Home Page, Site Index, Search, Help

Introduction | Other Ethics Report Sections

VII. Summary of Conclusions of Mr. Gingrich's Tax Counsel

During the Preliminary Inquiry, Mr. Gingrich's lawyer forwarded to the Subcommittee a legal opinion letter and follow-on letter regarding the tax questions at issue. The letters were prepared by attorney James P. Holden. At Mr. Gingrich's request, Mr. Holden and his partner who helped him prepare the letters, Susan Serling, met with the Subcommittee on December 12, 1996, to discuss his conclusions. The purpose of the letters was to express Mr. Holden's conclusions regarding whether any violation of section 501(c)(3) occurred with respect to the Renewing American Civilization course.

His understanding of the facts of the matter was based on a review of the course book prepared for the course, videotapes of the course, documents produced by KSC pursuant the Georgia Opens Records Act, PFF's application to the IRS for exemption, newspaper articles, discussions with Mr. Baran, Mr. Eisenach, and counsel to PFF and KSCF.


Mr. Holden is a partner at the Washington, D.C. law firm of Steptoe and Johnson. He was an adjunct professor at Georgetown University Law Center from 1970 to 1983. He is co-author of Ethical Problems in Federal Tax Practice and Standards of Tax Practice. He is the author of numerous tax publications and a speaker at numerous tax institutes. He was chair of the American Bar Association Section of Taxation from 1989 to 1990; chair of the Advisory Group to the Commissioner of Internal Revenue from 1992 to 1993; and chair of the IRS Commissioner's Review Panel on Integrity Controls from 1989 to 1990. He was a trustee and president of the American Tax Policy Institute from 1993 to 1995 and a regent of the American College of Tax Counsel. He is or was a member of the following organizations: American Law Institute (consultant, Federal Income Tax Project); Advisory Group to Senate Finance Committee Staff regarding Subchapter C revisions (1984-1985); Board of Advisors, New York University/Internal Revenue Service Continuing Professional Education Program (1987-1990); and BNA Tax Management Advisory Board. He received a J.D. degree from Georgetown University Law Center in 1960 and a B.S. degree from the University of Colorado in 1953.

His experience in 501(c)(3) law stems principally from one client and one case that has been before the IRS for the past six years. (12/12/96 Holden Tr. 21). He said during his testimony, "I don't pretend today to be a specialist in exempt organizations. . . . I pretend to be an expert in the political aspects of such organizations." (12/12/96 Holden Tr. 21). The one case Mr. Holden worked on has not been resolved and he has spent, on average, about 30 percent of his time for the last six years on this case. (12/12/96 Holden Tr. 24). He has never been a member of any organization or committee concerned principally with tax-exempt organizations law. (12/12/96 Holden Tr. 25). He does not have any publications in the exempt organizations field. (12/12/96 Holden Tr. 25). He has never given any speeches on exempt organizations law nor has he been an expert witness with respect to exempt organizations law. (12/12/96 Holden Tr. 26).

When Mr. Baran asked Mr. Holden to prepare his opinion letter, Mr. Baran did not ask what qualifications Mr. Holden had in the exempt organizations area. (12/12/96 Holden Tr. 32). Mr. Holden did not give Mr. Baran any information regarding his background in exempt organizations law other than the names of two references. (12/12/96 Holden Tr. 33).

Mr. Holden's partner who helped prepared the opinion, Susan Serling, does not have experience in the exempt organizations field other than with respect to the one case referred to above that is still before the IRS. (12/12/96 Holden Tr. 27). She is not a member of the ABA Exempt Organizations Committee and does not have any publications in the exempt organizations field. She has never given any speeches pertaining to exempt organizations law and has never testified as an expert witness with respect to exempt organizations law. (12/12/96 Holden Tr. 27).


