On June 8, 2011, the Internal Revenue Service ("IRS") announced that approximately 275,000 organizations lost their tax-exempt status because they did not file legally required annual reports for three consecutive years. While the Independence Visitor Center Corporation ("IVCC") was not one of these 275,000 organizations, the IVCC's non-profit status should nonetheless be carefully scrutinized, investigated and audited because it appears that the IVCC has used charitable funds to make undisclosed lobbying expenditures, the IVCC has attempted to influence legislation without reporting it, and the IVCC has provided substantial private benefit to organizational insiders and other private companies doing business with the IVCC.
The IVCC has acted over a prolonged period in a manner that may call into question the legitimacy of its tax-exempt status. The IVCC appears to have submitted misleading information to the IRS that conceals the lobbying activities in which the IVCC has engaged. Furthermore, transactions and business relationships between the IVCC and other related parties suggest conflicts of interest and substantial private benefit and inurement. The IVCC’s lack of transparency also raises suspicion as to its tendency to work towards the public good. Not only does the IVCC seem to have engaged in a history of behavior to benefit private, for-profit parties over the public, but it appears that the IVCC has also used millions of dollars in public money to serve these private interests and to fight transparency.
It appears that the IVCC has been regularly engaging in activities that do not appear to meet the IRS standards set for tax-exempt educational organizations whereby there appear to be serious inconsistencies with its tax exempt purpose. From a Board of Directors which appears rife with conflicts of interest, perceived and/or real, to a business model that appears to substantially benefit private, for-profit enterprises, the IVCC appears to have betrayed its educational mission in the name of greater revenue and private gain over the public good. It also appears that there are numerous errors, omissions and/or misrepresentations by the IVCC with regard to its operations, disclosures and filings with the IRS and other government authorities. The IRS should investigate the IVCC and perform a critical assessment regarding the IVCC's compliance, or lack thereof, with the regulations governing non-profit organizations. To the extent that the IVCC is found to not be in compliance with IRS regulations governing non-profit companies, then the IRS should assess whether the IVCC can continue as a 501(c)(3) non-profit and determine what penalties, financial and/or otherwise, would be appropriate.
Background on the Independence Visitor Center Corporation
The IVCC was originally incorporated on February 6, 1998 as the Gateway Visitor Center Corporation ("GVCC"). On March 20, 1998, James Pickman, then President of the GVCC, completed IRS Form 1023 - Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code on behalf of the GVCC. On June 4, 1998, the IRS sent the GVCC an interim determination letter stating that it is exempt from Federal Income Tax Code as a 501(c)(3) organization. The GVCC officially changed its name to the Independence Visitor Center Corporation ("IVCC") in approximately 2001. On October 24, 2002, the IRS sent the IVCC a follow-up determination letter.
The Independence Visitor Center ("IVC") is a Federal facility that is owned and operated by the United States of America - National Park Service, which has then sub-contracted with the IVCC, a taxpayer supported public charity, to manage the IVC. The IVCC has received $850,000.00 annually from the Federal government via the National Park Service ("NPS") for the operation of the IVC. It is believed that NPS has paid the IVCC more than $8.25 million total from 2001 to the present. Additionally, the IVCC has been supported with taxpayer and philanthropic funds from the City of Philadelphia, Commonwealth of Pennsylvania, Pew Charitable Trusts, William Penn Foundation, Knight Foundation, and the Delaware River Port Authority (“DRPA”) (which was chaired by John Estey who also concurrently chaired and still chairs the IVCC; Mr. Estey's firm, Ballard Spahr, has served as paid-for legal counsel to the IVCC and DRPA for several years).
Non-Disclosure of Lobbying
It appears that the IVCC has given considerable amounts of its charitable funds to registered lobbyists. Federal tax laws allow charitable organizations to pay for some amount of lobbying activity. However, all payments for lobbying must be fully disclosed to the public and the IRS.
