows a similar pattern: the $9.4 million raised is not substantially larger that the receipts in previous and subsequent years; $2 million, or more than 20% of 2004 receipts, came from Starr Foundation once again showing the absence of a meaningful capital campaign.

B. Analysis of National Chamber Foundation Programs

Substantial Activities not in furtherance of exempt purpose

There are two sets of facts that show a substantial part of the activities of NCF were not in furtherance of its charitable purposes: the unrestricted "loans" and the so-called employee training programs. Because these non-charitable, private benefit activities constituted a majority of NCF's activities during the period in question, its tax exempt status should be revoked.

From 2004 to 2008 the principal use of the resources of NCF has been a "loan" to CCUSA which has ranged from $12 million to $18 million. The "loan" balance has greatly exceeded NCF's program expenditures in every year and has represented 50% or more of its assets. In 2004, the additional amount loaned to CCUSA almost exceeded the NCF's annual income; in subsequent years the loan balance exceeded NCF's income. More than 50% and in later years as much as 80% of NCF's assets are tied up in a loan to the CCUSA. Measuring its activity by the use of its funds, the loan involves a substantial non-exempt activity. See Chart II ("Analysis of NCF's Loans") above. The borrower has had significantly greater liabilities than assets throughout this period, and this difference has often exceeded $20 million.

There is no evidence, nor is there likely to be any evidence that the funds "loaned" to CCUSA are used for charitable purposes. The stated purpose of the "loan," working capital, is the business term for unrestricted support. Without a doubt these "loaned" funds are free to be used to engage in non-charitable activities which NCF is prohibited from conducting directly.⁴⁰ Providing a line of credit to a non-charity is not a charitable activity.

Furthermore, since the evidence demonstrates that it is the Starr Foundation funds which were provided to CCUSA for non-charitable activity, NCF used a substantial portion of its assets to participate in a scheme of tax avoidance designed to enable Starr Foundation to violate the section 4945 restrictions upon private foundations.

The training program for Chamber affiliates is also a substantial activity of NCF. It costs in excess of $1 million and has represented more than 20% of NCF expenditures in all years except 2005 when it represented more than 17%. For two reasons it does not qualify as charitable. As discussed below under private benefit, the trainees are too narrow a group to constitute a charitable class.⁴¹ Furthermore, an analysis of the agendas and materials will likely show that the training programs do not qualify as truly educational.⁴² The annual expenditure of more than a $1 million calls into question the educational nature of the training program.

Prohibited Private Benefit

NCF's "loan" to CCUSA, the use of these funds to advance the business interests of AIG, and the training program for Chamber affiliates each constitutes substantial prohibited private benefit, a second independent basis for revoking its tax exemption.

NCF's "loan" provides CCUSA with enormous private benefit, the working capital that has enabled it to expand its programs by deficit spending. There is no doubt that the diversion of more than 50% of assets and more than 100% of revenue is substantial. Even if the loan is bona fide, it is still for the private benefit of CCUSA.⁴³

NCF's "loan" of the Starr Foundation grant enabled CCUSA to assist AIG in its tort reform campaign. Thus charitable funds were used to further the private business interest of AIG. As described above, Greenberg and CCUSA worked together to develop the rankings of state and county tort systems. In 2004, flush with the funds from NCF, CCUSA "vowed to help pump $10 million into ads in seven battleground states urging voters to support lawsuit restrictions endorsed by President Bush and opposed by Sen. John Kerry".⁴⁴ These ads had two obvious advantages: they supported the legislative agenda of AIG and helped defeat Kerry for President. In a recent Washington Monthly article, Donohue described CCUSA as providing "reinsurance" or political muscle for its members. A former Chamber lobbyist is quoted as describing Donohue's fundraising strategy as "views for dues"; essentially CCUSA will carry the water for the business interests of its most generous donors.⁴⁵ This is exactly what it did in using Starr Foundation's grant to support the tort reform agenda of AIG.

A substantial program of NCF is its Center for Leadership Development which develops and implements education programs on not-for-profit management for the employees of state and local chambers of commerce. In most recent years a substantial amount of the program expenditures of the NCF, more than 20%, are devoted to this program. See "NCF Training Program" above. This program provides private benefit to the CCUSA and its affiliates. In addition to being quantitatively substantial, the private benefit is qualitatively substantial. Training programs to benefit a single employer are not eligible for 501(c)(3) status.⁴⁶ Furthermore, the secondary beneficiaries of the training programs, the local chambers of commerce, are a private select group.⁴⁷

NCF's exempt programs are not commensurate with its income or assets.