As set forth in Mr. Holden's opinion letter, his follow-on letter, and in his testimony, it was Mr. Holden's opinion, based on his review of the facts available to him, that "there would be no violation of section 501(c)(3) if an organization described in that section were to conduct 'Renewing American Civilization' as its primary activity." (9/6/96 Holden Ltr. 4). In arriving at this opinion, Mr. Holden evaluated the facts in light of the requirements:

1. that a section 501(c)(3) organization be operated exclusively for an exempt purpose;

2. that the organization serve a public rather than a private interest;

3. that the earnings of an organization not inure to the benefit of any person;

4. that no substantial part of the activities of the organization consist of attempting to influence legislation; and

5. that the organization not participate or intervene in any political campaign in support of or in opposition to any candidate for public office.

(9/6/96 Holden Ltr. 4). A discussion of Mr. Holden's views on the two principal tax questions at issue before the Subcommittee -- the private benefit prohibition and campaign intervention prohibition -- is set forth below.

1. Private Benefit Prohibition

With respect to whether Renewing American Civilization violated the private benefit prohibition described above, Mr. Holden's opinion and follow-on letter focused exclusively on the American Campaign Academy case. His letters did not refer to other precedent or IRS statements pertaining to the private benefit prohibition. In evaluating whether Renewing American Civilization created any discernible secondary benefit, in the terms used by the Court in American Campaign Academy, Mr. Holden considered whether the course provided an "identifiable benefit" to GOPAC or the Republican party. He concluded that it did not.

Following our review of the course materials, the course syllabi, and video tapes of the course lectures, we have not been able to identify any situation in which students of the course were advised to vote Republican, join the Republican party, join GOPAC, or support Republicans in general. Rather, the course explored broad aspects of American civilization through Mr. Gingrich's admittedly partisan viewpoint.
(9/17/96 Holden Ltr. 5). Mr. Holden also wrote:
From our review of the course materials . . . and their presentation, it appears to us that the educational message was not narrowly targeted to benefit particular organizations or persons beyond the students themselves.
(9/6/96 Holden Ltr. 58). During his testimony before the Subcommittee, Mr. Holden said that because the course was educational within the meaning of the "methodology test" referred to above, he could not "conceive" of how the broad dissemination of its message could violate 501(c)(3). (12/12/96 Holden Tr. 71).
Now, when we get into the course -- and I am saying I am going to look at the activities, and if I have a clean educational message, then my organization is entitled to disseminate that message as broadly as we have the resources to do [for any purpose as long as it is] serving the public with that in the sense that this message has utility to the public.
(12/12/96 Holden Tr. 113-114).

In coming to his conclusion that the course did not violate the private benefit prohibition, Mr. Holden made several findings of fact and several assumptions. For example, he wrote that he considered the facts that established a close connection between individuals who were active in GOPAC and the development and promotion of the course. As he characterized it, GOPAC's former Executive Director and GOPAC employees became employees or contractors to the organizations that conducted the course. Individuals, foundations, and corporations that provided financial support for the course were also contributors to GOPAC or Mr. Gingrich's political campaigns. GOPAC employees solicited contributions for the course. (9/6/96 Holden Ltr. 4). Furthermore, documents he reviewed:

provide[d] evidence that the course was developed in a political atmosphere and as part of a larger political strategy. The documents indicate that Mr. Gingrich and GOPAC evolved a political theme that they denominated "Renewing American Civilization" and that, in their political campaign capacities, they intended to press this theme to the advantage of Republican candidates.
(9/17/96 Holden ltr. 2).