In all of the annual IRS 990 forms filed by the IVCC for the time periods from July 1, 2003, through June 30, 2010 (Click for IRS 990 tax forms for the IVCC from 2003, 2004, 2005, 2006, 2007, 2008 and 2009), the IVCC reported to the IRS that the IVCC had not engaged in any lobbying activities whatsoever. Despite the IVCC’s claims that it has not attempted to influence legislation and has not engaged in lobbying, evidence suggests the contrary. According to public records obtained from the Commonwealth of Pennsylvania’s Department of State’s Web site, from January 1, 2007, to December 31, 2010, the IVCC spent $177,488.00 with the lobbying firm S.R. Wojdak & Associates which is based in Philadelphia, Pennsylvania. That lobbying firm - Wojdak - appears to have been representing the IVCC since at least 2004.
Despite the IVCC’s claims that it has not attempted to influence legislation and has not engaged in lobbying, evidence suggests the contrary. According to the Lobbying Disclosure Registration Web site of the Commonwealth of Pennsylvania Department of State, there are at least four lobbyists who have represented the Independence Visitor Center Corporation (Pennsylvania Lobbying Disclosure Registration Number P00806) including:
- Stephen R. Wojdak (Pennsylvania Lobbying Disclosure Registration Number L00614), President and CEO, S.R. Wojdak & Associates (“Wojdak”) from January 1, 2007 to the present;
- Holly Kinser (Pennsylvania Lobbying Disclosure Registration Number L01437), Executive Vice President, S.R. Wojdak & Associates, from January 1, 2007 to the present;
- John Hawkins (Pennsylvania Lobbying Disclosure Registration Number L01445), S.R. Wojdak & Associates, from January 1, 2007 to the present; and
- Paul Dlugolecki (Pennsylvania Lobbying Disclosure Registration Number L19448), S.R. Wojdak & Associates, from November 2, 2009 to the present.
Efforts to Influence Legislation
William Moore was the President and CEO of the IVCC from approximately January 1999 to January 2009. In this capacity, it appears that Mr. Moore attempted to influence numerous pieces of legislation through direct outreach to elected officials. One such example was on July 9, 2004, when Mr. Moore, while President and CEO of the IVCC, wrote to Ed Rendell, who was then the Governor of the Commonwealth of Pennsylvania:
"Congratulations on the historic legislation allowing slot machine installation in Pennsylvania. That was a long and difficult battle, but in the end residents and visitors to the Commonwealth all come out as winners. You may recall in a meeting in late 2003 discussing ways that we could leverage casino operations to help support the Independence Visitor Center […] I would like you to consider taking a renewed look at how we might achieve financial support for the Visitor Center operations either directly or indirectly from the licensing, permitting or operations of our new casino operators."On the IRS 2004 990 Form for the IVCC covering the July 9, 2004 letter, the IVCC reported “No” to the question, “During the year, has the organization attempted to influence national, state, or local legislation, including any attempt to influence public opinion on a legislative matter or referendum?” This 2004 990 tax return was signed on February 22, 2006, by William Moore, the same person who in that year had attempted to influence Governor Rendell's legislative agenda and to affect the manner in which casino gambling funds were distributed.
On November 3, 2006, Mr. Moore again wrote to Governor Rendell in an attempt to influence legislation,
"Because HB 2282 could be interpreted to jeopardize that additional 8% collected [regarding hotel taxes], we must encourage you to veto the bill."From 2005-2008, it appears that Mr. Moore and the IVCC were very active in influencing legislation. For example, Mr. Moore appears to have been one of the driving forces behind the City of Philadelphia’s legislation to regulate Tour Passenger Loading Zones around the Independence Visitor Center (Bill Number 050862-A, signed by Mayor on January 24, 2006). Also, during 2007-2008, Mr. Moore appears to have been directly involved in the drafting and passing of Bill Number 080024-A, signed into law on April 16, 2008. This was an Ordinance amending Chapter 9-200 of the Philadelphia Code, "Commercial Activities on Streets," which aimed to license tour guides. Additionally, from 2008-2010 both Mr. Moore and IVCC President and CEO Jim Cuorato testified against moving Ride the Ducks away from 6th Street.