As discussed above, NCF devotes most of its resources to activities which provide private benefit to CCUSA. Therefore its charitable activities are not commensurate with its income or assets.

Taxable political activity

Because NCF's loan to CCUSA is not restricted to charitable purposes, CCUSA's electoral program renders those funds political expenditures taxable to it and its managers under 4955. The materials cited at footnote 9 above describe the substantial electoral activity of CCUSA. In addition, in 2004 Donohue invested up to $30 million in 2004 elections.⁴⁸ In 2006 CCUSA spending on federal election activity exceeded $20 million.⁴⁹ CCUSA spent over $36 million on the 2008 elections, and over $16 million just on electioneering communication.⁵⁰ In the wake of the healthcare bill, the Chamber promised to dedicate $50 million for approximately fifty races in the 2010 midterm.⁵¹ NCF's working capital unrestricted "loan" is available for electoral activity. Accordingly, the funds constitute 527 or electoral expenses.⁵²

V. CONCLUSION

We request that the Internal Revenue Service immediately initiate audits of the Starr Foundation, NCF, and, to the extent appropriate, CCUSA before November 12, 2010, the date upon which the six-year statute of limitations on the 2003 tax year will expire. Because Starr Foundation failed to identify its taxable expenditures designed to benefit CCUSA and AIG a six-year statute of limitations applies.⁵³ Similarly by failing to disclose transfers for political purposes subject to section 4955 the six-year statute applies to NCF. Most important, the analysis above demonstrates that in 2003 NCF diverted a substantial amount of both its corpus and income for the private benefit of CCUSA and AIG and accordingly the IRS should revoke its section 501(c)(3) status retroactive to 2003, the date of the note and the inauguration of this scheme.⁵⁴

 

 

FOOTNOTES

 

² U.S. Chamber Watch, http://www.fixtheuschamber.org (last visited Sept. 9, 2010)

³ Starr Foundation I.R.S. Form 990 (2003); Starr Foundation I.R.S. Form 990PF (2004). The capital campaign was described as the "capital campaign for educational and research programs" in 2003 and as the "capital campaign in support of the Chamber's educational and research programs" in 2004. Id.

⁴ In 2003, the Starr Foundation made the following grants to NCF: $5 million for NCF's "capital campaign", $1 million for the "Leadership Fund" and $1 million for the "Institute for Legal Reform." Id. The ILR is a separate 501(c)(6) entity.

⁵ In 2004, the Starr Foundation made the following grants to NCF: $10 million for NCF's "capital campaign", $1 million for the "Leadership Fund" and $1 million for the "Institute for Legal Reform." Starr Foundation I.R.S. Form 990PF (2004).

⁶ American International Group, Inc., http://www.aigcorporate.com/aboutaig/index/htm, (last visited Sept. 9,2010).

⁷ U.S. Securities and Exchange Commission, Litigation Release No. 21170 (Aug. 6, 2009) available at http://www.sec.gov/litigation/litreleases/2009/lr21170.htm.

⁸Id.

⁹Id.

¹⁰ National Chamber Foundation, http://www.ncf.uschamber.com/_programs/ (last visited Sept. 7, 2010).

¹¹ National Chamber Foundation I.R.S. Form 990 (2008).

¹² National Chamber Foundation, http://www.ncf.uschamber.com/about_us/ (last visited Sept. 7, 2010).

¹³ There are a number of reports and studies which detail political spending by the Chamber which violates the 501(c)(3) rules. See, e.g.. Letter from Joan Claybrook, President, Public Citizen to the Honorable Mark Everson, I.R.S. Commissioner (Oct. 31, 2006) available at http://www.citizen.org/documents/ACF1F3E.pdf; Public Citizen, Tom Donohue: U.S. Chamber President Oversees Renegade Corporations While Pushing for Limits to Corporate Accountability (Feb. 2005) available at http://www.citizen.org/documents/021805DonohueForPdf.pdf. In January 2005, Congressional Quarterly Weekly published an article entitled '"Judicial Hellholes' in the Cross Hairs" in which they reported on the tort reform campaign of CCUSA and ILR, crediting those organizations with the 2004 defeat of Tom Daschle and numerous state supreme court justices. Seth Stern, 'Judicial Hellholes' in the Crosshairs, Congressional Quarterly Weekly, Jan. 31, 2005. CQ Weekly reported that the architects of the strategy were Hank Greenberg and Bernie Marcus of Home Depot. See also statistics cited at notes 48-50.