Mr. Holden assumed a political motivation behind the development of the course. As described in his opinion letter:

[T]he individuals who controlled GOPAC and who participated in promoting the course viewed the course as desirable in a political context, and many of their expressions and comments evidence a political motive and interest. . . . Mr. Gingrich is a skilled politician whose ideology finds expression in a political message, and he is interested in maximum exposure of that message and in generating interest in those who might be expected to become advocates of the message. In sum, we have not assumed that the development and promotion of the course were free from political motivation.
(9/6/96 Holden Ltr. 4-5). Furthermore, Mr. Holden said that when preparing his opinion, he made the "critical assumption that the interests of the political persona surrounding GOPAC were advanced by creating this course." (12/12/96 Holden Tr. 72). In this regard, Mr. Holden also said during his testimony:
We have taken as an assumption that the intent [of the course] was to benefit the political message. If someone told me that teaching the course actually resulted in the benefit, I guess I wouldn't be surprised because that was our understanding of the objective. . . . I accept[ed] for purposes of our opinion that there was an intent to advance the political message by utilizing a (c)(3).
(12/12/96 Holden Tr. 83).

In Mr. Holden's opinion, however, the political motivation or strategy behind the creation of the course is irrelevant when determining whether a violation of the private benefit prohibition occurred.

It is not the presence of politicians or political ideas that controls. The pertinent law does not turn on the political affiliations or political motivations of the principal participants.
(9/6/96 Holden Ltr. 6). According to Mr. Holden, the issue of whether a violation of 501(c)(3) occurred "may not be resolved by a determination that the individuals who designed and promoted the course acted with political motivation." (9/17/96 Holden Ltr. 4). In his opinion, when determining whether an organization violated the private benefit prohibition, it is necessary to determine whether an organization's activities in fact served a private interest. (12/12/96 Holden Tr. 80). What motivates the activities is irrelevant.
I'm saying it's irrelevant to look to what caused an individual or group of individuals to form a (c)(3) or to utilize a 501(c)(3) organization. The question instead is on the activities -- the focus instead is on the activities of the organization and whether they violated the operational test. I think that's a critical distinction.
(12/12/96 Holden Tr. 61). He said that he was "aware of no authority that would hold that because one is motivated to establish a 501(c)(3) organization by business, political, or other motivation, that means that the organization cannot operate in a manner that satisfies 501(c)(3), because we are talking about an operational test." (12/12/96 Holden Tr. 17-18). Mr. Holden cited American Campaign Academy as an authority for his conclusion that an organization's activity must itself benefit a targeted group and that motivation of an organization's agents in conducting that activity is irrelevant. Mr. Holden said:
[In American Campaign Academy] [t]he focus was, instead, on the operational test and whether the activities of the organization evidenced a purpose to serve a private interest. But you have to find that in the activities of the organization and not in some general notion of motivation or background purpose.
(12/12/96 Holden Tr. 61).

In light of these and similar comments made by Mr. Holden, the Special Counsel asked Mr. Holden to comment on statements found in the American Campaign Academy case at page 1064. The statements are in a section of the case under the heading "Operational Test" and are as follows:

The operational test examines the actual purpose for the organization's activities and not the nature of the activities or the organization's statement of purpose. (citations omitted). (emphasis supplied).

In testing compliance with the operational test, we look beyond the four corners of the organization's charter to discover "the actual objects motivating the organization and the subsequent conduct of the organization." (citations omitted). (emphasis supplied).

What an organization's purposes are and what purposes its activities support are questions of fact. (citations omitted).

(12/12/96 Holden Tr. 75-76). After the Special Counsel brought these sections of the case to Mr. Holden's attention, the following exchange occurred:

Mr. Holden: May I refer you to the last sentence before the next heading, "Operating Primarily for Exempt Purposes." The last sentence before that says: "The sole issue for declaration [sic] is whether respondent properly determined that petitioner failed to satisfy the first condition of the operational test by not primarily engaging in activities, which is not for exempt purposes."

It's an activities test. And this is where the courts say this is the sole issue. The stuff before, they're just kind of reciting the law. When he gets to this, he said this is what we have to determine.

Mr. Cole: But in reciting the law, don't they say, in testing compliance with the operational test, we look beyond the four corners of the organization's charter to discover the actual objects motivating the organization? Prior to that, they say the operational test examines the actual purpose for the organization's activities, not the nature of the activities or the organization's statement of purpose.

I grant you that is the statement of the law, but you are saying that has no significance?