Despite the IVCC’s retention of multiple registered lobbyists, having both the Mayor of Philadelphia’s Representative and the Governor of Pennsylvania’s Representative serve on the politically connected IVCC's Board of Directors, and the efforts to pass numerous pieces of specific legislation including to secure public funding, the IVCC has repeatedly claimed to the IRS that the IVCC did not “engage in lobbying activities.”
Private Benefit and Inurement – Public Dollars Serving Private Interests: Ballard Spahr Has Provided Legal Counsel While Senior Partners at Ballard Spahr Have Served on the IVCC’s Board of Directors
From 2001 to the present, a senior partner at Ballard Spahr, LLP ("Ballard Spahr") has been in charge of the corporate governance with the Board of Directors of the IVCC. From approximately January 1, 2002 to December 31, 2006, Lynn Axelroth, Esq., senior partner at the law firm Ballard Spahr, served as the Chairwoman of the IVCC. After Ms. Axelroth had completed her five-year term as Chairwoman, Ms. Axelroth concurrently continued to practice with Ballard Spahr, the IVCC’s primary paid-for law firm providing legal counsel, and has continued to serve on the IVCC’s Board of Directors according to the IVCC's 2010 Annual Report.
From approximately January 1, 2007 to the present, John Estey, Esq. has served as the Chairman of the IVCC. While serving as Chairman of the IVCC, Mr. Estey was also: i) Chief of Staff to Pennsylvania Governor Ed Rendell from January 21, 2003 to February 14, 2008 and ii) senior partner at Ballard Spahr from February 15, 2008 to the present. Therefore, for most of the last decade, a senior partner at Ballard Spahr has been in charge of corporate governance at the IVCC.
On January 24, 2011, just one week after Pennsylvania Governor Rendell left office, Ballard Spahr announced that Governor Rendell was rejoining Ballard Spahr where “The governor will focus his practice on public-private partnerships...” On information and belief, Governor Rendell works with Mr. Estey, his former chief of staff, and fellow business partner at Ballard Spahr, possibly focusing on “public-private” partnership clients like Ballard Spahr's lucrative client, Independence Visitor Center Corporation, which Board of Directors Mr. Estey chairs.
On the IRS 990 tax returns for tax years 2003 through 2007, as well as 20091, the IVCC listed Ballard Spahr as one of the “Five Highest Paid Independent Contractors for Professional Services.” In the time period of July 1, 2003 to June 30, 2010, the IVCC reported paying Ballard Spahr at least $515,626.00. Such significant spending appears to represent the inurement of the IVCC’s charitable funds to the benefit of the law firm at which members of the IVCC’s Board of Directors are also partners, whereby these partners may have received some pecuniary benefit from Ballard Spahr's revenues and/or profits, which may in part be generated by billing of legal fees to the IVCC. Thus, it appears that the IVCC-Ballard Spahr partnership enabled the IVCC’s funds to accrue to insiders.
However, in the IVCC’s 2004 990 form, for example, the IVCC checked “No” to the following questions:
"During the year, has the organization, either directly or indirectly, engaged in any of the following acts with any substantial contributors, trustees, directors, officers, creators, key employees, or members of their families, or with any taxable organization with which any such person is affiliated as an officer, director, trustee, majority owner, or principal beneficiary?"
"Payment of compensation (or payment or reimbursement of expenses if more than $1,000)?"Despite this denial, the IVCC spent $78,991.00 with Ballard Spahr that year, thereby giving what appears to be substantial compensation to an organization at which the Chairwoman of the IVCC Board of Directors was a business partner.
