No Immunity for Impunity: Revoking Tax-Exempt Status of NGOs Funding Illegal Settlements

Executive Summary

This brief examines how U.S. tax-exempt status granted to NGOs funding Israeli settlements in the West Bank enables illegal activities violating international law. This has profound impact on the U.S’s own legal system and diplomatic credibility.

Introduction

The U.S. Tax Code grants tax-exempt status to donations to Israeli 501(c)(3) nonprofits that subsidize West Bank settlements—actions deemed illegal under United Nations Security Council Resolution 2334. Between 2009-2013, U.S-based nonprofits sent $220 million to illegal settlements in the West Bank via organizations such as the Central Fund of Israel, the Hebron Fund, and Shuva Israel. The U.S tax code section 501(c)(3) grants tax exempt status to organizations which are “charitable” and includes multiple descriptors including but not limited to religious, educational, scientific, literary, and preventing cruelty to children or animals. This section of the tax code helps many charitable fulfil their purposes and provide support and relief for those around the world – it helps in the receiving of federal grants, it allows donors to write off their contributions in their taxes essentially allowing tax dollars to supplement the stated aim of that charitable organization. In doing so, a 501(c)(3) builds a public trust between the organization, the government, and the people of the United States in that the public trusts this organization to do ‘good works’ in their organization. For these purposes, nonprofits under this status do not have governmental approval to subsidize nor endorse political campaigns, perform lobbying efforts, or support efforts which directly contrast to lawful activities. Though operating in private status they have a legal duty to serve the public interest. In Bob Jones University v. United States (1983), the Supreme Court of the United States wrote “An organization is not tax-exempt if it “has purposes or activities that are illegal or violate fundamental public policy.” This precedent empowers the IRS to revoke tax-exempt status for organizations engaged in illegal activities, setting a clear legal framework.  The Internal Revenue Service has the ability to revoke tax-exempt status on organizations that 1) violate public policy as was the case in Bob Jones University v. United States in their maintaining of racial discrimination in admission policies 2) engaging in criminal or fraudulent activities that promote hate as was the case such as in United Cancer Council v. Commissioner (1999) who used a private firm to disburse funds collected through their organization as well as with Glory Unlimited Church which was found to have been operating a for-profit enterprise whilst engaging in misrepresentation of charitable status  and 3) provide support for foreign groups or those engaged in foreign political influence as was the citied reason behind the Holy Land Foundation – the United States froze their assets and prosecuted top officials of providing material support to terrorism.

The 4^th Geneva Convention, also known as the Convention Relative to the Protection of Civilian Persons in Time of War, for which the United States was a signatory clearly declared in Article 49(6) that “The Occupying Power shall not deport or transfer parts of its own civilian population into the territory it occupies.” This reflects Israeli policies that have transferred its civilian population into occupied territory. The 4^th Geneva Convention, and the United States signing on is evidence of the United States accepting international law as a source of jurisprudence. The U.N Security Council, for which the United States is a member, as well as the International Court of Justice accept this convention as binding international law. Furthermore, the U.N Security Council in 2016 passed resolution 2334 which specifically and unambiguously declared Israeli settlements in the West Bank and East Jerusalem as illegal calling them a “flagrant violation” of international law and an impediment to the widely professed two-state solution.  It is also worth noting that the United States has case law which indeed supports the appliance of international law within domestic courts such as in the cases of Filartiga v. Pena-Irala (1980) that ruled “deliberate torture perpetrated under color of official authority violates universally accepted norms of international human rights law.” Showing clear customary as well as statutory acceptance of international law. In another case, perhaps more relevant when discussing the Geneva Convention directly, Hamdan v. Rumsfeld (2006) the Supreme Court of the United States ruled that the Geneva Convention’s Article 3 applies to detainees within the United States and that then-President Bush’s commissions established in the wake of September 11^th violated international law.  These cases show clear support for the United States’ judiciary’s acceptance of international law and norms when the United States is a signatory to such treaties and make a case for the United States to currently enforce the international law treaties we are a party to.