Mr. Holden: That's not the case Judge Nims decided. . . .

(12/12/96 Holden Tr. 77).

2. Campaign Intervention Prohibition

In his opinion letter, Mr. Holden wrote that it was "important to note that section 501(c)(3) does not, as is often suggested, bar 'political activity' [by 501(c)(3) organization]." (9/6/96 Holden Ltr. 68). The prohibition is more limited and prohibits an organization from participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public office. In order for an organization to violate this prohibition, there must exist a campaign, a candidate, a candidate seeking public office, and an organization that participates or intervenes on behalf of or in opposition to that candidate. (9/6/96 Holden Ltr. 68-69). Mr. Holden concluded that the course did not violate this prohibition.

The [course] materials contain no endorsement of or opposition to the candidacy of any person, whether expressed by name or through the use of a label that might be taken as a stand-in for a candidate. While the materials are critical of what is referred to as the "welfare state" and laudatory of what is described as an "opportunity society," none of this is properly characterized as personalized to candidates, directly or indirectly.
(9/6/96 Holden Ltr. 72). During his testimony before the Subcommittee, Mr. Holden said that the course contained issue advocacy in the sense that it called for the replacement of the welfare state with the opportunity society. (12/12/96 Holden Tr. 103-104). He also said that this issue -- the replacement of the welfare state with an opportunity society -- was closely identified with Mr. Gingrich and his political campaigns. (12/12/96 Holden Tr. 104). He, however, did not see this as a basis for concluding that the course violated the prohibition on intervention in a political campaign because "Mr. Gingrich [had not] captured [this issue] to the point where it is not a legitimate public interest issue for discussion in a purely educational setting, even where he is the instructor." (12/12/96 Holden Tr. 104).


During his appearance before the Subcommittee, Mr. Holden was asked about what type of organization he would have advised Mr. Gingrich and others to use in order to conduct and disseminate Renewing American Civilization had he been asked in advance. He said that he would not have advised the use of a 501(c)(3) organization because the mix of politics and tax-deductible funds is too "explosive."

I would have advised them not to do the activity through a (c)(3). I have already expressed that view to the Speaker. He didn't consult me in advance, but I said, if I had been advising you in advance. He said, why not. I said, because the intersection of political activity and 501(c)(3) is such an explosive mix in terms of the IRS view of things that I would not advise you to move that close to the issue. You should find a way of financing the course that doesn't involve the use of 501(c)(3) funds. That would have been my advice to him.

I said, that doesn't mean I conclude that what you did is a violation. In fact, I think we are kind of fairly far out beyond the frontiers of what has been decided in the past in this area. We are looking at the kind of case that I do not think has ever been presented. I do not see how anyone can conclude that this is an open and shut case. It just is not of that character.

(12/12/96 Holden Tr. 132-134). Mr. Holden said that an appropriate vehicle for the course might have been a 501(c)(4) organization because such an organization can engage in some political activity and the activity would not have used tax-deductible funds. (12/12/96 Holden Tr. 132-134). Later, Mr. Holden re-iterated that he would have not recommended that Renewing American Civilization be sponsored and funded by a 501(c)(3) organization and pointed out such activities are highly likely to attract the attention of the IRS.
[T]hose funds are deductible and the conjunction of politics and a (c)(3) organization is so explosive as a mix that it is bound to attract the attention of the Internal Revenue Service. I wouldn't have been thinking about this committee. I would have been thinking about whether the Internal Revenue Service would have been likely to challenge.
(12/12/96 Holden Tr. 146). After Mr. Holden made this comment, the following exchange occurred:

Ms. Pelosi: So it would have raised questions[?]

Mr. Holden: Yes.

Mr. Goss: Isn't that a little bit akin to having a yacht and an airplane on your tax return for business purposes[?]

Mr. Holden: It is one of those things that stands out.

(12/12/96 Holden Tr. 146-147).

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

Back to the top

Home Page, Site Index, Search, Help