Given all of the potential conflicts of interest, perceived and/or real, it is quite curious that the IVCC chose Ballard Spahr for its legal counsel when Philadelphia is home to many other qualified law firms which do not have any lawyers serving on the Board of the Directors of the IVCC and which do not have business relationships with the IVCC and/or its Board of Directors. Yet the IVCC selected the one law firm where the current and former Chairpersons of the IVCC's Board of Directors are partners.
Private Benefit and Inurement – Public Dollars Serving Private Interests: For-Profit Vendors Licensing Space from the IVCC
In addition to complying with the inurement prohibition, public charities must “exclusively”2 serve “a public rather than a private interest”3 in order to receive special tax benefits. If a charity confers a private benefit that is more than “incidental,”4 the charity’s tax-exempt status is destroyed,5 regardless of the number of other charitable interests served.6 Courts and the IRS have held that, to retain its tax-exempt status, a charity may only confer a private benefit if the benefit is: (1) a necessary byproduct of accomplishing the organization’s charitable purpose; and (2) insubstantial compared to the totality of the charity’s activities.7 This concept is known as the “private benefit” doctrine. The private benefit doctrine bars non-incidental benefits to any private interests, including the organization’s executives, directors and favored for-profit companies getting exclusive and lucrative deals.
The emphasis placed on commercialism and concession sales at the Independence Visitor Center appears to have led to a substantial accrual of private benefit to individuals and for-profit corporations. For example, two favored for-profit tour companies — Ride the Ducks International and Philadelphia Trolley Works (also doing business as Big Bus Company, Franklin's Footsteps and 76 Carriage Inc.) — operate their own ticket sales booths inside the Independence Visitor Center that, on information and belief, generate millions of dollars in annual sales (for these for-profit companies). The situation has been so pronounced that on April 27, 2009, United States Congressman Robert A. Brady (First District, Pennsylvania) wrote to Ken Salazar, the Secretary of the Department of the Interior, noting a transformation of “the taxpayer-supported IVC into a federally subsidized sales and staging area for large corporations […]”
The IVCC has also kept as secret the details of the contracts and agreements which it holds with several third party vendors, making it impossible to determine and analyze the comprehensive way in which a tax-exempt organization benefits these private enterprises. A lack of transparency also enables the IVCC to blur the divide between a non-profit existing for public good and a for-profit existing for private benefit. In fact, Mr. Estey, Chairman of the IVCC, seemed to embrace a for-profit attitude when on August 19, 2010, he boldly commented to The Philadelphia Inquirer, "We don’t make public our deals with our vendors [Ride the Ducks, Philadelphia Trolley Works], because then we wouldn’t get good deals." It seems that the IVCC is employing secrecy as a means of masking its possible divergence from a non-profit model.
On information and belief, Ride the Ducks alone boasts 200,000 passengers on an annual basis who depart from the Independence Visitor Center, leading to annual revenues for Ride the Ducks in excess of $4.4 million. As such, the Independence Visitor Center (including the IVCC which operates the IVC) has become much more important as a platform for private commercial benefit than as an instrument for meaningful public benefit. It appears that the IVCC, a public charity, is conferring a private benefit to Ride the Ducks that is more than “incidental.”8 It therefore appears that the charity’s tax-exempt status is destroyed, regardless of the number of other charitable interests served by the IVCC.
Conflicts of Interest – Not Disclosed
According to the 2008 990 Form, the IVCC answered "No" to the following: “Did any officer, director, trustee, or key employee have a family relationship or a business relationship with any other officer, director, trustee, or key employee?” However, Mr. Estey and Ms. Axelroth certainly appear to have a business relationship, both on the IVCC's Board of Directors, and separately both serve as partners at Ballard Spahr, the IVCC's paid for legal counsel.
