Another Charity Under Scrutiny by the IRS

A world-wide children’s charity, operating as the Kabbalah Centre, is under investigation by the IRS for tax evasion. The Los Angeles-based non-profit spiritual group, which boasts of supporters like Madonna, Ashton Kutcher, Demi Moore, and Barbara Steisand, is reportedly shutting down its U.S. operations and has already begun laying-off staff; approximately twenty (20) people so far.

IRS tax attorneys familiar with the Centre explain the non-profit organization began years ago as a kabbalah-focused private elementary school (the term “Kabbalah” referencing the study of Jewish mysticism) and grew to include international initiatives in Africa, Brazil, Costa Rica, England, Malawi and Panama among others. The group’s African initiative, led by entertainer Madonna, and the “Raising Malawi” initiatives are among the programs being scrutinized by the IRS’s criminal investigators.

One of the centre’s programs, the Success for Kids initiative, which has operated for approximately ten (10) years, will be closing its programs in American public schools at the end of this academic year. In a letter sent to supporters last week, the non-profit group’s president, Michal Berg, claims the decision was based on larger than expected overhead associated with translating religious lessons into curriculum which is nondenominational. Berg wrote “the reality is that the current public school expansion strategy is not cost-effective and it is difficult to scale the program to impact more children.”

Supporters receiving the letter did not hear mention of a federal grand jury in New York which has issued subpoenas seeking information about the centre, the Success for Kids charity, and the Berg family which control the charity. According to a spokesperson for the charity, Mark Fabiani, the letter did not include those details because “it was completely unrelated” to the decision to close the American schools program.

According to tax attorneys this latest revelation illustrates an increasing regulatory focus on non-profits engaged in activities the IRS and/or other tax enforcement agencies deem as questionable. These tax lawyers point to recent news accounts about non-profit, politically-oriented groups funneling undisclosed contributions to candidates, and how these groups are being pressured by the IRS to give up donor lists. What’s more, these tax attorneys also suggest one need only look at how the Agency is going after bigger donors, who failed to comply with gift-tax reporting requirements, to appreciate there is a renewed focus at the IRS, and it’s directed at non-profits.

If you are a donor to a non-profit group, or run your own non-profit charity, and have questions about how the IRS’s latest focus may affect you, tax lawyers and other tax professions encourage you to get answers. Failing to do so may result in owing back taxes, and could even conceivably result in jail time for tax evasion.

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