V. Legal Advice Sought and Received
As described in greater detail in the Appendix, section 501(c)(3) requires, among other things, that an organization be organized and operated exclusively for one or more exempt purposes. Treas. Reg. 1.501(c)(3)-1(d)(1)(ii) provides that an organization does not meet this requirement:
unless it serves a public rather than a private purpose. It is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator or his family, or persons controlled, directly or indirectly, by such private interests.The purpose of the "private benefit" prohibition is to ensure that the public subsidies flowing from section 501(c)(3) status, including income tax exemption and the ability to receive tax-deductible charitable contributions, are reserved for organizations that are formed to serve public, not private interests. Treas. Reg. 1.501(c)(3)-1(c)(1) defines the application of the private benefit prohibition in the context of the operational test:
An organization will be regarded as "operated exclusively" for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in section 501(c)(3). An organization will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.Although cases on the private benefit doctrine date back to 1945, a more recent, significant case on the subject is the 1989 Tax Court opinion in American Campaign Academy v. Commissioner, 92 T.C. 1053 (1989). That case discusses the doctrine in terms of conferring an impermissible private benefit on Republican candidates and entities.
Prior to his involvement in both AOW/ACTV and the Renewing American Civilization course, Mr. Gingrich was aware of the tax controversy pertaining to the American Campaign Academy ("ACA" or "Academy"). In his interview with Mr. Cole he said, "I was aware of [ACA] because . . . the staff director of the [ACA] had been totally involved. I was aware of his briefings and what was involved. . . . I was aware of them at the time and I was aware of them during the court case." (7/18/96 Gingrich Tr. 375-376). "I lived through that case. I mean, I was very well aware of what the [American Campaign Academy] did and what the ruling was." (11/13/96 Gingrich Tr. 61).
Responding to the question of whether he had any involvement with the Academy, Mr. Gingrich said: "I think I actually taught that [sic], but that's the only direct involvement I had." (12/9/96 Gingrich Tr. 58). In an undated document on GOPAC stationery entitled "Offices of Congressman Newt Gingrich," three offices are listed: GOPAC, FONG, and the American Campaign Academy. (Ex. 143, Kohler 285). Mr. Gingrich did not believe that he had an office at the Academy, but thought it possible that his press secretary, Rich Galen, had an office there. (12/9/96 Gingrich Tr. 58-59).
In speaking about the Renewing American Civilization course, Mr. Gingrich told the New York Times that he acted very aggressively in regard to 501(c)(3) law:
"Whoa," [Mr. Gingrich] said, when asked after class one recent Saturday if the course nears the edge of what the law allows. "Goes right up to the edge. What's the beef? Doesn't go over the edge, doesn't break any law, isn't wrong. It's aggressive, it's entrepreneurial, it's risk taking."New York Times, section A, page 12, column 1 (Feb. 20, 1995). (Ex. 144). In addition, Mr. Gingrich has had involvement with a number of tax-exempt organizations. As Mr. Gingrich's tax lawyer stated, politics and 501(c)(3) organizations are an "explosive mix." (12/12/96 Holden Tr. 132-134, 146).
Despite all of this, he did not seek specific legal advice concerning the application of section 501(c)(3) with respect to AOW/ACTV or the Renewing American Civilization course. Furthermore, he did not know if any one did so on his behalf. With respect to the course, the following exchange occurred:
Mr. Cole: Were you involved in seeking any legal advice concerning the operation of the course under 501(c)(3)?
Mr. Gingrich: No. We sought legal advice about ethics.
Mr. Cole: Did you seek any legal advice concerning the 501(c)(3) issues involving the course?
Mr. Gingrich: No. I did not.
Mr. Cole: Do you know if anybody did on your behalf?
Mr. Gingrich: No.
(7/17/96 Gingrich Tr. 140). With respect to AOW/ACTV, Mr. Gingrich said that he did not get any legal advice regarding the projects. (12/9/96 Gingrich Tr. 54). He said that he assumed Mr. Callaway sought such legal advice. (12/9/96 Gingrich Tr. 54). Mr. Gingrich said two attorneys involved with GOPAC at the time, Jim Tilton and Dan Swillinger, monitored all GOPAC activities and would have told him if the projects violated the law. (12/9/96 Gingrich Tr. 54-56). Mr. Callaway said neither Mr. Swillinger nor Mr. Tilton was ever told that one of the purposes of ACTV was to recruit people to the Republican party. (12/7/96 Callaway Tr. 41, 47).
Mr. Gingrich explained to the Subcommittee in November 1996 that, in his opinion, there were no "parallels" between the American Campaign Academy and the Renewing American Civilization course. (11/13/96 Gingrich Tr. 61). After this explanation, Mr. Schiff and Mr. Gingrich had the following exchange:
Mr. Schiff: Did you go to a tax expert and say, here is what I have in mind; do you agree that there are no parallels and that there's no problem with the American Campaign Academy case in terms of what I am doing here? I am just asking if you did that?
Mr. Gingrich: The answer is, no. I just want to assert the reason I wouldn't have done it is as a college teacher who had taught on a college campus I didn't think the two cases -- I also didn't ask them if it related to spouse abuse. I mean, I didn't think the two cases had any relationship.
(11/13/96 Gingrich Tr. 61-62). During his testimony before the Subcommittee in December, Mr. Schiff raised similar questions with Mr. Gingrich.
Mr. Schiff: What strikes me is without trying to resolve that at this minute, the possibility is out there, the possibility that a violation of 501(c)(3) is very much in evidence to me. And it seems to me that is true all the way along. You did have the American Campaign Academy case of 1989, which you have indicated you were aware of. It's true the facts were different, but nevertheless something sprung up that told somebody there was a 501(c)(3) problem here if you get too close to political entities.