¹⁴ According to an online database developed by the Center for Responsive Politics, the CCUSA's overall lobbying expenditures compared to the Institute for Legal Reform's lobbying expenditures were as follows: 2003: CCUSA -- $34,602,640, ILR -- $18,023,855; 2004: CCUSA -- $53,380,000, ILR -- $24,540,000; 2005: CCUSA -- $39,805,000, ILR -- $19,790,000. Center for Responsive Politics, http://www.opensecrets.org/lobby/clientsum.php?lname=US+Chamber+of+Commerce&year=2005 (last visited Sept. 9, 2010).

¹⁵ Jim Vandehei, Political Cover: Major Business Lobby Wins Back Its Clout By Dispending Favors, Wall St. J., Sept. 11, 2001, at Al.

¹⁶ Starr Foundation I.R.S. Form 990 (2003); $5 million was paid in 2003 and $10 million in 2004. Id.; Starr-Foundation I.R.S. Form 990 (2004).

¹⁷ The 2007 contributions from Starr to the NCF were listed as "educational and research programs." The "capital campaign" contributions from 2003-2004 were similarly listed as "capital campaign for the Chamber's educational and research programs." Starr Foundation I.R.S. Form 990.

¹⁸ Robert Lenzner & Matthew Miller, Buying Justice, Forbes, July 21, 2003, available at http://www.forbes.com/forbes/2003/0721/064_print.html.

¹⁹Id.

²⁰ Seth Stern, 'Judicial Hellholes' in the Crosshairs, Congressional Quarterly Weekly, Jan. 31, 2005. These studies were later debunked as junk science. Theodore Eisenberg, U.S. Chamber of Commerce Liability Survey: Inaccurate, Unfair, and Bad for Business, 6 J. Empirical Legal Stud., 969, 1002 (2009).

²¹See, e.g., State Court Class Action Settlements: A Pattern of Abuse and a Proposed Solution, Inst. Legal Reform, available at http://www.ftc.gov/bcp/workshops/classaction/other/inst_legalreform.pdf. (a memo by the Institute for Legal Reform to the Federal Trade Commission).

²² National Chamber Foundation I.R.S. Form 990 (2003).

²³ In 2003, the loan was only reported on CCUSA's 990 and it is unclear whether the original transfer occurred in 2003 when the note was executed.

²⁴ This amount is designated as loans from related organizations on CCUSA's 990. It includes loans from NCF and ILR.

²⁵ Expenditure responsibility requires exerting reasonable efforts and establishing adequate procedure to see that the grant is spent for the intended purposes, to obtain reports from the grantee and to report to the IRS. Treas. Reg. § 53.4945-5(b).

²⁶ Foundation managers include officers, directors, trustees, others with similar power and employees with authority or responsibility with respect to the relevant action. Treas. Reg. § 53.4946(b).

²⁷ Treas. Reg. § 53.4945-5(a)(6).

²⁸ Treas. Reg. § 1.501(c)(3)-1(c). Insubstantial ranges from 5 to 20% under various federal tax authorities.

²⁹ Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii).

³⁰Ginsberg v. Comm'r, 46 T.C. 47 (1966); Rev. Rul. 75-286, 1975-2 C.B. 210; Rev. Rul. 68-14, 1968-1 C.B. 243.

³¹Am. Campaign Acad. v. Comm'r, 92 T.C. 1053 (1989).

³² Rev. Rul. 64-182, 1964-1 C.B. 186.

³³ I.R.C. § 4955.

³⁴ Treas. Reg. § 1.527-6(b)(ii).

³⁵ I.R.C. § 6501(e)(3).

³⁶ Treas. Reg. § 601.201(n)(6)(vii).