Approach & Results

Under the current tax code, American donors may give to 501(c)(3) organizations such as the Central Fund of Israel, Honenu, Ateret Cohanim, The Hebron Fund, and the JNF-USA. These organizations essentially serve as pass-throughs to funnel money from Americans to settler groups, security initiatives, yeshivas, and infrastructure projects. On paper, the average person may not view this as necessarily bad but in reality many of these groups contribute directly to Israeli-settler violence. For example, Central Fund of Israel, registered in New York, has served as a conduit for donations to over 150 Israeli groups, including those operating in settlements such as Yitzhar and Hebron—some linked to violent settler activity. Yitzhar is a recognized hotbed of settler extremism and terror. Numerous incidents of settler violence against Palestinian civilians has been documented, the CFI has specifically funded the Od Yosef Chai yeshiva which engaged in violence often enough for even the Israeli Defense Forces to shut down the institution and wherein an associated rabbi, Yitzhak Shapira, wrote a book titled The King’s Torah which called for the killing of people that were not Jewish. Outside of Yitzhar, the CFI funds security patrols with the aim of intimidating Palestinian farmers serving as a fear tactic and repression of Palestinians. The Hebron Fund from Brooklyn also engages in support for settlers in a hotbed of settler violence, Hebron. Famous for the 1993 Cave of Patriarchs Massacre wherein an extremist settler murdered 29 Palestinian worshipers, it has remained a major point of settler violence in the years since. Settlers regularly harass Palestinians in ‘H2’ an IDF-occupied military zone, and the Hebron Fund specifically seeks to fund security infrastructures for settlers which may be easily weaponized against Palestinians and further contribute to apartheid, tours promoting Zionist narratives, and renovations of settler’s homes on expropriated land. Honenu provides legal aid to settlers who engage in violence against Palestinians including ‘price tag’ offences such as arson, vandalism, attacks on Palestinian civilians as well as bigger crimes such as in the case of Amiram Ben-Uleila who famously committed the 2015 Duma Arson Attack, killing 3 including a 1-year-old baby. Ateret Cohanim, also New York based, works to displace Palestinians in East Jerusalem communities as evidenced in Silwan, Sheikh Jarrah, and the Muslim quarter, by using legal loopholes and the controversial Absentee Property Law (a law passed to allow Israeli settlers the ability to take Palestinian lands who fled in the Nakba). The May 2021 Sheikh Jarrah tension can be largely linked to Ateret Cohanim. The JNF-USA, arguably the most mainstream of these organizations also contributes to settlement expansion efforts which directly contravene international law.

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Tax deductions currently incentivize these organizations to continue in funding illegal activities in the West Bank and East Jerusalem by allowing them to reduce their personal tax deductions by giving donations to the organizations. When a taxpayer gives $10,000 to an organization funding settlement expansion, they can deduct that full amount from their tax burden meaning that the U.S treasury by allowing such deduction is indirectly subsidizing the illegal Israeli settlements. The IRS maintains broad authority to revoke tax exempt status for organizations and has done so for purposes of public policy such as was the case in the previously mentioned Bob Jones University v. United States (1983) as well as in cases of criminal, fraudulent, or foreign political activity as was alleged against the Holy Land Foundation. Currently the organizations subsidizing directly contravene established U.S policy favoring a two-state solution as well as international law in the 4^th Geneva Conventions Article 49(6) and the United Nations Security Council Resolution 2334 and these should be used in reference to what constitutes a public policy violation seeing as the United States is a party to both Geneva and a non-objecting member of the U.N Security Council.

