Direct Mail Fundraising Material - ZIONIST ORGANIZATION OF AMERICA

The IRS revoked ZOA's tax-exempt status after the organization failed to file required IRS Form 990s for three consecutive years. The automatic revocation over failure to file that ensnared ZOA did not target any particular organization, but was rather the result of a 2006 law requiring mandatory IRS action that affected hundreds of thousands of nonprofits. However, revocation of ZOA’s status meant the organization had to justify anew just what activities it performed were worthy of such tax-exempt status by applying for it again, with all of the substantiation required of an entirely new application. The key question it would presumably have to answer was, “What is the social welfare function of Zionism?”

See the Israel Lobby Archive's extensive collection of ZOA-related material:

• NUMEC Diversion Files

• ZOA ignores seven Foreign Agent Registration Act orders - 1938-1960

• ZOA promised to reconstitute to avoid regulation under the 1938 Foreign Agents Registration Act

The ZOA that on October 31, 2012, began the formal reinstatement process was only a shadow of its former self. In 1948, the organization claimed a quarter of a million members; in 2011, it reported only 30,000. Even that figure seems suspect, given a decade of annual revenues averaging only $3 million per year. Like many small nonprofits, ZOA now seemed to exist only to pay a fat salary to Morton Klein, the longtime national president, who had taken over to revitalize the IAO in 1993 after working as a ZOA Philadelphia chapter president. In response to IRS concerns, ZOA’s compensation committee outsourced a salary benchmarking analysis that revealed Klein’s base pay of $423,500 far exceeded his estimated market value of $186,638to $218,208. The compensation committee told the IRS that Klein was worth the money because, though it had fallen on hard times, ZOA was a player—according to another outside consultancy, Quatt Associates, which benchmarked ten much larger organizations in terms of revenue and personnel. In fact, the ZOA told the IRS, Klein was due for a raise:

As [consultancy] Quatt Associates pointed out in their study, the median budget of these organizations is greater than that of ZOA. However, the ZOA’s reputation, influence, and effectiveness make it comparable to other leading advocacy organizations… We have used the median compensation among the comparator organizations as the appropriate market rate…an increase in the base compensation rate of 10% for Mr. Klein would result in his total compensation placing approximately 11% below the median…His performance continues to be at the highest level, and as a result, the organization continues to enjoy a very effective and visible position as a leader among the advocates on behalf of Israel and the Jewish people. This, in turn, greatly assists the organization’s fundraising abilities since many large, like-minded donors are easily motivated to provide financial assistance to the organization’s efforts, personified by Mr. Klein.

A review of ZOA’s correspondence with the IRS during its 2011-2013 drive to get reinstatement reveals an organization with a cumbersome and bloated corporate structure designed for the better days of the past that dwarfed current resources. One reason was that ZOA still tried to be in the lobbying game.[1]

Unlike nearly all the other earlier wave IAOs, ZOA did not agree to allow AIPAC to be its umbrella lobby, and both paid and registered its own in-house lobbying team. This led to frequent clashes with AIPAC that had to be managed by the Conference of Presidents of Major American Jewish Organizations. The ZOA spent scarce dollars lobbying to cut federal funding to American universities and colleges allowing pro-Palestinian protests. But unlike AIPAC, ZOA was a 501(c)(3), not a (c)(4), organization which allowed more leeway to lobby. ZOA insisted on lobbying with fully tax-deductible funds. Most of its mandatory lobbying disclosures filed with the Clerk of Congress were even more vague than the Sphinx-like AIPAC’s, such as one disclosing only “support for U.S.-Israel political, military and economic cooperation.” ZOA was in no hurry to cede the lobbying arena to AIPAC. It could claim to supporters that its more hyperbolic positions made AIPAC follow along. But ZOA was in a hurry to get its tax-exempt status back, lest it miss any massive individual donations.