Based on the IVCC's involvement with other agencies such as the Delaware River Port Authority, the City of Philadelphia, the Commonwealth of Pennsylvania, and the Pennsylvania Convention and Visitors Bureau, several other distinct connections can be made between IVCC Board of Directors members outside of the IVCC. IVCC's Board Members John Estey, Meryl Levitz, and William A. Graham, IV, all have connections to other IVCC Board Members through other organizations that actually have funded and/or have done business with the IVCC. It appears that the IVCC has not revealed these associations and resulting potential and/or actual conflicts of interest to the IRS.
The numerous business connections and associations with the IVCC's Board of Directors members in organizations outside of the IVCC likely makes it very difficult if not impossible for the IVCC to have truly independent and objective corporate governance that enables members of the Board of Directors to carry out their fiduciary responsibilities to the IVCC and the taxpayers who in large part funds the IVCC. The IVCC is therefore left with what appears to be questionable leadership, conflicted corporate governance and distracted direction. The IVCC has refused to acknowledge what appear to be numerous conflicts of interest, perceived and/or real, on the 990 Forms that the IVCC has annually submitted to the IRS from at least 2003-2009.
Lack of Transparency at the IVCC
In the "Compliance Guide for 501(c)(3) Public Charities," the IRS instructs, “Public charities are encouraged to adopt and monitor procedures to ensure that information about its mission, activities, finance and governance is made publicly available.” The IVCC has acted in opposition to transparency and public access. In addition to opposing such requests for information under the Freedom of Information Act and Pennsylvania Right to Know Law, the IVCC, via its paid-for legal counsel at Ballard Spahr, has supported litigation to overturn legally binding Final Determinations issued by the Pennsylvania Office of Open Records that would encourage transparency at the IVCC.
Involvement and Supervision by the National Park Service
As discussed, the Independence Visitor Center is a Federal facility owned and operated by the United States of America - National Park Service, which has then sub-contracted with the IVCC, a taxpayer supported public charity, to manage the IVC. The IVCC has received $850,000.00 annually from the Federal government via the National Park Service for the operation of the IVC. It is believed that NPS has paid the IVCC more than $8.25 million total from 2001 to the present.
From November 19, 2001 to April 26, 2010, the IVCC's operation of the Independence Visitor Center was governed by the NPS's Special Use Permit through which the IVCC managed the IVC "subject to the supervision of the [NPS's] Superintendent" and "consent of, the National Park Service." Further, NPS officials have served on the Board of Directors of the IVCC. For example, according to the IVCC's 2007 Annual Report, both Mary A. Bomar, former Director of the NPS, and Dennis R. Reidenbach, then Superintendent INHP (currently Regional Director, Northeast Region, NPS) served on the IVCC’s Board of Directors in their official capacities with the NPS.
Conclusion
It appears that the IVCC has been regularly engaging in activities that do not appear to meet the IRS standards set for tax-exempt educational organizations whereby there appear to be serious inconsistencies with the IVCC's tax exempt purpose. From a Board of Directors seemingly rife with conflicts of interest, perceived and/or real, to a business model that appears to substantially benefit private, for-profit enterprises, the IVCC appears to have betrayed its educational mission in the name of greater revenue and private gain over the public good. It also appears that there are numerous errors, omissions and/or misrepresentations by the IVCC with regard to its operations, disclosures and filings with the IRS and other government authorities. The IRS should investigate the IVCC and perform a critical forensic accounting regarding IVCC’s compliance, or lack thereof, with the regulations governing non-profit organizations. To the extent that the IVCC is found to not be in compliance with IRS regulations governing non-profit companies, then the IRS should assess whether the IVCC can continue as a 501(c)(3) non-profit and determine what penalties, financial and/or otherwise, would be appropriate.
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Notes:
1. The 2008 IRS 990 for the period representing 7/1/2008 to 6/30/2009 does not include any specific reference to Ballard Spahr. However, the 2008 990 only includes the five highest-paid independent contractors. Ballard Spahr was not in the top five highest paid independent contractor for 2008, which may be why the data about Ballard Spahr is not included therein. The top five highest paid independent contractors ranged from ESM Productions for $170,000.00 to Lynch Business Executives for $626,012.00.