The IRS has not shown fear in revoking the tax-exempt status of organizations sending money to the region. The Islamic Association of Palestine and Holy Land Foundation, accused of funding Hamas, due to their support for charities in Palestinian land that were alleged by the United States to be operated by Hamas – they were Zakat committees that provided humanitarian relief to Palestinian civilians living in the West Bank and Gaza – these same charities received funding from USAID at the time. Despite years of litigation, there was never any substantial proof linking either organization to direct support for Hamas, no proof to anything except accusations that the Zakat committees were administered by Hamas and donations therein would “free up” resources for Hamas to use on weaponry and militant means. Essentially there was never any solid proof that either organization which was subject to litigation and IRS tax-exempt revocation was providing support for any form of political violence, however, there is undeniable and conclusive proof that the Zionist organizations previously mentioned are directly supporting settler violence and illegal settlements, and yet they remain in IRS good-standing and have to date faced no major civil or criminal challenges to their legitimacy. This highlights selective enforcement of non-profit and anti-terror laws.
By allowing Zionist organizations to fund settlements and illegal settler violence, which constitutes as terrorism against the Palestinian people and is widely condemned under international law, it shows United States selectivity in enforcing and upholding its own laws and a lack of uniformity and consistency in the application of U.S case law as well as existing statutes. It violates the principle that non-profit, tax-exempt status is a privilege to be given to organizations in their intent to serve the public good rather than a right to be used on any form of intention. It sends a message to the American people as well as those within ally countries of America that certain groups and organization are above the threshold of scrutiny given to others that may have political differences to the American political establishment as well as eroding trust in the impartiality and neutrality of the United States’ tax code. By failing to enforce consistent public policy standards, it undermines and weakens the once-respected legal system of the United States from within. It allows tax law to become a vehicle of geopolitical agendas and internationally condemned agendas rather than for the purpose of charity as was the established purpose.

Furthermore, as a party to both the 4^th Geneva Convention and a permanent member of the U.N Security Council, the United States is a part of international bodies very clearly declaring Israeli settlements illegal. Continuing the subsidization of settler violence and illegal settlements risks the United States becoming complicit in the violation of international law by omission. By not taking a clear stand against illegal settlements and the violence of the settlers therein, the United States loses credibility in undermines its own credibility in calling out human rights violations as has been done in China, Cuba, and The Sudan. It also runs the risk of weakening the United States’ standing within the United Nations and hurting our relations with the international community. The United States cannot credibly condemn the annexation of Crimea or the targeting of civilians in Syria (e.g the responsibility to protect) while actively subsidizing activities that constitute violations of international humanitarian law in Palestine’s Occupied West Bank.

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The United States has also nominally, under both Democratic and Republican administrations, supported a two-state solution. Illegal Israeli settlements in the West Bank serve as a primary barrier for any two-state solution to take place. By undermining their own alleged support for the two-state solution, the United States government essentially weakens its relations and alliances with Middle Eastern allies such as Saudi Arabia, Jordan, and Egypt all of whom have affirmed support for the Arab Peace Plan of 2002 which calls for a two-state solution on the 1967 borders. Breaking from key allies in the region can create a culture of resentment from partners which are necessary in the Middle East. Continuing tax subsidization of the illegal settlements sabotages U.S relations with Middle Eastern allies and gives wind to the perception of the U.S being a partisan actor rather than neutral mediator in Middle Eastern conflicts.

This also demonstrates clear moral and legal double standards from America in the application in existing laws. Muslim and Arab groups have faced aggressive closures and prosecutions despite far less involvement in overseas conflict whereas pro-Israel groups who directly participate in overseas conflict and aggression may operate with impunity. Organizations actively supporting settler violence may retain 501(c)(3) status but Muslim-American groups engaging in charitable giving to USAID supported foundations in the West Bank and Gaza have status revoked and the leadership of the organizations face criminal prosecution. When Muslim-American charities are punished for dubious reasons while  pro-Israel groups openly provide legal defense to extremist settler groups and allow said extremists to receive tax subsidies – America loses any sense of neutrality, and this fuels resentment and weakens America’s domestic cohesion as well as undermining the purported ideals of fairness and justice. These double standards are consistently cited by anti-American extremist groups as well as human rights watchdog groups as clear-cut evidence of American hypocrisy. When America is viewed as a hypocritical county, it undermines itself in public diplomacy and messaging on human rights around the world. With weak credentials on human rights and poor diplomatic ability, anti-American sentiment is allowed to fester among foreign youths. The world sees the discrepancy between stated values and funded violence - and no amount of press releases can erase that.

