News From Terre Haute, Indiana

November 30, 2007

Hamilton Center may have violated IRS code

Not-for-profit organization made campaign contributions

By Arthur E. Foulkes

TERRE HAUTE — Hamilton Center, a nine-county behavioral health system, may have violated federal tax law by making political contributions to Terre Haute mayoral candidates Kevin Burke and Duke Bennett.

Hamilton Center Inc. donated $1,000 to Burke’s campaign in the Democratic party primary for Terre Haute mayor in February 2007.

After the May primaries, the mental health corporation made a pair of $500 donations to the general election campaign fund of Republican Duke Bennett.

Bennett, who defeated Burke by 107 votes in the election, is director of operations at the Hamilton Center.

Burke and Bennett reported these contributions in campaign finance reports filed with the Vigo County Clerk’s Office earlier this year. All the contributions are marked as “direct” as opposed to “in-kind” donations.

“They are just not allowed to do that,” said Steve Weissman, associate director for policy at the Campaign Finance Institute in Washington, D.C. The CFI is a nonpartisan, not-for-profit research and education institute associated with George Washington University.

Hamilton Center Inc., based in Terre Haute, is designated as a 501(c)(3) organization under the federal tax code. Such organizations can accept tax-deductible contributions but are prohibited from “directly or indirectly participating in, or intervening in, any political campaign … for elective office,” according to information provided by the IRS in Washington.

“There is an absolute prohibition against any political campaign intervention [by 501(c)(3) organizations],” Weissman said. “It’s in the tax code. It’s in the law and it’s in regulations. So that’s illegal.”

According to the Indiana Election Division, between 1998 and 2006, Hamilton Center has donated $19,200 to candidates for state offices.

Recipients of that money include area Democrats Rep. Dale Grubb, Rep. Clyde Kersey, Rep. Vern Tincher, Rep. Alan Chowning, Sen. Mark Blade and Sen. Tim Skinner, as well as Lt. Gov. Katherine Davis, Gov. Joe Kernan and Gov. Frank O’Bannon.

Republican recipients of Hamilton Center contributions include Gov. Mitch Daniels, Auditor Connie Kay Nass and the Vigo County Republican Central Committee.

Galen Goode, Hamilton Center’s CEO, said that he has asked the mental health system’s attorneys and accountants in the past whether such activity is permitted. “Their response has always been that the dinners and golf events and things of that sort have typically been public events that we take the position of marketing,” Goode said. “By the time you subtract the cost of these events, etc., the remainder is not material.”

For example, Goode said, Hamilton Center supported the Terre Haute Jazz Fest, which was organized by Mayor Burke, he said. “It didn’t have the overtones of a political event. We saw it as a marketing event. That would be a good example of a dinner.”

The Hamilton Center donations to Duke Bennett, which Bennett reported as corporate contributions to his mayoral campaign, were for a dinner, Goode said.

Goode said it was his decision to make the contributions to Bennett’s campaign.

Bennett could not be reached for comment Wednesday or Thursday.

An attorney for Hamilton Center, Richard Shagley Sr. of Terre Haute, said he was not authorized to comment on behalf of Hamilton Center.

When people make donations to 501(c)(3) organizations such as Hamilton Center, those donations are tax-deductible. But political contributions are supposed to be made with after-tax dollars, said Mike Darner, legal associate with the Center for Competitive Politics, outside Washington. If charities could turn around and donate to political campaigns, it would essentially be allowing tax-deductible political contributions, he said.

The IRS has banned political campaign activity by 501(c)(3) organizations for more than half a century, according to a recent IRS media statement.

The Campaign Finance Institute’s Weissman said events such as dinners and golf events are still campaign activities paid for by political donations.

“I’m sure [501(c)(3) organizations] have no ability to trace the dollars [they donate],” Weissman said. Allowing such donations “would permit campaign contributions to be widespread by 501(c)(3)s because all of the money that goes to a candidate is used for all the various functions that carry out their campaigns.”

Charitable organizations found to have made political contributions can lose their 501(c)(3) tax status, said Mike Schrimpf, deputy communications director for the Center for Competitive Politics. The IRS is responsible for enforcing this sanction, he said.

Federal tax laws prohibit 501(c)(3) organizations from making political contributions, but Indiana law does not, Schrimpf said. However, if an Indiana 501(c)(3) makes a political contribution it will risk losing its 501(c)(3) federal tax status. “It can’t have it both ways,” he said.

The General Accountability Office in Washington did a study that found not-for-profit organizations sometimes make political donations in violation of the law, Weissman said. A recent study found that churches in Maryland, also prohibited from making political donations, were actively supporting candidates, he said.

The IRS is the agency responsible for enforcing these rules, Weissman added. However, “they don’t spend a lot of time monitoring this,” he said.

Arthur Foulkes can be reached at (812) 231-4232 or

IRS code states:

“Under the Internal Revenue Code, all IRC section 501(c)(3) organizations, including churches and religious organizations, are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. … Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise tax.”