Watchdog Requests IRS Investigate Leonard Leo Affiliated Nonprofits for Potential Self-Dealing
FOR IMMEDIATE RELEASE: April 6, 2023
Contact: Michael Clauw, firstname.lastname@example.org, 202.780.5750
WASHINGTON, D.C. – This week, Campaign for Accountability (CfA) filed an IRS complaint against seven tax-exempt organizations linked to Leonard Leo that appear to have funneled large amounts of money to the lawyer via multiple payments to his for-profit businesses. There is evidence that from the moment the payments began, Leo began personally spending millions of dollars in amounts commensurate with the amounts transferred to these for-profit entities. This type of explicit and coordinated self-enrichment appears to be in direct violation of IRS rules against private inurement, and CfA is asking the agency to investigate. Additionally, since all seven nonprofits are registered to do business in the District of Columbia, CfA also sent a notice to the DC Office of the Attorney General asking it to pursue any appropriate enforcement actions.
CfA Executive Director Michelle Kuppersmith said, “Non-profits are meant to serve the public good, not as pass throughs for mega-donors to enrich their political foot soldiers, but that’s exactly how the Leo-affiliated organizations named in CfA’s complaint operate. Those in the private sector are free to grossly overpay for whatever services they please, but when it comes to tax-exempt activities, the IRS has a duty to ensure no improper self-dealing occurs.”
According to CfA’s analysis, seven tax-exempt organizations linked to Leo—Rule of Law Trust, Wellspring Committee, Inc., The 85 Fund, The Concord Fund, The Federalist Society, Freedom and Opportunity Fund, and Marble Freedom Trust—paid him (directly or indirectly) more than $73 million over a six-year period from 2016 through 2021. During most of this period—from 2016 to 2020—Leo worked a full 40 hours a week at the Federalist Society, according to its tax filings, raising serious questions about how he was able to commit sufficient time for all of the services rendered to his affiliated nonprofits to be worth millions of dollars.
The supposed services were rendered through two for-profit groups—BH Group and CRC Advisors—that do not publicly market, advertise, or even describe their services. It is therefore not readily apparent the exact details of the “work” that Leo put in to earn his firms this sum. When given the chance by the media to explain what it did to earn tens of millions of dollars, CRC Advisors declined to specify.
While it’s unclear exactly what portion of the $73 million went directly to Leo, he owns at least 35% of BH Group and serves as a director and the chairman of CRC Advisors. Yet, given what is publicly known about his spending patterns, it appears that he could be pocketing a sizable amount.
In 2017—shortly after the first of the multimillion-dollar payments to his companies—Leo personally pledged to donate $1 million to Vatican initiatives worldwide. The next year, he paid off the 30-year mortgage on his McLean, Virginia home, most of which was still outstanding on the payoff date. Later that same year, he bought a $3.3 million summer home with 11 bedrooms in Mount Desert, an affluent seaside village on the coast of Maine, using, in part, a 20-year mortgage of $2,310,000. He paid off the entire balance of that mortgage just one year later. And, in September 2021, Leo bought a second home in Mount Desert for $1.65 million.
The IRS says its rules against private inurement are designed “to prevent anyone in a position to do so from siphoning off any of a charity’s income or assets for personal use” and “without regard to accomplishing exempt purposes.” If the agency finds that this indeed occurred with Leo-affiliated organizations, it may revoke any organization’s tax-exempt status, or impose financial penalties to regain some of the excess benefit.
Ms. Kuppersmith continued, “CfA is unfortunately limited to reviewing publicly available material, but even this limited information reveals a litany of Leo excesses. With comprehensive investigatory resources at its disposal, the IRS should finish unraveling this web of excessive payments and, if there is wrongdoing, impose financial penalties to discourage Leo and others from engaging in these sorts of prohibited excessive benefits transactions.”
Campaign for Accountability is a nonpartisan, nonprofit watchdog organization that uses research, litigation, and aggressive communications to expose misconduct and malfeasance in public life and hold those who act at the expense of the public good accountable for their actions.