Conclusion

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Continuing tax-exempt status of U.S based organizations which fund illegal settlements violates both domestic and international laws. The Central Fund of Israel, Honenu, and the Hebron Fund are not only supporters of actions deemed illegal by international law but exploit the existing tax code and thereby diminish the integrity and trust Americans have in American tax law. These organizations act in clear contradiction of ‘charitable purposes’ as defined the U.S Tax Code Section 501(c)(3).
This brief shows clear evidence that the U.S has legal precedent to revocation of tax-exempt non-profit status from organizations that prove themselves in clear violations of American public policy, engage in criminal activities, or provide support for groups in foreign conflicts. It has also demonstrated clear acceptance of international law, specifically the 4^th Geneva Convention in U.S military action as well as in U.S case law. Yet a troubling double standard persists in current application the tax code as Muslim-American organizations can be shut down for alleged inconclusive connection to foreign militant groups when  pro-Israel groups are granted the ability to openly finance illegal settler land grabs, violence, and displacement and benefit themselves from federal subsidization.

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This leads to profound consequences for the U.S as the integrity and  credibility of the U.S on the international stage is eroded. All the while, American taxpayers at large become complicit in the subsidizing of apparent violations of human rights for the Palestinian people and international law. If moral authority for the U.S government is to be maintained or exist at all and continue its proclamation for a two-state solution and preserve the credibility of the legal system, then clear action must be taken regarding subsidization of illegal Israeli settlements.

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The United States can no longer afford to turn the other cheek on clear violations of international and domestic law. Upholding the law, protecting American institutional credibility, and defending the principles of justice and fairness requires immediate action -- now.

Implications and Recommendations

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To ensure that tax law is in alignment with domestic legal precedent and international legal obligations held by the U.S as well as to prevent abuses of 501(c)(3) status in funding illegal legal actions and settlements in the West Bank, the following actions of public policy are to be recommended:

To the Internal Revenue Service:

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1. Initiate audits of U.S-based 501(c)(3) organizations that have potential links to illegal settlement activity including but not limited to the Central Fund for Israel, Honenu, and the Hebron Fund.

2. Review and clarify guidelines on activities that are in violation of public policy as well as international humanitarian law as well as contradict U.S foreign policy

3. Issue revocation proceedings for any and all organizations found to be clearly in violation of the violent/illegal activity sections of the 501(c)(3) restrictions.

To the United States Congress:

1. Host oversight hearings on the misuse of existing tax code allowances that are being misused to support international and domestic law violations.

2.  Craft legislation that amends the IRS Code to clearly and explicitly prohibit tax-exempt allowances to projects in contradiction to international and domestic law

3. Craft legislation that would ensure non-discrimination in the application of the tax-code regarding non-profits

To Activists and Concerned Parties:

1. Track and share IRS-recognized non-profits that support settler violence and illegal settlements (e.g., CFI, Honenu, Hebron Fund) using public IRS Form 990 data.

2. Email or call the offices of the IRS Commissioner and Treasury officials to request reviews of specific settlement-funding nonprofits.

3. Publish op-eds, letters to the editor, and social media content highlighting the double standard in enforcement (e.g., Holy Land Foundation vs. Hebron Fund).
4.  Push universities and local governments to disaffiliate with organizations that support settlement expansion and pressure donor funds to disaffiliate with pro-settlement non-profits.