What I am getting at is this, and again to answer any way you wish, wasn't it, if not intentional, wasn't it reckless to proceed with your involvement as a Member of the House of Representatives into at least a couple of -- involvements with the 501(c)(3) organizations, whether it was Progress & Freedom or Kennesaw State or Abraham Lincoln Opportunity Foundation, without getting advice from a tax attorney to whom you told everything? You said, this is the whole plan, this is the whole movement of Renewing American Civilization. . . .
Shouldn't that have been presented to somebody who is a tax attorney, and said, now, am I going to have any problems here? Is this okay under the 501(c)(3) laws?
(12/10/96 Gingrich Tr. 32-33). In response to Mr. Schiff's question, Mr. Gingrich explained why he thought there was no need to seek legal advice because the facts of American Campaign Academy and Renewing American Civilization were inapposite. (12/10/96 Gingrich Tr. 34-36). Mr. Gingrich:The facts are the key. I was teaching at an accredited university; [ACA] was an institution being set up as basically a politically training center. My course was open to everybody; [ACA] was a Republican course. My course says nothing about campaigns; [ACA] was a course specifically about campaigns.
There are four standards . . . none of which apply to Renewing American Civilization . . . . Just at an objective level you are going to put these [ACA and RAC] up on a board and say that is not a relevant question.
(12/10/96 Gingrich Tr. 35). After Mr. Gingrich's explanation, Mr. Schiff said the following:
Mr. Schiff: I understand how you distinguish the facts between the American Campaign Academy case and your course. There are those that would argue that the legal holding applies equally to both. In other words, that which brings you to the legal conclusion of not complying with the 501(c)(3) laws, for various reasons that I'd rather not get into now -- discuss with Mr. Holden, perhaps -- that those are in common even if certain peripheral facts are different.
What I'm getting at is, excuse me for using your own words, but you're not a lawyer. Knowing that there was an attempt to set up a 501(c)(3) training and education academy which floundered in the courts because of something, wouldn't that motivate particularly a Member of the House to want to say, before you start into another one, maybe I ought to sit down with somebody who is a tax expert and tell them the whole plan here, not just course content, but where the course fits into all the strategies here and say, now, do you think I've got a problem? And I don't think you did that. If you did, tell me you did. . . .
(12/10/96 Gingrich Tr. 36-37). Mr. Gingrich's response was three-fold:
Mr. Gingrich: [First,] [i]f you read the speech I gave in January of 1993, which was the core document from which everything else comes, I talk very specifically about a movement in the speech. I talk very simply about 2 million, not 200,000, volunteers, citizen activists, in the speech. I describe it as a cultural movement that has a political component in the speech.
That's the core document I gave to everyone when I would say, here's what I want to try to teach about. Here is what I want to try to do. That document clearly says there is a movement, and this course is designed to outline the principles from which the movement comes. And so, if everybody who was engaged in looking at the course, whether it was Kennesaw Foundation's lawyers or it was Progress & Freedom's lawyers or it was Reinhardt's lawyers, and the president of the college in both cases, everybody had a chance to read the core document which has movement very specifically in it.
Second, the reason I didn't seek unique legal counsel is as a Ph.D. teaching in a State college in an accredited setting, it never occurred -- I mean, if I had thought -- this is another proof of my ignorance or proof of my innocence, I'll let you decide -- it never occurred to me that this is an issue . . . .
[Third,] I think everybody who has actually seen my course will tell you . . . I was very careful. Ironically, Max Cleland, who won the Senate seat, is the only current politician used in the course other than John Lewis.
And so the course was clearly not Republican. It was clearly not designed to send a partisan message. No one I know of who has actually seen the course thinks that it was a partisan vehicle. It has no relationship to the American Campaign Academy.
(12/10/96 Gingrich Tr. 37-39).
Officials at KSC and Reinhardt did not seek legal advice pertaining to the application of 501(c)(3) to the course. The only such advice ever sought was by KSCF in connection with the agreement to transfer the course to PFF in November 1993 and in asking its outside lawyers to render a legal opinion concerning the course in 1995. Citing the attorney/client privilege, KSCF officials have refused to disclose to the Subcommittee the advice KSCF received in both instances. (6/13/96 Mescon Tr. 60; 6/13/96 Siegel Tr. 36-37; 6/12/96 Falany Tr. 50-51; 6/13/96 Fleming Tr. 46-48).
In his July 1996 interview, Mr. Eisenach said that he did not seek legal advice pertaining to the application of 501(c)(3) to the course. (7/12/96 Eisenach Tr. 236). In his November 1996 interview, Mr. Eisenach said that he had worked with many attorneys who had experience in 501(c)(3) law. (11/14/96 Eisenach Tr. 84-88). But he was not able to point to any specific consultation with a tax attorney where the entire relationship between the course, the movement, and political goals were fully set forth and found to be within the bounds of 501(c)(3). (11/14/96 Eisenach Tr. 88-91).
Other Sections of the Gingrich Ethics Report
I. Introduction II. Summary of Facts Pertaining to American Citizens Television III. Summary of Facts Pertaining to "Renewing American Civilization" IV. Ethics Committee Approval of Course V. Legal Advice Sought and Received VI. Summary of the Report of the Subcommittee's Expert VII. Summary of Conclusions of Mr. Gingrich's Tax Counsel VIII. Summary of Facts Pertaining to Statements Made to the Committee IX. Analysis and Conclusion X. Summary of Facts Pertaining to Use of Unofficial Resources XI. Availability of Documents to Internal Revenue Service Appendix