At first, the ZOA attempted to claim that the IRS was in error and had not considered the proper meaning of statutes governing filing deadlines, and that the ZOA may have fallen victim to improper advice from its outside auditors. ZOA submitted a raft of internal emails substantiating poor management and an inability to obtain consolidated accounting data from its chapters. That effort failed, and the ZOA finally had to file a completely new application for tax-exempt status with all of the required exhibits. On December 28, 2012, ZOA’s outside tax lawyer, Thomas Korn, urged the IRS to expedite processing, lest the ZOA be unable to receive a tax-exempt contribution from its most ardent supporters. Korn worried:

A major, past donor to the ZOA, the Adelson Family Foundation, has pledged to the ZOA a grant of One Million Dollars ($1,000,000). That grant, however will only be made by the Foundation upon the reinstatement of the ZOA’s exemption.

Korn further explained to the IRS why ZOA thought Sheldon Adelson’s offer was only good until April, 2013, and that donations from Dr. Robert Shillman of California ($100,000) and Dr. Stanley Benzel of New Jersey ($40,000) were also in jeopardy. Nevertheless, the IRS had further issues. It was unimpressed with ZOA’s articles of incorporation passed by the New York State Legislature and signed into law on April 14, 1920. As should have been expected, the IRS sidestepped the entire issue about whether Zionism (as expansively documented in the programs and ZOA’s “Narrative Description of Activities’ in its application) had any intrinsic social welfare functions.

A) To educate the American people about State of Israel’s importance as the home of the Jewish people and the spiritual and cultural center of Jewish life. B) To strengthen the concept of Jewish renaissance through the rebirth of Israel as a nation in its ancient homeland; to strive for the survival of Judaism wherever Jews may be, and particularly in the United States of America. C) To foster among its members, and particularly among Jewish youth, the objectives and ideals of Judaism, through a program of Jewish education, and the study of Hebrew culture and language and to strengthen the spiritual unity of the Jewish people. D) To build a bridge of understanding between the Jewish people and others of the United States and the Jewish people in other countries, and especially in Israel. E) To gather and spread information among its members and the public at large, with respect to happenings and events that may affect the Jewish people. F) To foster and encourage among its members an abiding appreciation for the democratic way of life in the United States of America and the ideals upon which it is grounded.

The IRS avoided this by simply requiring a more explicit assertion that ZOA did have such a purpose, as it noted on February 19, 2013:

Your Articles of Incorporation do not limit your purposes to those specifically described in IRC [Internal Revenue Code] 501(c)(3) or permanently dedicate your assets to purposes specifically described in section 501(c)(3). Therefore, please amend your Articles of Incorporation by filing an Articles of Amendment…

Said organization is organized exclusively for charitable, religious, education and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the International Revenue Code.

The IRS also noticed that the ZOA filed its application for reinstatement listing only a single board member, scolding that:

..to best ensure that your organization will serve the public interest, please modify or expand your Board of Directors to place control in the hands of unrelated individuals selected from the community you will serve.

Korn made the amendments, certifying by February 28, 2013, that ZOA was “organized exclusively for charitable, religious, educational and scientific purposes…” and other IRS-suggested language. Unlike CUFI, ZOA did agree to have its future lobbying expenses benchmarked, and signed the dreaded IRS Form 5768. Presumably, ZOA was now out of the spymaster/agent matchmaking business or staffing up weapons-grade uranium diversion fronts or was it? ZOA apologized for only submitting one board member, Morton Klein, claiming that it thought the IRS wanted to know only about compensated board members. Among fifty-four of the rest of the ZOA board members faxed to the IRS on February 19, 2013, was Zalman Mordecai Shapiro, former CEO of the Nuclear Materials and Equipment Corporation.

In the end, ZOA did not get two minor demands met by the IRS. It was not until May 15, 2013, that it was granted tax-exempt status. Although ZOA wanted its status to be made retroactive to 2011, the IRS only made the effective date October 30, 2012. For the first time in modern history, for almost a year and a half, the ZOA had officially operated as what it truly was—not a charity.