2. Better Business Bureau of Washington, D.C. v. U.S., 326 U.S. 279 (1945).
3. 26 C.F.R. § 1.501(c)(3)-1(d)(1)(ii).
4. See General Counsel Memorandum 37789 (December 18, 1978); General Counsel Memorandum 39,862 (Nov. 21, 1991).
5. Better Business Bureau of Washington, D.C. v. U.S., 326 U.S. 279 (1945).
6. See General Counsel Memorandum 37789 (December 18, 1978); General Counsel Memorandum 39,862 (Nov. 21, 1991). Compare Manning Assoc. v. Commissioner, 93 T.C. 596 (1989).
7. American Campaign Academy v. Commissioner, 92 T.C. 1053, 1066 (1989). See also Sonora Community Hospital v. Commissioner, 46 T.C. 519 (1966); Rev. Rul. 70-186, 1970-1 C.B. 128; Rev. Rul. 78-85, 1978-1 C.B. 150.
8. See General Counsel Memorandum 37789 (December 18, 1978); General Counsel Memorandum 39,682 (Nov. 21, 1991).
Exhibits:
*Articles of Incorporation for the Gateway Visitor Center Corporation, February 6, 1998.
*Letter from Bill Moore, President and CEO of the IVCC, to Pennsylvania Governor Ed Rendell, July 9, 2004.
*Letter from Mr. Moore to Governor Rendell, November 3, 2006.
*IVCC 990 IRS Form, 2003.
*IVCC 990 IRS Form, 2004.
*IVCC 990 IRS Form, 2005.
*IVCC 990 IRS Form, 2006.
*IVCC 990 IRS Form, 2007.
*IVCC 990 IRS Form, 2008.
*IVCC 990 IRS Form, 2009.
*IVCC 1023 IRS Form, 1998.
*Independence Visitor Center Corporation Legal Fees Paid from 7-1-2003 to 6-30-2010.
*IVCC-IRS Final Determination letters, 6-4-1998 and 10-24-2002.
*Biography of John Estey, Chief of Staff to Governor Ed Rendell, from the Commonwealth of Pennsylvania's Web site.
*Picture of Philadelphia Trolley Works ticket sales booth inside the Independence Visitor Center.
*Letter from United States Representative Robert Brady to Secretary of the Interior Ken Salazar, April 27, 2009.
*Picture of Ride the Ducks on Sixth Street between Market and Arch Streets.
*IVCC Annual Report for 2007.
*IVCC Annual Report for 2010.
*IRS “Compliance Guide for 501(c)(3) Public Charities.”
*Final Determination, Jon Bari v. Office of the Governor, PA Office of Open Records, 9-13-10.
*Special Use Permits issued by NPS to the IVCC for the operation of the Independence Visitor Center.
*DiStefano, Joseph N., "Will Ducks, DRPA troubles spark Visitor Center change?", Philadelphia Inquirer, 8-19-10.
*The Board of Directors of the IVCC.
*Moore, William M. Testimony, Council of the City of Philadelphia, Philadelphia Committee on Streets and Services, 11-30-05 (page 144).
*Moore, William M. Testimony, Council of the City of Philadelphia Committee on Parks, Recreation and Cultural Affairs, 5-10-07 (page 39).
*Moore, William M., Testimony for Committee on Parks, Recreation, and Cultural Affairs, Philadelphia City Council, 2-20-08.
*Moore, William M. Testimony, Council of the City of Philadelphia Committee on Parks, Recreation and Cultural Affairs, 2-20-08 (page 21).
*Moore, William M., Testimony for Ducks Hearing, 6-5-08.
*Cuorato, James J., Testimony before City Council Streets and Services Committee, 6-9-10.
*Rendell, Edward letter to Lynn Axelroth, 12-21-2006.