³⁷ CCUSA's CEO, Tom Donohue, has a record of commingling funds of independent organizations. ILR and CCUSA shared a single bank account. Letter from Joan Claybrook, President, Public Citizen to the Honorable Mark Everson, I.R.S. Commissioner (Oct. 31, 2006) available at http://www.citizen.org/documents/ACF1F3E.pdf. (citing Voters Education Committee v. Washington State Public Disclosure Commission, Superior Court of Washington for King County, No. 04-2-235-51-1 SEA, deposition of Stanton Anderson on Jan. 12, 2005, at 90). See also James Verini, Show Him the Money, Wash. Monthly, July/August 2010, available at http://www.washingtonmonthly.com/features/2010/1007.verini.html.

³⁸ The difference between the loan balance sometimes as large as $18 million and this major grant is attributable at least in part to unpaid interest added to the principal amount of the loan; it does not indicate that the grant was not earmarked to be part of the loan.

³⁹ Starr Foundation I.R.S. Form 990 (2004).

⁴⁰ In contrast, it is common and proper practice for charities affiliated with non-charities is to make grants or contracts requiring the non-charity to perform at least nominally charitable services.

⁴¹ Rev. Rul. 75-196, 1975 C.B. 155; Rev. Rul. 68-504, 1968-2 C.B. 211.

⁴² Treas. Regs 1.501(c)(3)-1(d)(3).

⁴³Est of Hawaii v. Comm'r, 71 T.C. 1067(1979); Church by Mail v. Comm'r, 765 F.2d 1387 (9th Cir. 1985), aff'g T.C. Memo 1984-349 (1984).

⁴⁴ Dan Zegart, Tort Reform Advocates Play Fast and Loose With Facts, Seattle Post Intelligencer, Nov. 21, 2004, available at http://www.seattlepi.com/opinion/199885_focus21.html.

⁴⁵ James Verini, Show Him the Money, Wash. Monthly, July/August 2010, available at http://www.washingtonmonthly.com/features/2010/1007.verini.html.

⁴⁶E.g. Rev. Rul. 75-196, 1975 C.B. 155 and Rev. Rul. 68-504, 1968-2 C.B. 211.

⁴⁷Am. Campaign Acad., 92 T.C. at 1076.

⁴⁸ Stephen R. Weissman & Kara D. Ryan, Nonprofit Interest Groups' Election Activities and Federal Campaign Finance Policy, (Camp. Fin. Inst., Working Paper, 2006), available at http://www.cfinst.org/books__reports/pdf/NonprofitsWorkingPaper.pdf.

⁴⁹ The Campaign Finance Institute reports that during the 2006 campaigns CCUSA spent $10 million on mail/phone contacts and $10 million on a TV advertising campaign that "thanked largely Republican incumbents for supporting the Medicare prescription drug benefit and other pro-business positions. The ads praised Members in competitive races, such as Senators Santorum (Pennsylvania) and DeWine (Ohio)." Stephen R. Weissman & Kara D. Ryan, Soft Money in the 2006 Election and the Outlook for 2008: The Changing Nonprofits Landscape, app. at Table 3, Camp. Fin. Inst. (2007), available at http://www.cfinst.org/books_reports/pdf/NP__Softmoney_06-08.pdf. CCUSA also "sponsored a 'Vote for Business Bandwagon' bus tour to 15 states. The bus stopped at member organizations and public events (such as NASCAR races and state fairs) where it registered new voters and educated attendees about the Chamber's view on key Congressional races." Id.

⁵⁰ Steve Weissman & Suraj Sazawal, Soft Money Political Spending by 501(c) Nonprofits Tripled in 2008 Election, app. at Table 1: Camp. Fin. Inst. (2009) available at http://www.cfinst.org/Press/PReleases/09-02-25/Soft_Money_Political__Spending_by__Nonprofits__Tripled_in_2008.aspx.

⁵¹ James Verini, Show Him the Money, Wash. Monthly, July/August 2010, available at http://www.washingtonmonthly.com/features/2010/1007.verini.html.

⁵² Treas. Reg. § 1.527-6(b)(ii) indicates that an expenditure for a 527 exemption function is made indirectly through another organization if reasonable steps are not taken to ensure that the transferee does not use the funds of political activity. See also Treas. Regs. 56.4911-3 regarding transfers to non-charities that lobby.

⁵³ I.R.C. § 6501(e)(3).

⁵⁴ Treas. Reg. § 601.201(n)(6)(vii).